M-Pesa can act as a surrogate bank branch

Mobile Commerce Solutions, a subsidiary of Vodafone is up and running in eastern parts of India. It is planning a nationwide rollout in a year-and-a-half. The product on offer is M-Pesa, a mobile wallet service, which enables money transfer to individuals, pay utility bills and even withdraw cash if linked to a bank account. If this isn’t enough, Suresh Sethi, business head of M-Pesa, sees the product playing a role in the government’s ambitious direct cash transfer scheme. He shares the insights with Parnika Sokhi in an interview:

Can you throw some light on the business model of M-Pesa?
The penetration of banking is very limited in India. When we talk about unbanked, it is actually affecting the rural masses and today less than 5% of the villages have a banking outlet. For them, banking means to remit, save and borrow money. M-Pesa can act as a surrogate of a bank branch. The fact that we are a mobile-based service, it gives us the ability to penetrate much deeper in unbanked areas.

We as a telecom company have huge distribution network of 1.4 billion outlets. A consumer comes to the outlet, pays cash, gets a top-up in return and we collect identification documents. The distribution is already doing the work that is needed to get a banking customer. The fact that we have learnt to do Rs 30 ticket and turn it into a profitable business by leveraging of our distribution network makes us a very appropriate candidate to do the banking services provisions at these outlets. If you look at the migrant corridor, the average value of a money transfer is Rs 1,500-2,500. Therefore, it is not only profitable but sustainable.

How are you different from other mobile wallets run by rival telecom companies?
I do not see other mobile wallets as my competition. In November 2012, we got a licence to work as a payments and settlements company from the Reserve Bank of India. Mobile Commerce Solutions is a 100% subsidiary of Vodafone. We can offer semi-closed mobile wallet linked to a bank account to a customer. I see my competition in business correspondent outlets of various banks. They are doing reasonable business.

They are offering an agent-assisted model while we put the customer in charge of his money. That is where we feel our model is superior. Most telecom companies in the mobile wallet space are looking at it as a merchants payment service. They are not very strong on the money remittance service. So they have not created distribution network in that fashion.

How big is the M-Pesa network as of now?
As of now, we are live in the states of West Bengal and Jharkhand. We have around 8,000 M-Pesa outlets which are urban, semi-urban and deep rural. Just to add perspective, we are almost equal to the number of bank branches in that area.

How are you pricing the product?
Our money remittance charges are competitive with what the banks offer. We are 1.3% of the average value of money transfer and if you compare with money order charges are 5-7%.

Where will you place mobile payments in direct cash transfer scheme?
The determinant today is to transfer money into Aadhar–enabled bank accounts. The challenge still remains on the last mile because the nearest bank could be 50-75 km away from the beneficiary. If the direct cash transfers come into the M-pesa account, the beneficiary could walk into our nearest outlet and withdraw. I understand Jharkhand already has about 70% Aadhar penetration. Once we create this kind of a distribution network, there is a case to push a product like this. Also, most cash transfers happen within the Rs 5,000 band, which is the upper limit for mobile transactions right now.

How long will it take for a nationwide rollout?
May be in about 12-18 months we should be targeting towards having presence across the country.