This post also appeared on the VCCircle blog here
Airtel Money is the first time in 5 years that I have truly become excited about a payment solution for the India market. I think this can be revolutionary. At Canvera we have evaluated each and every payment type available in India and have looked at the end to end cost, scalability and reliability. We concluded that managing cash (not COD) and encouraging online payments through debit and credit cards was most suited for our business. Building our own payment network was by no stretch in our business plan so it was disappointing and costly to have to do it. But in the process we got insights into the unique challenges of a payments company and that is why as soon as Airtel Money came about, we realized the potential for it to completely change the landscape. Let me explain why.
Broadly speaking there are two specific use cases:
- FOR POST-PAID ACCOUNTS: Statements can potentially become like credit card statements where the telecom companies may be able to assign certain credit limits based on payment history, guarantees etc.
- PRE-LOADED ACCOUNTS: both pre-paid and post-paid accounts charge a certain amount for payments (this is what is being offered today).
Consumers would use their mobile phone to make payments just as credit/debit cards are used today and merchants such as Canvera sign up to receive payments.
TELECOM COMPANIES ARE UNIQUELY POISED TO PULL THIS OFF
In evaluating the different payment solutions in India we understood some of their limitations. These included:
- Lack of consumer trust in the instrument: as a merchant we felt that we would have to support a number of payment options none of which had any significant traction. In fact in some cases we felt that we would need to build that trust in our customers and got in to talks with a few of the payment companies but eventually dropped the idea
- Lack of distribution capabilities: distribution at scale is possibly the minimum requirement to building trust. But more than that the payment method needs to be easily accessible and all use cases around the instrument need to be simple. A lot of the alternate payments services failed on this front.
- Convenience: A lot of the payment solutions had just too many steps for the consumer that there was no way that average consumer was going to use these solutions regularly. Some of the issues stemmed from regulation and were out of control of the payment company but the net result was that they asked too much of the consumer.
The telecom companies are uniquely poised to overcome these challenges. They already are known brands and have trust of the consumer; and they have significant distribution capabilities to provide physical touch points for payments, re-charges, customer queries, issue resolution etc. No startup can quite compete with the investments that telecom companies have made in establishing their reach and brand. And finally the convenience of paying with a mobile phone – who can top that!
They are of course many hurdles. The two key ones are:
- NEW PRODUCT & SERVICE DEVELOPMENT: Can the telecom companies truly create an internal environment where a brand new product and service offering can be developed, improved and deployed at scale? As a merchant I sure hope so, but it is a challenge nevertheless. This new product /service development will require a completely new mindset and skills while leveraging the power of the present infrastructure of the telecom company.
- REGULATORY: Will the telecom companies be allowed to essentially become banks providing credit to consumers? Again, my hope is that this will be allowed, with appropriate but minimal regulation to protect consumers. Given the clout telecom companies have within the government, no one else is better poised to lobby the forces-that-be to make this happen. Certainly no startup can develop that level of clout and reach within the government.
While I don’t want to trivialize the above two challenges, I do feel that compared to the challenges in front of a payment startup these are surmountable in a “reasonable” time frame and if overcome can very quickly change the payments landscape in India.
In addition to allowing the new product and service to be developed fully I do also hope that telecom companies learn the lessons from the mVas debacles that by taking too much away from the innovators they actually kill the innovation. I hope that they will learn to play the role of a neutral and cost effective platform and not compete or interfere with the free market competition between the merchants. Done correctly this can potentially even correct the ARPU issues that telecom companies face in India.
SERVING LONG TAIL NEEDS
India is a country of great diversity and yet, due to number of structural issues, it is virtually impossible for a single service provider to PROFITABLY service the very long tail of consumer preference. A key enabling piece (amongst many others) to serving the long-tail needs is an electronic payment network that allows merchants to profitably collect small amounts of money. The low penetration of credit cards and lack of growth, lack of trust in the infrastructure and law enforcement , the challenges to create a national credit rating system etc meant that solutions that have worked in developed markets will take decades to reach scale in India. A telecom company also becoming a payments company and being able to provide credit can dramatically shorten the timeframe to achieve the same result. A unique solution to a unique operating environment that could potentially unleash long tail creativity.
I am rooting for this one!