With the proliferation of smartphones and an improvement in telecom infrastructure, m-commerce services, particularly mobile banking (m-banking), have gained traction in the past few years. However, issues such as security concerns and low literacy levels of the rural population are major impediments to growth of the m-commerce market. Industry experts share their views on the Indian m-commerce market…

How has the uptake of m-commerce services in India been? What are the key trends in the m-commerce market?

 Sabyasachi Majumdar

There has been a significant increase in the number of m-banking transactions per month over the past two to three years. In October 2013, the number of such transactions stood at 7.8 million, while the total transaction value was about Rs 20 billion. M-banking is a part of the m-commerce universe and the transaction volumes in m-commerce would be much larger.

M-commerce services offered in India are expanding, comprising banking transactions, money transfer, mobile recharge, purchase of goods and services, etc. For instance, in the case of m-banking, the services have evolved from a simple transaction like allowing customers to check the bank account status to conducting a number of transactions. Service uptake driven by smartphone proliferation has been a key trend in the m-commerce market. While feature phones can also be used for m-commerce services, smartphones facilitate easy usage. Moreover, customers are being encouraged to use m–banking as this mechanism facilitates reduction in transaction costs when compared to conventional mode of banking. Banks and retailers are now offering their own applications that allow customers to bypass websites for carrying out transactions on mobile handsets.

 Srinivas Nidugondi

M-commerce has emerged as a major growth area for mobile operators. It can be segregated into m-banking and m-payment, and m-commerce.

M-banking and m-payment have been available in the country for seven to eight years and gained traction in 2007, after the Reserve Bank of India issued guidelines for these services. The mobile financial services industry has the objective of increasing electronic transactions and reducing dependence on cash as a payment instrument. Given the country’s huge population, the usage is abysmally low at 3-4 per cent. But considering the number of digitally active customers, the adoption rate is higher. It needs to be noted that new technologies take time to mature and gain acceptance; however, we are clearly reaching an inflection point. An increasing number of people are using banking services through mobile devices, which shows that this medium is likely to witness growth. In fact, some banks are now witnessing about a million transactions every month through mobile handsets.

From the commerce perspective, several activities on the World Wide Web are being undertaken through mobile devices. Commercial transactions, with the mobile as a single window, are increasing. The day when banks will be able to tap into the full potential of smart devices, the mobile phone would emerge as the primary device for all transactions.

The under-banked and unbanked customer segments are the potential future market for banks. A key factor, for engaging these segments, is how banks provide customers organised financial services. These are still early days for mass adoption of m-banking and m-payment in India. To expedite m-banking growth, banks and telecom operators are entering into strategic partnerships with the former having considerable knowledge of these services and the latter having deep understanding of the distribution infrastructure. In India, urban areas comprise a large number of unbanked and under-banked customers. India has over 100 million people as rural migrants. If service providers offer income remitting facilities to the migrants, they will witness higher volumes and the concept of financial inclusion will gain traction.

Several trends have emerged in the m-commerce market. First, banks and operators are reaching out to the customers at the bottom of the “customer segment pyramid” as it is easier to convert them into users of m-commerce. In three year’s time, we believe a significant part of the population would be banked through the mobile channel. Second, the concept of mobile wallet is gaining ground among customers at the top of the pyramid, primarily because the mobile device is becoming the convergence point for storing all credentials – payments, identification, etc. Third, with the implementation of new technologies such as bulk messaging gateway and host card emulation, m-banking is set to witness increased uptake.

 Dr Mahesh Uppal

The adoption of m-commerce services, though limited, is rapidly increasing. Customers are more willing to use m-banking for query services than carrying out transactions. People are unable to carry out transactions because they lack awareness or do not have access to suitable devices. Also, issues related to service security and availability, and access to services and applications are impeding uptake.

However, given that the penetration of mobile services is significantly more than that of banking services and that people who do not have access to the traditional banking service platform own mobile devices, m-banking services offer significant growth potential.

 What are the growth drivers for the m-commerce market?

 Sabyasachi Majumdar

Apart from smartphone proliferation, an important growth driver for m-commerce services has been the launch of next-generation services. In addition, there has been an improvement in telecom infrastructure across the country - a case in point being the increased availability of Wi-Fi hotspots at public locations, enabling customers to use m-commerce services such as m-banking.

Growing disposable income, an expanding youth population, expansion of debit/credit cards, greater media exposure, etc. have contributed to growth of the m-commerce industry.

 Srinivas Nidugondi

Creating awareness among customers about m-commerce services and educating them about secure financial transactions through mobile devices will drive growth in the segment. Another important factor is infrastructure development to facilitate the proliferation of financial services and building an ecosystem for customers to enable the use of the payment mechanism.

 Dr Mahesh Uppal

Banks are willing to develop user-friendly apps that can enable customers to avail of services related to query and money transfer/payments. The increased availability of mobile devices in the recent past is another driver. Growing familiarity of customers with m-banking applications is also likely to increase the demand for m-commerce services. Operators and banks are promoting m-banking services across the country.

 What challenges do service providers face in offering m-commerce services?

 Sabyasachi Majumdar

While 3G services have been launched, their overall reach has been limited and the speed of data services remain relatively low, leading to a poor experience in undertaking online transactions. Another impediment is low mobile literacy and limited awareness about m-commerce services as well as mobile transactions, especially in rural areas. Smartphone penetration remains moderate, limiting the uptake of m-commerce services as using feature phones for making transactions is relatively cumbersome.

Another key hurdle in the uptake of m-commerce services is the language barrier, with English being the predominant mode of communication. In addition, many users remain uncomfortable with the concept of plastic money like credit and debit cards, and the inherent distrust in undertaking transactions without any personal interaction continues to be a hindrance. Encouraging such customers to adopt m-commerce services is a challenging task.

 Srinivas Nidugondi

One of the biggest challenges in providing m-commerce services is creating a viable business model that involves both operators and banks. If the two entities do not collaborate, it would difficult to scale up the m-commerce industry. Another challenge is to educate customers (that are using smart devices) about the true potential of mobile as a medium for safer and faster financial transactions. Besides, the consumer behaviour cycle is difficult to predict, which may impact service providers’ strategy. Inadequate distribution infrastructure for m-commerce services is another issue. Infrastructure is critical for the growth of mobile money, especially for under-banked and unbanked customers.

 Dr Mahesh Uppal

One of the biggest concerns of telecom operators is that they are not allowed to provide banking services without partnering with the banks. Language and low literacy also act as key barriers to m-commerce service uptake. Another issue is that smartphone penetration in rural areas is low and most consumers own feature phones, which have certain limitations with regard to apps usage. In this regard, some banking applications that can be operated on basic mobile handsets have now been introduced on a pilot basis. However, the underdeveloped ecosystem for m-banking is an issue. While rural customers will be interested in using such applications as this would be a big substitute for traditional banking platforms, the risk for these customers would be high.

 How are service providers addressing the security issues associated with m-commerce transactions?

 Srinivas Nidugondi

Transactions through mobile handsets are as secure as those based on other digital platforms. In addition, when a financial transaction is being undertaken through a mobile device, it is already protected by the user device ID and the mobile number. On the other hand, in the case of internet banking, a customer can access account and make transactions from any location in the world. Apart from this, all financial systems have several protection layers built into them, ranging from firewall to internal prevention systems, which provides security from threats.

 What is the future outlook for the Indian m-commerce market?

 Sabyasachi Majumdar

The outlook for the m-commerce market is positive. There is a strong potential for growth in market volumes, given the country’s large population. Rising incomes and proliferation of smartphones are expected to further drive the uptake of m-commerce services. Profit margins for m-commerce service providers are also likely to improve as volumes increase and operational costs decline.

 Srinivas Nidugondi

Clearly, mobile would be the primary medium for making payments and financial transactions in the future. A significant trend that the market will witness in the coming years will be greater adoption of near field communications and QR code technologies, which will enable consumers to make payments through their mobile phones. Thus, the question is of “time and not if” for m-commerce services.

 Dr Mahesh Uppal

If issues related to availability of services as well as user-friendly applications are addressed, m-commerce will offer huge business opportunities. M-commerce services enable companies to improve their customer reach. These companies would otherwise find it very difficult to serve rural customers as the physical infrastructure for delivering services in rural areas has not been developed. Meanwhile, for  m-commerce service providers, the large market size for these services will compensate for low margins.