In India, tens of millions of merchants still operate largely in cash with a mostly unbanked rural population. Technology could solve their problems, but the bigger differentiator may be in how payment services are sold.
In the U.S., the longstanding independent sales organization (ISO) model has faced deep disruption over the past decade, following the debut of Square and other mobile card-acceptance devices. Though the hardware of the early mobile POS was extremely basic, companies like Square succeeded by making their products more accessible. Rather than talk to an ISO or agent, a small merchant could pick up a card reader for $10 at a convenience store.
In rural parts of India, the opposite pattern is playing out. MoneyOnMobile, a Mumbai-based company launched in 2010, relies on a local sales force of independent agents who earn commissions from signing up retailers to support services that include bill payment and domestic remittances conducted via SMS texts on mobile phones.
“The core concept of the ISO distribution model for selling merchant card services is the same approach we use to sell mobile money services in India, and it works because India’s economy is increasingly entrepreneurial, and the ISO concept is very appealing to both the merchants and the sales reps we find,” said Harold Montgomery, MoneyOnMobile’s CEO.
A key difference is that unlike U.S. ISOs, MoneyOnMobile doesn't offer card acceptance, though the company handles some third-party insurance premium collections through its channels and is expanding into small-dollar lending, Montgomery said.
At the same time, deep-pocketed mobile wallets like Paytm—majority-owned by Alibaba’s payments affiliate, Ant Financial—and other behemoths including Visa, Mastercard, Google and Facebook are eagerly investing in India’s digital payments ecosystem and positioning to gain major market share.
But that doesn’t worry Montgomery.
“There’s an addressable market of about 600 million consumers in India who are unbanked or underbanked, and in the most rural regions people conduct 95% of their business in cash, so the opportunity here is huge,” Montgomery said.
India’s government is another driving force for mobile payments. It’s encouraged digital payments adoption through bank-led initiatives and with the massive Aadhaar national biometric-based identity project that improved customer onboarding for financial services.
The Reserve Bank of India’s sudden devaluation of small-denomination currency in 2016, which took aim at gray market operations and counterfeiting, had the side effect of temporarily choking off consumers’ access to cash, thrusting digital payments into the spotlight, Montgomery said.
“Demonetization wildly succeeded in boosting growth of digital transactions,” he said.
It’s no coincidence that Montgomery sees crossover between the ISO business and India’s burgeoning digital payments market. Until a few years ago, he co-owned a U.S. merchant processing business in the U.S. called Calpian, while he and his colleagues began to explore similar opportunities in India.
By 2012 Montgomery’s team had begun investing in MoneyOnMobile. Eventually they became controlling owners, and in 2015 they sold Calpian’s assets to concentrate solely on India’s digital payments market from offices in Dallas, where they co-manage the business with a team based in India.
Like ISOs and agents that hit the streets looking for business from retailers, MoneyOnMobile’s U.S. management team hits the road several times a year to recruit sales reps and merchants, focusing on some of the most far-flung areas.
“We fly to Mumbai or Delhi and drive far outside the city to the rural areas where eventually we’ll walk a couple of miles through agricultural fields to reach our destination, usually a vegetable market or a small store,” said Montgomery.
The goal of these visits is to find markets where small independent merchants are ready to introduce MoneyOnMobile’s services to consumers who typically have a mobile phone but no bank account.
Independent sales agents sign up retailers to support MoneyOnMobile’s services and each agent earns an incentive based on the total payments volume each store generates, providing a motivation for the sales agent to enlist stores with strong traffic, and also to provide training and support for ongoing usage.
Participating retailers accept cash from consumers and direct the funds to specific payees using SMS text via a mobile phone, a mobile app, a smartphone or tablet or a personal computer, and the consumer receives an SMS text confirming the payment. MoneyOnMobile makes a small percentage of profit on each transaction, which it passes on to the merchant.
“Everyone in the chain of this ecosystem gets rewarded,” said Montgomery, who noted that most of the company’s transactions are for very low values. End users typically spent about US$1 for each mobile phone top-up and the average domestic remittance is for about $50.
But even in India’s hinterlands, Montgomery sees rising competition in the digital money sector coming from large and small operators, and so do analysts.
“MoneyOnMobile’s approach doesn’t sound that different than some of the other specialist mobile-anchored payment systems,” said Eric Grover, a principal at Intrepid Ventures, who’s recently studied India’s digital payments landscape. But even with Paytm and other large payments and technology companies moving in, the Indian payments market is very much in play for participants of all sizes, according to Grover.
MoneyOnMobile sees its market advantage in its low-cost processing approach that bypasses direct integration with banks or card networks. Instead, MoneyOnMobile uses APIs to connect digitally with third parties.
Over the last six years, MoneyOnMobile has signed up more than 350,000 retailers throughout India, driving total transactions of more than $2 billion on behalf of 200 million Indian consumers via mobile phones, according to the company.
MoneyOnMobile's next move is to diversify its services and improve efficiency, including offering loans to shop owners via third parties, adding at least 3,000 more ATMs provided by the Bank of India to support fee-based cash withdrawal and stepping up promotion for remittances sent within India.
While MoneyOnMobile has paid down debt it incurred during its launch and recently boosted its total funding to nearly $25 million in a few funding rounds, the company still isn’t profitable. Montgomery expects it will break even and begin to operate in the black this year.
“Because most of the transactions we process are so low, our biggest challenge is finding efficient ways to meet market demand as we expand, and this year we plan to see this coming together,” Montgomery said.