Cashless India: Seeing the Vision for Financial Inclusion Come True – Part 2 (Article published on Let's Talk Payments)

India’s financial ecosystem is undergoing disruptive changes as it extends channels for customer reach. Let us take a look at what are these changes and how they can help achieve India’s financial inclusion goals.

This is Part 2 of a series covering disruptive banking, regulatory, technology-led and payments initiatives being taken by the government, regulatory, enterprises and private firms to achieve financial inclusion and a cashless (or a less-cash India) vision. The previous post covered the technological infrastructure emerging in India via the cashless layer riding on top of the India Stack platform and the “JAM” trio.

The goal of financial inclusion is not new in India

Over the past five decades, the Indian government and banking regulators led by the Reserve Bank of India have put in place several measures, starting with the nationalization of banks (1969), building up a robust bank branch network, and mandating priority sector lending targets.

Within the past decade it has further focused on increasing customer access to financial services through simpler Know Your Customer (KYC) norms and "no-frills" basic accounts (2005), “Branchless Banking” (2006) - which we shall shortly delve into in further detail, and the liberalization of bank branches and ATMs (2009).

On a parallel thread, digital banking and payments - through  the internet and mobile - have been promoted and encouraged by the Reserve Bank to reduce dependence on paper-based payments such as cheque and cash.

Customer reach is critical to the vision of financial inclusion

Financial inclusion is the process of ensuring all sections of the country, and vulnerable and poor sections in particular, have access to appropriate and affordable financial products and services.

The need to look beyond traditional banking

Up until now, the financial inclusion process has put the primary responsibility on banks for serving the ‘Bottom of the Pyramid’ customers. However banks alone have been unable to bridge the “last mile” - the chasm between where the banks are and where the customer is and have struggled to further extend their network through brick and mortar branches or to address the bottom of the pyramid in cost-effective ways.

Business Correspondents

A very different approach to traditional banking was introduced in India in 2006 through “Branchless Banking” that allowed banks for the first time to appoint Business Correspondents / Business Facilitators to act as agents of the banks. As they can function at places other than bank branches, this opened the market for various entities such as the "kirana" (corner grocery store), or the vegetable or fruit vendor at the local "mandai" (market), or the village Panchayat Office, etc. as they could all be customer service points for individuals to conduct financial transactions and avail of financial services.

Until now, India’s Business Correspondent network has 400,000 agents but the numbers do not match the level of performance that was expected. Inactive agents, agent attritions, poor mobile connectivity, unreliable services and lack of trust among customers persist and the Reserve Bank is taking the lead and working with various stakeholders as these all need to be addressed.  With continuous availability of Business Correspondents at fixed locations, direct involvement of the bank branch officials in screening, supervising and remuneration of Business Correspondents, and training to customers, Business Correspondents and banks, there is potential to strengthen the Business Correspondent network substantially.

Miles to go

Bridging the “last mile” is no mean feat as despite more than five decades of work done in this area, between 40% - 50% of Indian households today still do not have a bank account, or have little or no access to financial services. Hence that “last mile” - a target of 90% financial inclusion by 2021 - is actually a massive distance we need to cover if the entire country including the bottom of the pyramid needs to reap the benefits of financial inclusion. And that has necessitated exploring further disruptive approaches to banking.

The next wave of disruption in India’s banking and financial eco-system

Payment Banks - A Game Changer in the financial ecosystem

In August 2015, the Reserve Bank of India introduced a new type of banking entity known as Payment Banks, and in October 2016, announced operating guidelines for them. By leveraging their underlying strength of vast customer reach, each of the final eight Payment Banks (most have already tied up with one or more traditional banks for financial expertise) will experiment with different products and services as they represent a diverse mix of organizations:

Telecom

• Airtel, previously Airtel MCommerce Services (has tied up with Kotak Mahindra Bank)
• Reliance Industries (with State Bank of India)
• Vodafone M-Pesa
• Aditya Birla Nuvo-which also owns Idea Cellular

Prepaid Payment Instrument Issuer

• Paytm (in which Alibaba has 25% stake)

Business Correspondent

• FINO PayTech (tied up with ICICI Bank and possibly other banks too)

Government

• India Post Payments Bank-launched by Government of India’s Department of Posts (is in discussions with several domestic and multinational banks, and the International Finance Corporation)
• National Securities Depository (with IDBI Bank)

Payment Banks have many competitive advantages over traditional banks that will not only disrupt the financial ecosystem, but also strongly augment India’s financial inclusion process as they bring:

• Focus: Their core task is to provide deposit and payment services to customers; they cannot advance loans. By taking away the lending function, the new banks will be better able to focus on customer reach. (Lending is a key function and revenue source of traditional banks which brings in the additional cost to banks from risk of lending, and also detracts them from serving the bottom of the pyramid which is characterized by lower margins).
• Market coverage and Customer Reach: Payment Banks formed by India Post and telecoms will leverage their existing geographical reach which is massive. Newer players such as Paytm and Finotech have also demonstrated a strong ability to scale up rapidly in a short duration. They will also need to incorporate the Business Correspondent network into their market coverage strategy.
• Digital-first approach: All the new banks are expected to build their products and services on top of the latest digital technology - with mobile as the primary channel, and analytics and automation - at the very start of their operations.

Airtel Payments Bank was the first to start operations in November 2016 with Rajasthan as its pilot market. Over the next couple of years, Payment Banks will need to overcome a range of challenges and operational hurdles as they develop their business models and experiment with financial products and services.

Customer reach through mobile phone

Digital adoption - internet and mobile based - has seen tremendous growth in India. Mobile phone adoption has surpassed all channels in India, making it the most powerful channel to reach customers -

• For a population of almost 1.3 billion people, there are today more than 1 billion mobile phone users in India.
• Mobile-based payments are integral to the vision of cashless India. They also have a huge potential to increase financial inclusion and the unbanked into the banking fold as they bring banks and customers together primarily because of the customer “stickiness” (increased chance to use products and services) that payments bring.
• Smartphone penetration in India is around 30% and growing rapidly. However, this means that financial products will need to to be offered on feature phones too.  

Each of these is a revolutionary development and definitely going to be interesting to watch out for. For the longest time, the traditional banking system has languished for various reasons as it has not been able to extend its reach to bridge the last mile. With the initiatives to introduce Payment Banks, strengthen the Business Correspondent network, and use the mobile phone as a customer channel for banking access and payments, the banking network will come closer to where the customer is, thereby bridging the chasm substantially.

This decade has us at the threshold of the convergence of two key visions: one is that of financial inclusion (through better customer reach as we saw in this post), and the other is that of a cashless, or a “less-cash” society (through the use of the India Stack technology platform and JAM, as we saw in the previous post). However for the convergence to take effect, the implementation is at required at many levels, requiring an interplay of technology and co-ordination with various stakeholders.

That is when farmers across the country will be able to collect money for their produce directly into their account at their vegetable market directly - all through a few clicks on the mobile phone. We will take a look at how this convergence will happen in the next blogpost.

This article was also published on Let's Talk Payments

https://letstalkpayments.com/cashless-india-seeing-the-vision-for-financial-inclusion-come-true-part-2/

Cashless India - Seeing the vision for financial inclusion come true - Part 1 (Article published on Let's Talk Payments)

The move toward a cashless India is important for several reasons. What are some of the initiatives taking place in the background that will make cashless a reality for India?

“Cashless” India has become quite the buzzword over the past fortnight since the demonetization move was announced. The move toward a cashless India is important for several reasons. India is one of the most cash-intensive economies in the world, and the heavy dependence on cash has several pitfalls for the Indian economy. The much talked-about pitfall has been the existence and growth of a “black” economy, where large chunks of money in the Indian economy are neither accounted for nor taxed. A heavy cash dependence has also meant that despite large budgetary sanctions through many decades of planning and five-year plans, the intended money has not reached the intended beneficiaries. Cash dependence also costs the Reserve Bank of India and commercial banks a huge expense annually just in currency operational costs.

Making India cashless is not an easy objective to meet. It has been almost a decade since I have been tracking the mobile payments space, and occasionally blogging and presenting on new developments in this space. In September 2014 I wrote of an imagined world where we can catch the sight of payments made via the mobile phone to be as commonplace as the cash (or card) used today to make payments. I imagined a world where riding on the promise of speed, convenience and efficiency, large sections of the population would:

• With a few simple taps on the mobile screen, pay utility bills or their children's school fees, make cash gifts...even settle IOUs between friends or split restaurant bills.  

• By just one wave of the mobile, get in and out of public buses and trains.

• By a swipe of the mobile, pay for groceries at the supermarket, or the hairdresser at the neighbourhood salon, or for the daily coffee dose at their favourite cafe.

But my imagination met many roadblocks as when and how this would reach critical mass in India was unclear. While the mobile phone had become an omnipresent feature for most of the country, having it replace cash looked not only distant but also difficult as there was little or no impetus for payers (consumers) to move away from cash or to adopt mobile payments. Nor was there a reason for for the payees (merchants) who face cost and technology barriers to move away from accepting cash.

In November of 2016, as I look at this space again, my attention is drawn to some key initiatives taking place in India that point to us being on the cusp of making mobile payments a greater reality. These initiatives can take us toward a cashless India. And I think the recent demonetization move has made many Indians - on the payer and payee side - rethink their dependence on cash. And despite the downside of demonetization, it can act as a huge catalyst to bring about change.

To set the context for cashless India, I’d like to first highlight the evolution of India Stack. India Stack is a fascinating concept conceived around 2012 when the Central government realised that it cannot deliver citizen services on its own efficiently. What it strives to be in terms of objectives and scale is unseen in India and perhaps anywhere in the world. With India Stack, we will have the largest Application Programming Interface (API) enabled technology platform that allows massive and transparent data exchange and stronger collaboration between the government, private companies, entrepreneurs, and the general public.   

India Stack is built on four layers (and each layer has a specific underlying technology that makes it possible):

1. Presence-less layer: where a universal biometric digital identity allows people to participate in any service from anywhere in the country (Aadhaar authentication and eKYC)
2. Paper-less layer: where digital records move with an individual’s digital identity eliminating paper records (eSign and Digilocker)
3. Cashless layer: where a single interface to all the country’s bank accounts and wallets democratises payments (Unified Payments Interface)
4. Consent layer: which allows data to move freely and securely to democratise the market for data (consent architecture)

The fundamental layer underneath all of these layers is “JAM”, an acronym coined for the trio of elements that India Stack will use. JAM stands for Jan Dhan Yojna (envisages universal access to banking facilities with at least one basic banking account for every household in India), Aadhaar (Unique Identification for all residents of India) and Mobile smartphones, all of which have seen rapid adoption in India.

Let’s now focus on the Cashless layer.

The Unified Payments Interface (UPI) forms the core of the cashless layer of India Stack. In April 2016, the National Payments Corporation of India (NPCI), the umbrella organisation for all retail payments systems in India launched UPI as the next generation online and mobile payments solution. UPI is an advanced version of IMPS (Immediate  Payment Service) that was launched in 2010 offering an instant, 24X7 tool to transfer money instantly within banks across India through mobile, internet and ATM.

UPI today powers multiple bank accounts into a single mobile application of any participating bank. Mobile payments is at the core of UPI and with the massive adoption of mobile phones in India across all strata of society, this makes it most viable to achieve critical mass and succeed. UPI supports both Push (Pay request to send money using virtual address) and Pull (Collect request) financial transactions. Built on top of UPI and equipped with multiple Indian language interfaces, many new products and services have been and will be introduced in India. Here’s a peek into some of the products and services:

APBS and AEPS

APBS (Aadhaar Payments Bridge System) is a system that facilitates transfer of all welfare scheme payments to beneficiary residents' Aadhaar Enabled Bank Account (AEBA). APBS will function as a push transaction. AEPS (Aadhaar Enabled Payment System) is a system that leverages Aadhaar online authentication and enables AEBAs to be operated in anytime-anywhere banking mode by the marginalized and financially excluded segments of society through microATMs. AEPS will function as a pull transaction. The success of AEPS rests on the availability of large number of Micro ATM’s and ATM’s equipped with biometric authentication facilities. As the banking and ATM network is limited in India, newer forms of banks and Business Correspondents (BCs) are expected to step in to service the population (more on this in the next blogpost).

APBS and AEPS will play a huge role in disbursements of government entitlements like NREGA, Handicapped, Old Age Pension, Student scholarship, etc. of any central or state government bodies. This is a big step toward reducing corruption and ensuring intended money reaches the intended beneficiary.

RuPay

This is a new card payment system launched by the National Payments Corporation of India (NPCI), offering a domestic, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments. As it is an cheaper alternative to the more expensive Mastercard and Visa card networks, it is expected to be a hit with merchants, especially the smaller and medium-sized merchants.

*99#

Banking customers who do not have a smartphone or are challenged with usage of smartphone can avail this service by dialing *99# on their mobile phone and transact through an interactive menu displayed on the mobile screen.

Bharat Bill Payment System

BBPS (Bharat Bill Payment System) will function as a tiered structure for operating the bill payment system in the country under a single brand. National Payments Corporation of India (NPCI) will function as the authorized body, which will be responsible for setting business standards, rules and procedures for technical and business requirements for all the participants.

These are just some of the products and services coming from the India Stack that will propel India toward a less cash dependent and a more transparent economy. Many of them have already been rolled out, and are being phased out. As the technology platform provided by India Stack is an open-data initiative and is supported by an open API policy, it paves the way for many enterprises, entrepreneurs and government bodies to collaborate for building cashless services on top of Aadhaar, Jan Dhan and Mobile. This is a huge development for India and is set to change the way the country conducts its financial transactions. More critically, it will change way India’s yet untapped bottom of the pyramid will conduct its financial transactions as the adoption barriers reduce. We all are and will be consumers of this cashless layer - be it as merchants, business owners, beneficiaries of welfare schemes

While the technology platform provides a vast canvas, there are other components too that are critical to make mobile payments and cashless India reach critical mass and to accelerate financial inclusion. Let’s take a look at some of the revolutionary changes taking place in the banking system in India in the next blogpost. 

This article was also published on Let's Talk Payments

https://letstalkpayments.com/cashless-india-seeing-the-vision-for-financial-inclusion-come-true-part-1/

When Trekking And Camping With Children The Mountains Can Have Plenty To Teach Them About Life (also published on Womens Web)

Trekking and camping with children in the mountains teaches them to experience the world through new eyes. It also teaches them a lot about themselves.

It has been a few years since I’ve been going for treks to the Himalayas. Last year my then 12 year old daughter joined me for a 7 day Himalayan trek to the Great Lakes of Kashmir. It was not an easy trek even for us adults, and as the only child in our group (and going by our discussions with the soldiers at the army posts, possibly the youngest to go on that trekking trail), she too found it challenging in some parts. The previous year, my son had been with another group for a trek to Auli in the Uttarakhand region of the Himalayas. Before that, we had been taking our children for shorter treks in the Sahyadri mountains in Maharashtra.

By the end of the Kashmir trek, it was truly an eye opener for me to watch my daughter manage herself through all the excitement, challenges and jubilation of the trekking and camping experience. I could see from up close, the fabulous life lessons that these experiences have to offer children and us.

“I can’t use my mobile phone for five days? But I can’t live without it even for a day!”
“I can’t possibly walk for so many hours!”
“What if I can’t eat or drink anything they serve me there?”

City life brings its share of frustrations for children and for parents, as nature spots are reduced and opportunities to experience the open environs are limited. On one hand, children’s absorption with mobile phones, games, television and online media are making them more house-bound. On the other hand, avenues for out-of-home activities are limited to venues such as malls, restaurants and cinemas.

Being disconnected from nature and outdoor activities, accompanied by an increasingly protected lifestyle among urban children, is limiting our children’s capabilities to adapt to different situations – both physically and mentally.

The mountains offer exciting terrains for climbing uphill or running through lush green meadows; walking through slush, or leaping over boulders; crossing over or wading through streams. The experience of camping means packing and unpacking every day, tucking into sleeping bags at night, sharing a tent with others, and eating what everyone is eating, and much more.

The experience of trekking and camping in the mountains is a great way for children to expand their physical and mental faculties and have loads of fun while at it. Children develop a stronger resilience and endurance as they begin to appreciate that not only can they physically handle a lot more than they thought they could. But they are also capable of being responsible for themselves and adapting to a variety of conditions that they otherwise have not been exposed to.

Often in the midst of the mountains, Nature also achieves what most of us struggle with: get children to unplug from technology, soak in the beauty and develop a personal connect with their surrounding. Some treks incorporate offbeat routes and stays in mountain villages that help children gain an insight into how people lead their lives in remote places – how their houses are built, how their sheep and goat are grazed, how for many, their ways of life have remained unchanged for centuries.

There is an entire range of experienced trekking groups to send our children with, and several locations to choose from.

Here are some ways you can get them started. Whether or not you as parents have been trekkers, you can still get your children started on experiencing the wonders of trekking. Younger children can be encouraged by giving them a taste of the outdoors in nature spots in your vicinity. Start by heading out for walks in and around nature parks, hills, ponds or lakes around you. Middle school children can take on short treks – either day long or overnight treks. Older children can take on 5-7 day treks.
If you are unable to join them yourselves, sign them up through trekking groups that have strong experience in conducting these treks.

So get them started on trekking and watch the “I can’t do this” and “I can’t do without this” convert into a can-do attitude.

This article was also published on Womens Web

Not Just Bengaluru, Not Just India: Women Deserve Every Street In The World - Article pubslihed on Womens Web

Women have every right to be out in any public space in the world, whether in Bengaluru or any other city. 

Women are molested in public in Bengaluru, in mass. Bengaluru’s posh Brigade Street earns the shameful moniker as the ‘Grope Street’ for the largest numbers of groping per square foot. Supposed legislators of the country make more shameful statements that make you wonder if he lives in India or in Taliban country.

But that’s not all. A glance at the comments below the YouTube videos covering this legislator’s statements or news articles covering the New Year’s Eve incidents reveals that some people – both men and women – are stating similar things as that legislator. “If women go out at night, what else do they expect”, “Why do they wear western clothes and invite attention?” “If they drink and go out at night, aren’t they only asking for it!” 

The same night in Bengaluru a woman returning from work walked the short distance from the where auto-rickshaw dropped her to her house. She was caught by two men on that short walk home and she was molested.

On the one hand, we all need to raise awareness on this issue. Groping is not acceptable. Molestation is not acceptable. Rape is not acceptable. The more we talk about it – in the mainstream media, social media, in our workplaces, homes, schools and colleges, on the streets, everywhere – the more that will get understood.

However, I do not want India or any city or town or street to be branded as the ‘rape capital’ or ‘molestation town’ or ‘grope street’ of the world.

Moreover, New Year’s Eve is not the only time when women are molested. As I wrote on my blog in March 2015, women in India face varying degrees of molestation anywhere, anytime. Whatever possible, whenever possible, however possible, men want a piece of it…anything for a feel of a woman’s flesh.

Women do not need to be out at New Year’s Eve, drunk or not drunk, to be groped or molested or raped. They could just be going to school or college or work and it could happen. Or it could happen in their home.

Many people watched the movie “Pink” and raved about it as a movie that everyone should watch and show their daughters and sons. However, how many of the same people think differently when an incident like Bengaluru takes place – that if a woman is out in the night on New Year’s Eve, what she was wearing – jeans and T-shirt, or skirt or dress, or saree or salwar suit – determines if she deserved to be molested? How many think that what she drank – whether it had alcoholic content or whether it was just fruit juice or tea or coffee- determines if she deserved it or not? How many think the time she is out – day or night, before 12 AM or after 12 AM – determines if she asked for it.

What is shocking about the statement of ministers who say that “this happens routinely” (“aisa hota hai”) is that it may just be echoing the minds of many who think women “ask for it”. These are minds that think the primary responsibility of women staying safe should lie with women – so basically, they should stay at home, or if they do step outside, they should be accompanied by a male member – NOT a boyfriend (as by that too, she is “asking for it” as boyfriends are a western concept?), but husband or another male family member. And they should dress “appropriately”.

But guess what – when individuals molest women or when mobs strike, that male person accompanying the woman cannot do anything. For that matter, even 1500 police can’t do anything when it is happening. After the incident, police are unable to catch the molesters, even though some of them may have their faces shown in the CCTV coverage.

And what about the women who are groped and molested just going about their daily work or studies? Nothing wrong with their clothes, but surely they must have given some kind of a “look” that invited groping and molestation?

We need media to cover this with greater insight

I titled my blogpost in 2015 as the Great Indian disease; knowing well that this does not happen only in India, I wrote about what I and many women face(d) in India. The intent is to ensure that people’s mind sets start changing among men and women. The intent is that people take molestation and rape seriously. The intent is that women start talking about the difficulties and insecurities they face with their body – because by talking about it, they will raise awareness. And hopefully people will not judge them as having “invited” a molestation, or “asked for it”.

This Singapore newspaper clip is of two Malaysian ladies who were molested at a party on New Year’s Eve at Sentosa. But in Singapore, men and women and girls and boys are safely traveling by public transport on a daily basis, or flocking to the streets in huge numbers for festive celebrations without groping incidents.

The same newspaper in Singapore has posted news of men who are sentenced to years of jail and caning for groping a woman’s breast, or a yoga instructor touching a woman’s upper thigh, or any kind molestation. Interestingly, in every news report, the picture displayed in the news is that of the molester and not of the victim. Each time the news is posted on the crime and on the criminal getting caught and sentenced, I believe it deters other criminals.

Women all over the world face the brunt of the show of power among men – through kidnapping and rape, molestation and violence. And it’s not okay anywhere in the world.

I feel sad when in so many forums outside India (not just by mainstream international media), incidents that take place against women in India get mileage. In addition to Indian mainstream media covering the Bengaluru molestation incident, the New York Times, The Guardian, Straits Times are among many who have covered this incident. As they cover other such incidents that occur in India. And each time, those living outside India and in India believe every woman in India has been or will be raped, or every woman who steps into any part of the country is a target of molestation.

One just needs to take a look at the comments in the local news, or discussions among locals to understand the extent to which India gets branded as the worst place for any woman. Which is not the case. India is a wonderful country with ample opportunity for women who shine and rise. Albeit just as in many places around the world, it is sad that the women in public spaces here too need to keep one eye (often both eyes and a sharp object at hand) on their whereabouts to ensure there is no untoward advance made toward them.

So dear Indian and international media, if you could please do away with the monikers and labels you are so enthusiastically doling out. Covering these incidents through sensational headlines and labels do catch eyeballs and are great click-baits for you. But please figure out how to balance out your news.
There is a lot to be done to ensure women can rightfully claim public spaces. That is why I support movements like #WhyLoiter where women are encouraged to step into and “loiter” in public spaces in large numbers to make it safer for them to be in them. We don’t need to be at home to stay safe; rather, more of us need to be out to ensure we are making it safer for ourselves and for other women in public spaces.

It is movements like these and many others, and conversations at home and in workplaces, in schools and in colleges, on a regular basis that will help change the mind set and establish a common understanding that women have a natural right to be safe in public spaces.

This article was also published on Women's Web

Your Data to Data Mine - The growing power of data from Facebook to Financial Services

If you were told Facebook knows you better than your therapist, would you believe it? With growing research pointing to this, you may as well start believing it. Research by Stanford cites the growing capabilities of computers to predict your personality accurately from mining data from your actions on social media (yes, including those Facebook “likes”): “After 10 likes, the computer could better predict personality than a coworker; after 70 likes, the computer outperformed a friend or a roommate; after 150 likes, the computer was more accurate than a family member; and after 300 likes, even a spouse couldn’t beat Facebook." This is actually not as bizarre as it may first appear.

When we look at all our transactions in the digital world (read as via the web, mobile, tablet), that heady mix of online purchase of clothes, books, music; of news consumed or subscribed; of statuses updated on social platforms like Facebook or Twitter or LinkedIn, what we have is a strong "digital footprint" developing. Companies and entire industries have been collecting and studying all this data from our digital footprint, to analyse and make sense of what it means for understanding their customer better, and of course what it can mean for their business. 

While "understanding the customer” is as old as business itself, this gains larger dimension and import in the digital world and in the context of data mining. First, there is a lot of data that can be tracked from people's digital footprint, which was possible in a much more limited manner in the offline world. Secondly, with people becoming "digital consumers" in so many spheres of their lives, organisations are able to inch closer and closer to getting that 360-degree view of their consumers. Thirdly, amount of data generated digitally is massive. And with computers retaining and accessing large quantities of information, and analysing all this data through algorithms, mining all that data becomes not only possible, but also very useful. A simple but effective example we see all around us is with the cross-sell opportunity that organizations have when they aid consumers with “Recommended" or "People who bought this also bought this" or "Maybe you would like this" when we buy books, or music, or view restaurant ratings online.

So what is the data mining story when it comes to banking and financial services? 

The latest news to catch attention in the financial services sphere has been how Alibaba is tapping into vast records on the online spending habits of its users to provide credit ratings on consumers. Alibaba is gearing up to gain a stronger assessment of a customer's creditworthiness on the basis of a better financial understanding of customers gleaned through data. And it is gearing up to make credit more readily available to millions of people across China that today do not have access to credit. 

It is interesting to see the various kind of sources that Alibaba will tap into for mining and analysing the data: To start with, for a customer personality profile - the users' credit history, online shopping preferences, repayment ability, personal information and online social networking activity. To determine credit scores, the spending and savings behaviour of Ant Financial’s more than 300 million real-name registered users (which incidentally equals  nearly a quarter of China’s population). It will also tap into data on 37 million small businesses that buy and sell goods on Alibaba’s shopping websites. And it will have access to the payment histories on Alipay (an online payment service similar to eBay’s PayPal). 

Data mining has proven to be an effective tool for the banks especially in the credit card industry in fraud detection (unusual purchasing / fund transfer) and risk management (continually exceeding credit limit or charging an unusually large expense on a card otherwise not used). There is a treasure trove of data available in credit card statements or electronic payment transactions that get routed through them. It is important for banks to ask themselves - Are we utilising that in an effective manner? Are we gaining a better understanding of customers, their behaviour and their credit worthiness? 

A lot can be gleaned about customers by understanding - Who is spending (customer segments - existing and potential), On what (product categories and lines of business), Where (on retail as well as online sales channels), and Through which payment channels (via cheque / credit or debit card / online banking channel, etc.). The over-arching goal for banks is to increase a consumer's "share of the wallet” for their banking products and services, address their customer relationships with greater focus and bring in greater relevance in products (right from Personal Financial Management to lending and relevant reporting), pricing, and channel. And with the growing risks of disintermediation of banks, they need to figure out how they can entrench themselves deeper into their customer's lives through more consultative and advisory roles rather than the more easily commoditizable transactional roles they may be getting reduced to playing.

Note: This is part of a series of posts I will be covering on some of the imperatives being faced by banks today, touching upon topics such as digitalization of banking channels, the role of the cloud, corporate to bank connectivity and the regulatory framework.

Additional references:

1. McKinsey on advanced analytics are redefining banking 
2. McKinsey on innovative ways that Asian banks can create actionable insight from customer data. 
3. Banks can improve Retail Profitability with Enhanced Profitability Data
4. Keybank moves to data driven decision making
5. Banks Use Big Data To Understand Customers Across Channels

The proof of the Apple pudding - Can Apple Pay make mobile payments popular? (Part 2 of 2)

There are many factors that have been attributed to Apple's potential to make mobile payments popular, and many that forecast its doom. In my last post, I covered what are the key ingredients that have gone into the Apple Pay mobile platform from a technology perspective. But for mobile payments to become popular, and if Apple has to have role to make that happen, it's going to require a lot more than technology.

Not all of what constitutes as Apple Pay technology is new (quite akin to its earlier hit-products). For one, NFC (Near Field Communication) technology has been around for almost a decade (Nokia had launched the first NFC phone in 2006). However, it has not really taken off despite being implemented by various mobile payments players that include heavyweights such as Google Wallet and the (in hindsight, unfortunately-named) ISIS service, now renamed as Softcard that is a joint venture between AT&T, Verizon and T-Mobile. 

Among the various ingredients going into Apple Pay, Apple has made a good start with its tie-up of 220,00 retail outlets that rate among the largest retailers in the US. The nay-sayers highlight that this  is not enough to truly make a difference, given that it constitutes only about 2.4 - 3% of the roughly 7 million to 9 million merchants in the U.S. that accept credit cards. According to an industry analyst, the Apple Pay service would need to be usable at about 20% of U.S. retail locations to reach critical mass of acceptance (though I am not at all clear how that was pegged at 20%). What is clear is that retail acceptance is a crucial link in the payments chain, and gains even greater significance as it has been the sorest point for mobile payment uptake up until now. 

Apple's is clearly acknowledging that the reach and spread of contactless merchants can be a potential Achilles heel. Therefore its timing for the Apple Pay launch around the time that US market is being driven by the move to make EMV cards mandatory by Oct 2015 is interesting and smart, as the EMV move will mean that all card readers at merchant outlets will be NFC reader compliant. With 26 % of merchant terminals forecast to be able to accept mobile payments over NFC by the end of 2015 (source: Mercator), the critical mass of acceptance may be achieved given the necessary push. Driven by the EMV guidelines, 85% of US payment cards are also compatible with the Host Card Emulation/Secure Element features that Apple is using. Thus, the impetus for merchants to move toward contactless payments in the US, which many businesses have been reluctant to do so unti now, is more likely to supported with a matter of the right timing. 

Another important aspect is that the mode of payment continues to rest, atleast for now, on card payments. Worldwide, cards are in themselves considered to be convenient enough and fast enough to use and therefore not compelling enough to move away from. Most importantly, cards have an acceptance from merchants worldwide that can only be a wild dream for today's mobile payments players. A lot of this points us to a classic case of "you can't fix what ain't broken". So for any company to succeed at the mobile payments play, there's got to be plenty more to offer than "speed and convenience".

Many of the in-favour articles cite Apple's recent success in "disrupting" markets - be it for the music industry or touch screen devices. Ofcourse, this is true. In fact, taking from its success with iTunes, the industry is raving about how Apple Pay will tap into Apple's existing customer base with roughly 400 million credit cards tied to its iTunes service. That’s quadruple the amount of payment information Amazon holds, according to Business Insider. (Ofcourse, that Apple Pay is currently limited to the just launched iPhone 6, 6 Plus and Apple Watch may seem like a minor caveat?). 

What may have worked for Apple in music and mobile devices until now, may not necessarily work for mobile payments. One lesson has been that to make mobile payments successful, no one single company can really aim to "disrupt" the payment industry. Rather, the highly fragmented and varied nature of the payments industry today has made a compelling case for a company to take the path of collaboration with all the key stakeholders involved. And, for mobile payments to achieve the necessary critical mass of adoption, it may just be a matter of all stakeholders becoming successful. 

And this may just be where Apple's path could be different from its predecessors in this field. Note some of the parties that Apple has partnered with in advance of its launch of Apple Pay. For starters, Apple's partnership in early September with the big three card processors - Visa, MasterCard, American Express has been a critical piece. Together, these companies represent nearly 83% of the total credit card purchase volume in the U.S., while Visa and Mastercard rule outside US too. By aligning closely with them, Apple is making sure they play a critical role in pushing mobile payments, not just in US, but going forward, outside the US too (MasterCard announced that contactless payment acceptance would become standard in Europe by 2020 for merchants accepting MasterCard and Maestro brands of cards). 

Another important ingredient in the mix is Banks, which in the retail payments scenario act as the credit card issuers, though as some have shown in different scenarios have also been trying to get their customers to pay using the bank's mobile apps. Overall, banks have long been at the centre of payments as all regulated money flows through the banking system. They are also the entity that has the most to lose in terms of payment transaction revenue with drastic changes in the landscape. This has also been one of the primary reasons why banks have not been receptive to or supportive of any initiative that threatens their position. 

Apple's pre launch tie-up with the top credit card issuers in the US including Bank of America, Capital One, Chase, Citi, Wells Fargo, and a strong collection of other banks lined up, is a sign of the banks' faith in Apple to propel users to use their technology in ways not done before, and at the same time address the much needed improved POS security and data privacy concerns. It is also a sign that while banks are aware that Apple will take a slice of the transaction revenue from the payment (Apple may net 15 cents for a USD 10 purchase), there is more to gain for them through a growing world of mobile and online payments.

Add other important stakeholders into the mix, and Apple has the top in-mobile purchase apps, payment card terminal manufactures, app developers all not only striking pre-launch partnership with them but also actively pushing its solution.

(Image taken from the web)

WYSIWYG (What You See Is What You Get) right now on Apple Pay cannot be its entire menu for the future. If anyone one has to truly tap into the power of mobile devices (including their wearable counterparts), we will see a lot more services added based on the user's location, search, information on better deals (including search and deal comparison - in the online as well as offline markets) along with the payment as the final leg of the transaction. Apple's trials with iBeacon along with NFC are indicative we will see more of this with Apple Pay. This will also be when the case is no longer that of working in a "you can't fix what ain't broken" market, but rather succeeding in a "we don't yet know what we can have and what we can do with it" market. And Apple has had one of the best track records of doing that.

To conclude, it is very early days to predict anything. But if as is shown above by Apple's many smart moves, be it on the timing, the technology mix, the partners, Apple may have learned some lessons from just observing all the action in the mobile payments space over almost a decade. And the Apple Pay pudding may just be waiting for all of us to dig into some years from now.