Board member Jim McKelvey, co-founder of Square, discusses the most exciting companies
in payments, and the biggest pain points that need solving in payments
During the interview, Jim is asked about which companies he is most excited about. Here was part of his response:
“The ones dealing with the bottom part of the pyramid. They are the people who have traditionally not participated in the system. Square has some new products addressing new areas that were historically outside the fin system. I’m also very excited about MoneyonMobile, which is enabling payments in electronic format for hundreds of millions of people in India.”
You can read the full transcript of the interview at PaymentEye.
Paying bills with cash in India is time-consuming and labor intensive. You must travel to the state-run collection center to pay your electricity bill each month. If you live in a rural area, it can be a long walk from your village, especially during monsoon season. Then there are the lines—the wait time at a collection center can last for hours on end.
It would be so much easier if you had a central place close to home to pay all of your bills.
The Struggle to Join the Digital Economy
Now imagine that you’re a utility company or a mobile phone company in India. You know that there are several advantages to a digital payment system: it keeps overhead low and keeps your receivables collected promptly. But the majority of your consumers either have no access to the Internet or have no access to banking services.
So how do we bridge the gap between the average consumer in India, who must pay cash for services and products that are essential but inconvenient to obtain, and the companies that supply them?
Mobile Payment May Be the Answer
Digital payment networks like MoneyOnMobile are revolutionizing India’s economy taking the hassle out of bill payment. As India’s largest mobile payment platform, MoneyOnMobile is authorized by the Reserve Bank of India (RBI) to set up a payment system that enables registered users to buy products and services from registered merchants.
Harold Montgomery, CEO and Will Dawson, EVP, both of MoneyOnMobile gave us a quick walk-through of how it works:
- MoneyOnMobile prepays biller. MoneyOnMobile has agreements with all mobile operators and electricity and piped gas providers in India. MoneyOnMobile buys several hundred thousand dollars’ worth of units from each biller, for which they receive a discount because they buy in bulk.
- Store agent pays into MoneyOnMobile account. “Think of it as if they’re putting $10 in cash into a bank account. And they’re going to tell us in a minute where they want to spend it,” says Harold Montgomery, director of MoneyOnMobile.
- A customer walks into their local MoneyOnMobile provider. With over 280,000 MoneyOnMobile agents throughout India and a goal to penetrate 80% of the market within the next five years, it will be quite easy to find a member of MoneyOnMobile’s digital payment network.
- Customer hands cash to agent, agent performs a transaction via mobile SMS. “They’ll walk into one of our agents, hand over that cash and have that agent take the cash and perform a transaction. About 60 to 65% of our agents use feature phones.” Says Will Dawson, [title needed] of MoneyOnMobile. “So [the agent] just types on a phone, [and] an SMS message gets sent to MoneyOnMobile. MoneyOnMobile then performs that transaction with the necessary biller, the agent gets a confirmation, and the consumer walks out of that shop with an SMS, a text message on their phone that says, ‘That electric bill has been paid.’
- MoneyOnMobile agent gets paid a commission. “The agent makes money out of this by taking a commission on each of the transactions,” Dawson says, “and depending on the transaction, it’s either the biller [paying the commission] or it’s the consumer that’s paying a fee to perform that transaction.”
- Biller saves money. “The reason that billers like to use us is, we’re a cheaper cash collection mechanism than their typical storefronts,” reports Dawson, ”generally, they have to open up a physical shop in a neighborhood, have people standing there, taking cash, performing the transactions. So instead of building out all of that infrastructure, they would leverage us as a less expensive option to get their bills collected.”
Convenient Bill Payment From the Ground Up
“So that’s how it works,” adds Montgomery, “you can imagine it a big flow of rupees, in this case, from the consumer to the store, from the store to MoneyOnMobile, and from MoneyOnMobile to the vendor. From the street level, all the way through the roots of the tree, out through the leaves to the vendor community.”
The digital payment network will make it possible for every person on the street to pay their bills effortlessly and on time.
By January 2015, 125 million new bank accounts were opened in India as a result of the government’s efforts to create a comprehensive financial inclusion program. But 72 percent of those accounts remained dormant or with a zero-balance. Only 15 percent of adults reported using their newly-opened bank accounts in the past year. Almost no one, it appeared, was using his bank account.
India has a proud 400-year tradition of banking, so why is it that the majority of people don’t use a bank account given to them by the government? We asked Harold Montgomery, CEO and Will Dawson, Executive Vice-President , both of MoneyOnMobile, to discuss some of the reasons behind India’s lack of interest—so to speak—in using bank accounts.
- People aren’t making enough money to keep in a bank. According to Montgomery, the biggest reason for not having a bank account is the impracticality for people with low incomes. “If you make $7 or $8 a day, you’re pretty much moving that money around as fast as you can. You need to buy food, you need to buy clothes, you need to repay a loan, whatever you need to do, you don’t have time to put it in a bank and let it rest.”
- In India, cash is king. Unlike the U.S., where people have their paychecks directly deposited into their bank accounts and use debit cards and credit cards so often that one can go weeks without actually handling a dollar bill; in India, it isn’t uncommon to get a wad of cash for a week’s worth of work. Will Dawson says people in India “are not people with credit cards or debit cards in their pocket that they want to use to make transactions. These are people who are used to doing cash transactions, they get the cash, and then they’d go and use it to pay their bills or to pay for goods and services.”
- Banks charge fees and require minimum deposits. The typical banking business model isn’t compatible with the economic realities of India’s working poor, which make up the majority of India’s population. It’s hard to justify keeping a minimum deposit in a bank account or risking a penalty when you need to withdraw every penny you make to pay bills and feed your family.
- Banks can be inaccessible in rural areas. Harold Montgomery shared an interesting story:
“I was in a small town in India, and I asked a gentleman, ‘Why don’t you use the bank?’ And he pointed to a building a couple of hundred yards away, and he said, ‘Do you see that building?’ And I said, ‘Yeah.’ And he said, ‘That’s the bank.’ He said, ‘It’s closed on a weekday.’ ‘Why is it closed?’ ‘The power’s been out here for six days, and the bank can’t operate.’ I mean what are you going to do if your money’s locked in the bank and you can’t buy food, right?”
The message we can take away from this is that while banks are eager to do business with India and its growing economy, the majority of people of India have yet to reach the economic stability necessary to make regular deposits into bank accounts.
India isn’t stuck in the dark ages, however: with 51 percent of the population owning a mobile phone, more people are adopting mobile money accounts such as MoneyOnMobile for bill payment. According to the World Bank, “Access to digital payments, through a mobile phone or point-of-sales terminal, create opportunities to provide more convenient and affordable payment options.” With tools like MoneyOnMobile, the people of India can enter the digital economy; with or without a bank account.