India's digital divide complicates its move away from cash
By now most of the world knows of the disruption India's monetary system has undergone as its government discourages paper cash and pushes digital alternatives, stopping short of outright forcing the issue.
But there's another challenge within the market. The way people transact in India's large and often technologically advanced cities can be very different from the countryside. And with hundreds of millions of people, India's rural areas and its urban centers are like different countries altogether.
"As smartphones start to become prevalent, it's important to note that data usage and affordability are still an issue in rural markets," said Brijesh Arora, assistant vice president of strategy and new product development for mobile financial solutions at Mahindra Comviva. "The cost of data is coming down, but there is still a hesitancy because mobile is still viewed as a luxury in rural markets."
But it's less of a luxury as the government discontinues or changes more than three quarters of India's paper money. When people can no longer use cash in the same manner, and the best-known mobile payment technologies are not available, Mahindra Comviva is seeking a third way.
"There are two or three factors to keep in mind when designing for a rural market. There's the cost for infrastructure, the cost of the hardware and the cost of the telephone lines," Arora said, adding the company is attempting to build a mobile payments market without requiring a huge update in hardware beyond the technology merchants and consumers likely already have.
Mahindra Comviva, an Indian mobile technology subsidiary of Tech Mahindra, is working with Indian Stack, a national government-endorsed set of APIs designed to connect banks and merchants for transfers, authentication and compliance. This allows digital transactions in rural India, where only 13% of the population is connected to the Internet and 2G is the dominant mobile environment, according to Arora.
"As soon as you get out of our cities, mobile acceptance right now is almost negligible," Arora said. "There's a clear need for merchants to start accepting mobile payments."
Called PayPlus Aadhaar Pay, Mahindra Comviva's product uses stored biometric credentials and federated identity to support mobile payments that really aren't mobile in the way that term is used in the U.S. or Europe. Through the "stack," consumers can use their Aadhaar number to authorize a payment via the consumer's stored fingerprint. Aadhaar is a national ID system that is increasingly used to identify financial accounts in India.
There's still some additional technology required. Merchants need a connected device with biometric reader, for example. But consumers do not need to have a cell phone at all, and merchants are more likely to have a more modern smartphone with a form of fingerprint ID.
"Of course an infrastructure is needed, but the less baggage it carries the better," said Tim Sloane, vice president of payments innovation and the director of the emerging technologies advisory service at Mercator. "Many developing countries have a well-developed mobile phone infrastructure and an almost non-existent electronic payments infrastructure."
Visa and Samsung are both hoping to use the dynamic situation in India to bolster merchant acquiring strategies for mobile payments technology. And Paytm's fast growth in the country has attracted more investment from Chinese e-commerce giant Alibaba.
Mahindra Comviva, which provides mobile financial services technology in more than 90 countries, is also looking to carve a niche within the broader Indian mobile financial services market by creating a focus on expediting mobile acceptance in rural markets, where a dearth of pre-existing infrastructure can actually be a benefit.
"Lack of established infrastructure can be the impetus to leapfrog other markets and adopt new technology faster," said Zil Bareisis, a senior analyst at Celent, noting countries such as China, Kenya and India itself have a track record of fast adoption despite the different technology adoption path. "On the other hand, you need some core capabilities to build on."