Rise & Growth of Mobile Finance / Payments using JAM Trinity

Rural India Mobile PaymentTechnically, e-finance is any financial product whose sale or consumption is facilitated electronically – or more specifically, via the internet or mobile. The ‘e’ part of e-finance is supposed to help reduce transaction costs, increase processing efficiency, and provide instant access to information. Some examples across the retail and corporate spectrum are identified below:

Retail – Being able to conduct a payment transaction on a mobile phone to a service/product provider without the physical exchange of cash, or being able to borrow from a bank via an online platform without any manual interface.

Corporate – Being able to purchase health insurance for their employees online, or shop for loans on the internet or settle payments with vendors/dealers through electronic payment systems.

Only 53% of the population have a bank account; internet access is even lower at 18%. The aim of the regulator is similar (financial inclusion), regulations are tighter and only licensed entities are allowed to extend credit – banks, non-banks, and microfinance companies. Focus is more on capturing savings and transaction flows. Focus also extends to reach as well, but participants are licensed and regulated e.g. payment banks promoted by Telecom / Mobile operators.

e-finance supplements the traditional banking activities of existing participants; no pure online model exists. Pure online models are currently not viable because of the low level of internet penetration and the lack of a robust customer database.

The answer is three different things – known collectively as the JAM Trinity
JAM trinity = 900m mobile phones, 925m Aadhaar cards, and 190m bank accounts
J = Jan Dhan Yojana (loosely translated to the People’s Wealth Plan). In brief, this an initiative to increase financial inclusion by the Prime Minister by rapidly opening bank accounts for those without one and provide them with basic banking facilities including savings deposits, remittance, credit, health & life insurance, and pension. Between 23 August 2014 and 28 October 2015, 190m accounts have been opened covering c80% of all Indian households. Combined, these accounts have a total balance of Rs259bn which translates to an average balance of cRs1,400 per account – low by national average standards – but a significant beginning nonetheless.

A = Aadhaar (a unique identity number each Indian resident has/will have). This is a 12-digit number supported by biometric data (10 fingerprints and an iris scan of each eye) providing the government and various service providers (like banks) with a database that can be verified and authenticated in an easy and cost effective way online 24/7. As of 15 October 2015, more than 925m Aadhaar cards have been issued covering 72% of the national population.

M = Mobile phones With more than 900m mobile phone subscribers in India, of which 150m are smartphones, the time is right for retail transactions to migrate to this medium. With the growing success of the Immediate Payment Service (IMPS) system launched by the National Payments Corporation of India (NPCI), the use of mobile phones as a method for making frequent payments is gaining traction. In addition, over the medium term if the Aadhaar database is to be leveraged effectively for such transactions, mobile phones will need to capture biometric data from the user to enable online verification.

The hope is that all three components of this JAM trinity will create a significant impact on mobile banking transactions once they reach a critical mass. Right now, however, bank accounts as well as smartphones are lagging the number of Aadhaar cards in circulation although this is still a good starting point using the IMPS settlement system. Today, Cash has 87% share of payments – huge potential market for mobile phone payment system.