E-Bus Blog: M-Commerce in India and the role of RBI

Dear Sir

           Please find below my blog for this week.

                 M-Commerce in India and the role of RBI

As per the SAP report (as discussed in last class) regarding Mobile Commerce (m-Commerce) potential in India, the prospects look conspicuously stupendous. 97 percent of respondents are asking for more in terms of mobile commerce, and across a wide swath of business throughout India. Indian consumers are looking for more mobile in everything from retailers and utilities to banks and telecommunications firms, and plenty of other business types.

But for a country with more than 875 million mobile phone users, there is surprisingly very little mobile commerce happening in India in actuality. Mobile commerce has for years been dubbed a 'game-changer' in the Indian financial services sector in terms of financial inclusion, but because of strict regulations and banking norms, the industry has failed to take off. The RBI has been promising changes in the rules, but despite the relaxation, banks and other intermediaries do not find it exciting. Consequently, millions of low-income citizens, who do not have access to plastic money, are forced to depend on cash for their daily transactions. The success of M-Pesa in Africa led authorities in India to introduce an immediate payment service (IMPS), offering instant, 24x7, interbank electronic fund transfers through mobile phones in 2010. The National Payments Corporation of India — promoted by 10 banks including public sector behemoth State Bank of India, leading private banks ICICI and HDFC and international institutions Citibank and HSBC — carried out a pilot on mobile payment system with four member of banks.

Sadly, it failed to take off as the RBI imposed tough regulations governing the transactions. Only a consumer with a bank account can use the IMPS to make payments, excluding millions of low-income consumers.

But with the charismatic and radical-thinking Raghuram Rajan taking over the position of RBI governor, a renewed enthusiasm has dawned in this sector. Rajan has expressed confidence about the potential for mobile-based payments in India. "We will set up a technical committee to examine the feasibility of using encrypted SMS-based funds transfer using an application that can run on any type of handset," he declared. "We will also work to get banks and mobile companies to cooperate in rolling out mobile payments. Mobile payments can be a game changer in the financial sector."

Indeed, while many banks offer m-banking services to users of smartphones, the ordinary Indian, using a cheap handset, is deprived of such services. Rajan's announcement that the encrypted SMS-based funds transfer application will be able to run on any type of handset is a positive sign that should help the m-commerce business.

The introduction of a hassle-free m-payment system will revolutionise the financial services sector in India, and it would require the central bank to liberalise the norms proactively.

Regards

Rajdeep Paul

PGDM

Section:C

12IT-014