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Thursday, December 15, 2016

Demonetisation - The leap-frogging mobile banking tech

I am experimenting with videos these days. Mostly because the commentary is same - biased and boring. No new interesting ideas are being highlighted by the media. So I thought may be we should be talking about the different aspects of the demonetisation initiative. I am fascinated by mobile banking technology the government is promoting.

Before the launch of Demonetisation initiative, the government and RBI have made two platforms operational. The Unified Payments Interface (UPI) is platform for smartphones and Unstructured Supplementary Structured Data (USSD) is platform for feature phones.

  1. Both these systems interface directly with your bank accounts. That is unlike mobile wallets, they do not store the money in a special account created for you. The business of keeping mobile wallets recharged is not applicable here.
  2. For using the same data charges and transaction charges are applicable. But there are no other charges. For example, if you use mobile wallet, you pay data charges and also charges to transfer funds back into your accounts. These charges are borne by the person getting the funds. UPI and USSD work between banks and are authorized by the RBI and National Payments Corporation of India.
  3. UPI interface is simple but we must remember it is embedded within the mobile apps of banks. So be sure to select UPI and bypass all other layers.
  4. The USSD system is a bit iterative - not difficult to understand but requires you to memorize account number, pin, enter the counter party phone number or id etc. Here are some articles describing use of USSD - from BGR, from ET and one by WPXbox.

Now imagine if the country does make a move to mobile payments system. It will be leapfrogging about 2-4 generations of technologies -conventional banking, ATM-based self-service banking, credit and debit cards, internet banking all in one go. We will directly reach mobile banking.

This mobile banking is different
The mobile banking promoted by the government is not the same as carrier-promoted mobile banking. Carrier promoted mobile banking involves another layer on top of your accounts. Such layer can be physical (banking agents) or through telecom-operators themselves. Each layer adds costs and thus inefficiency. The UPI and USSD based system government of India is promoting is layered on bank accounts themselves. 

What supporting infrastructure is needed?
We need to get POS machines that can initiate USSD / UPI based transactions. Thus, the vendor can initiate payment amount and his own id. Based on which the user can accept and authenticate this transaction leading to debit in his account. Such a system

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