As technology brings connectivity to the masses, alternate, and more convenient mechanisms for making both remote and over-the-counter payments emerge
How many times have you been tempted to shop online, but put off by the fear of entering your credit card details at an unknown site?
How many times have you been forced to pay in cash instead of card because the merchant did not want to pay the 3 percent processing fee charged by the bank? Indeed, how many times have you found yourself scratching your head trying to send money to someone who does not have a bank account, or has one too far away from where he or she lives?
Ever since placing real-time, remote orders became a reality, there has always been a market for solutions that also allow making payments remotely and in real-time. That said, years after real-time communication has become a mass phenomenon, thanks to the telephone and the Internet, real-time remote payment services are yet to catch up.
There are nearly 280 million phones and Internet terminals in India for consumers to place their orders on. However, when it comes to making a real-time payment, the scenario is different. For example, there are only about 60 to 100 million active cards (credit and debit) in circulation. Internet and telephone banking, the only other ways for consumers to make payments remotely, are unlikely to add much to the numbers as their users are in all likelihood already counted among the credit and debit card users. Indeed, the actual number of users having access to any of these facilities may be still a fraction of the 60 to 100 million card-owners, as many users keep multiple cards.
The remote payment bottleneck is not just a customer inconvenience. For businesses that rely on remote ordering but need to tap the non-card-owning masses as well for volumes, a robust collection mechanism can make all the difference between survival and death.
Typical are the cases of the pizza and flower delivery businesses. They try to get around the problem of lack of real-time payment systems by taking orders on the phone and extending a temporary credit to the consumer, relying on the pay-on-delivery model. However, the system is far from perfect. “There is a lot of wastage in these industries, perhaps as much as 10 percent,” says Ravi Shankar, country head for direct banking at Yes Bank Ltd, “and the only way to make sure this does not happen is to collect the money upfront [at the time of ordering].” Yes Bank recently launched a system of mobile payments that costs only 1 percent of the order value.
Remote and Cashless
Alternate payment mechanisms, whether in the form of cheque, credit card, or online, have evolved to meet two requirements — the convenience and security of being cashless, and the need to pay remotely. While in the days of snail mail cheques and demand drafts served the purpose well, today, in the era of real-time communication, faster alternatives based on the Internet and phone are evolving — initially motivated more by the need to pay remotely rather than by the convenience of being cashless.
These solutions can be classified on the basis of whether the user needs to have a networked device like a PC or phone, or just a non-networked device like a credit card. For example, Net banking and phone banking are examples of networked device-based payment mechanisms, while magnetic cards (credit and debit cards used at the counter), RFID cards, and fingerprint terminals are examples of non-networked device-based technologies. Broadly, the non-networked devices are better suited to the ‘convenience market’, while the networked device-based services are essential to cater to the remote payment market.
Near-field (Non-networked) Technologies
This form of alternate payment technology involves a physical form of identification carried by the consumer, including parts of their body such as fingers or eyes and a widespread network of terminals for verifying those markers. The most widespread examples are the credit and debit cards and the terminals (swipe-machines) and ATMs installed by banks and merchants for verifying them.
Though magnetic cards are a mature technology in the proximity payment market, new technologies are emerging, promising even more convenience. The biggest challenger to magnetic cards is chip-based identification, such as RFID. These chips are usually stuck on or implanted in mobile phones.
The key differentiator and advantage of this technology when compared to magnetic cards is that it does not require physical contact with the verification terminal—the chips work from a distance. This ability to pay with just a wave has led to the technology being deployed widely in many countries. In India it is being used at some public transport facilities where speed of payment is crucial, including Mumbai’s buses, the Delhi Metro, and many toll booths across the country.
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“You only have to travel across the Asia-Pacific to find out how well the model of waving a mobile is working,” says Probir Roy, co-founder and director of Paymate, an SMS- and data-based payment platform provider. “The technology has helped transform countries such as Japan into nearly cashless societies. Today, you can leave home without your wallet, but not without the mobile in these countries,” he says.
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