The Green Sheet Online Edition
November 12, 2012 • Issue 12:11:01
Can mPOS be a game-changer in India?
The mobile POS (mPOS) is taking off in a big way everywhere because mobile and payment technologies comprise a match made in heaven, like cookies and milk - or in the case of India, curry and rice. They are naturally symbiotic because of the cost and convenience advantages they bring to merchants. In India, where the POS market is dominated by small desktop payment terminals, mPOS is still in a fledgling stage.
Until now, mPOS efforts have largely focused on higher-end smart phones or tablets, such as the Apple Inc. iPhone and iPad, and Research In Motion Ltd. BlackBerry. These are not really viable in an emerging market like India, where they can cost upwards of $500 without a contract.
An initiative in India has endeavored to develop mPOS on a phone that costs $40 without a contract. But that effort stalled when the phone manufacturer discontinued the model. While mobile and payment technologies are a combination whose time has come, the duo has fared better in developed countries than in emerging markets because of cost and other factors.
Questions in need of answers
For mPOS to be a game changer, the following questions need answers.
- Are conditions right for mPOS in India?
- Can the cost issue be taken care of, and if so, how?
- What are the best sweeteners to entice merchants to give mPOS a try?
The conditions are perfect in a number of ways for mPOS to scale up. For starters, India has over 900 million mobile phones in use, according to official numbers. Even if we reduce that number by 25 percent, the quantity is still massive. However, most of the phones in the market are lower-end. Yet, smart phones are beginning to capture a larger share because manufacturers have been able to introduce models for under $100 without contracts.
Credit card spending in the past two years has grown at an average rate of 25 percent, while debit card volume has risen by 42 percent. Growth for both types of card is likely to continue as India moves away from a largely cash-based economy. The number of POS terminals is about 700,000, and that doesn't come close to the number of individual merchants in the country.
Anecdotal evidence and informal surveys suggest India has some 30 million individual merchants, most of them small to midsize businesses. This untapped market exists because Indian acquirers do not pursue smaller merchants since the acquirers provide POS terminals for free. Given the capital cost, growth and penetration in this sector have been abysmal.
The regulatory environment stars have also aligned for mPOS. The Reserve Bank of India - the central bank - which sets the larger direction for payments, has taken upon itself the mission of making India a less cash-dependent society. It wants fewer payments to be made by cash or checks and had hoped for this to be achieved by mobile payments, much like the mobile money-transfer system M-Pesa is used in Kenya.
But this effort is stuck in a quagmire of interoperability issues between banks and telecom companies due to regulatory and political blunders. With this effort now essentially dead, the next best way to achieve the RBI's goal is going to be through mPOS.
Addressing high equipment costs
If mPOS is to succeed in India, it needs to be accepted by small and midsize merchants. They are being asked to buy mPOS terminals, which means that cost is going to play a huge role if it is to be accepted on a mass scale. The battle is half won, since merchants will be buying a device that is multipurpose in nature relative to a regular POS terminal.
While some merchants may want high-end smart phones, an iPhone 4S costs about $750 in India, which may be prohibitively expensive. The majority of merchants are likely to go for phones that are less than $250 without a contract. For the whole mPOS package to be effective, it will have to operate on a smart phone.
Given that most global efforts have been focused on relatively few, expensive smart phone brands and models, development in India will have to address the sub-$250 smart phones, and herein is the problem.
No clear global mPOS standards exist. Just because an mPOS dongle works on one phone brand and model, it doesn't necessarily work on another model from the same maker, even if both phones have the same operating system. This happens because the dongle usually connects through the headphone jack, and incompatible frequencies prevent dongles from working across all models and brands.
That said, for mPOS to succeed, not every dongle has to work on every sub-$250 smart phone; but a dongle that works across at least the most popular ones is needed. The good news is that a few firms have made serious and, in some cases, successful efforts to allow multiple cheap smart phones to work on the same dongle.
Multifunctional and feature-rich
To make mPOS successful, the mPOS application on the phone, apart from following best practices, must provide more than just payment card processing capability. The application should be designed with extra features, such as accounting functions that merchants will use daily. Even if payment card usage rises, cash payments are still likely to represent a large percentage of transactions. So additional applications will be necessary to help spur adoption.
Apart from that, applications will need a great deal of flexibility to be able to work seamlessly on multiple smart phones, regardless of a phone's operating system.
The way forward
Based upon the evidence, all the necessary factors seem to be in place for mPOS to scale up and be the game-changer that the Indian acquiring industry desperately needs. However, for the program to really succeed, the following roadblocks need to be cleared.
- A mandate effective in early 2013 requires that POS transactions placed on debit cards in India be PIN-based. Current Payment Card Industry PIN Entry Device-compliant devices for mPOS cost nearly as much as regular POS terminals. With debit card transactions accounting for about 36 percent of card transactions, this cost factor is going to have a deep impact.
- International standards-setting bodies, such as the PCI Security Standards Council, have not come up with an mPOS-friendly debit card acceptance standard.
- No common standards are in place to avoid the incompatibility and interoperability problems that are likely to crop up as newer and cheaper smart phones come into the market.
- Europay/MasterCard/Visa-compatible dongles are going to become mandatory in June 2013 in an attempt to shift liability. Yet very few manufacturers are making these. For those that are, the cost is not competitive.
These factors have the potential to slow, but not prevent, adoption. With the stage set for growth, mPOS could begin to steamroll. As that happens, equipment costs will come down, and compatibility issues will be resolved along the way.
Sunil Rongala is the Head of Risk Containment and Business Strategy at MRL Posnet Private Ltd., a technology-driven transactions facilitator based in India. He is a professional economist and holds a Ph.D. in economics from Claremont Graduate University in California. To reach him, call +91-99490-61784, fax +91-40-2355-4002 or send an email to firstname.lastname@example.org.
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