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IIM-Bangalore • Financial Services • Axis Bank Ltd.

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 AXIS BANK LTD. CASE STUDY

Using Mobile Phones for Payment Systems in India

A Case Study
Introduction
Axis Bank and Empays Payment Systems have collaborated to launch an innovative payment system in India called IMT. The
launch was quite low-key, for reasons as explained later in the case. Axis Bank felt that the reach and expanse of mobile phones
needs to be harnessed into a channel that banks can use in a regulator-friendly way. When Empays Payment Systems brought
in the concept of Hal Cash to India, Axis was ready to work with Empays to make this a reality.

The Scheme
IMT is a very simple, easy to understand way of making Instant, Safe and Secure payments from your bank account. This is
how it works. A person having an account in one of the member banks wishes to make a payment to another. He first pre-
arranges a PIN with the recipient, which is any four digit number easy to remember to the two of them. He uses any of the
channels available to him (such as ATM, Internet or by going to the Bank Branch) to initiate an IMT to the recipient. To do so, he
provides the mobile number of the recipient, the pre-arranged PIN, and the amount to be sent. The bank collects this
information, ensures the sender has the funds, and issues an IMT which is collected by the Empays Node in Vashi. The Empays
Node sends an SMS to the recipient’s mobile a second PIN unknown to the sender and the sending bank. The recipient gets the
SMS, which tells him that he has received IMT for the specified amount, and the second PIN. On getting this SMS, he gets cash.
How does he get cash? The recipient may or may not be an account holder in any of the banks that is part of IMT. If he is, he
authenticates himself (using his debit card) at any of the ATMs that is linked to IMT, and enters the following four pieces of
information – his mobile number, the pre-arranged PIN, the second PIN he gets by SMS, and the exact amount. If the details
provided match the information stored in the Empays Node, the ATM dispenses cash immediately. The recipient gets the SMS,
which tells him that he has received IMT for the specified amount, and the second PIN. On getting this SMS, he gets cash. How
does he get cash?
The recipient may or may not be an account holder in any of the banks that is part of IMT. If he is, he authenticates himself (using
his debit card) at any of the ATMs that is linked to IMT, and enters the following four pieces of information his mobile number, the
pre-arranged PIN, the second PIN he gets by SMS, and the exact amount. If the details provided match the information stored
in the Empays Node, the ATM dispenses cash immediately.

In case he does not have an account with any of the banks linked to IMT or may be he is unbanked, all he has to do is to register
himself with any of the banks (at a branch) that is linked to IMT, providing proof of residence and proof of identity.
After he has registered, he can avail of cash at an ATM by performing a Card Less Cash Withdrawal.
 AXIS BANK LTD. CASE STUDY

The money can be obtained within 14 days of the transaction being issued within which time the recipient can get himself
registered if needed after which the transaction rolls back completely.
Axis Bank is the first bank to launch this scheme in India. As a bank that seeks to provide solutions to every banking need, we
view IMT as an important asset that satisfies a felt need.

The Environment
The Indian landscape is predictably complex, but let us summarise some of the key environmental factors that impact this area.
Spread of Banking Channels vis-à-vis Mobile Phones
India has a paucity of banking channels, which directly contributes to the problem of financial inclusion.

The use of mobile phones to spread banking services has been tried before in other economies most notably in Kenya
(Vodafone's MPESA service), Brazil (Oi's Oi Paggo), and Philippines (Smart Telecom's SMART PADALA and Globe Telecom's
Globe Finance). The spread of similar schemes in the Indian economy has been affected by regulation.
The Regulatory Position
The Reserve Bank of India prides itself on its (relative) independence from the Government of India, and is conservative in
nature due to cultural factors dating back to its founding as a private institution. The regulatory position here can be summarised
as follows:
• Banks are allowed to extend banking services through the use of Banking Correspondents (BC), who in effect are agents of
banks. Recently, after the UPA Government was re-elected, rules in regard to Banking Correspondents have been relaxed. A
BC can now be a profit-making institution subject to certain rules. Further BCs can now perform the task of identification of
bank customers. Almost any institution can now become a BC. However a BC cannot be discriminatory in nature i.e. an
individual need not have be part of a network or a “club” in order to access a banking service. This makes it difficult for phone
companies to set up “closed” payment systems for their subscribers.
• The Payments and Settlements Act 2007 formalised the role of payment systems in the country, and RBI now has a separate
Department of Payment Systems. The law now makes it incumbent upon payment service providers to be registered.
• Further, a deposit-taking payment service provider needs specific permission from the RBI who has made it clear that
unregulated (i.e. institutions not regulated by the RBI) entities will not be permitted to take deposits.
• Under pressure from the Government, the RBI has permitted the launch of “Semi-Closed Wallets” by phone companies, who
 AXIS BANK LTD. CASE STUDY

need to obtain a Payment Service Provider license. Under this scheme, the phone subscriber can open a SCW with his
provider and make a deposit of money into it. Using this, specified bill payments can be made by the phone company on
commission basis.
• Money laundering guidelines have been tightened up in recent times. KYC (Know Your Customer) information collection is
now mandatory for all participants in the financial system. Further the KYC needs to have the imprimatur of a bank regulated
by the RBI. Any scheme that uses the customer information collected by a phone company has to be backed by a bank under
the BC scheme.
• All banks have to show plans and progress to the RBI along four separate lines: Loans, Deposits, Remittances and Micro
Loans. As a result, inclusion and extension schemes are now a top priority for the bank.
Competition
A number of players exist who offer the use of mobile phones to provide various kinds of financial services. They can be
classified into two broad categories:
• Payment Service Providers - Enable the use of mobile phones to make payments directly to vendors (such as e-malls,
movies, railways) or to perform Card Not Present transactions to pay for goods using Visa or Mastercard. Examples are
mChek, Atom and NGPay.
• Mobile Banking Vendors - Permit a bank to provide a secure piece of software on the phone that allows them to operate and
manipulate their bank accounts, such as Obopay and CSAM.
In addition there are a number of companies with “store-front” capabilities, who are looking to expand the set of products sold
from the retail presence to include financial services such as remittances. Nokia Money is a prominent example of this
convergence between mobile phone and retail showroom.

Initial Test Market Results

Test marketing was carried out in the last two months to understand the following
• Is the concept easy to understand?
• What are the existing payment habits of the target segments?
• What do they like and what are “the nice to have items” on the concept?
The survey tested the following segments.
• Migrant workers in communities like Dharavi.
• Urban, middle class professionals in Mumbai.
• Traders, SMEs and wholesalers.
The concept was found to be easily understood across all segments, and people liked the fact that the product was instant, safe
and backed by a bank. Research also found that:
• People are averse to providing their account numbers to others.
• Debit cards are not trusted, and credit cards are valued for reward points only People felt that the recipient must be able to
credit his account if he has one, when he/she receives money.
• There was widespread mistrust related to internet banking, but people were willing to transact from a mobile as long as it was
easy and backed by a bank.

Reaction from other Banks

The process of affiliating other banks has begun. However, this is a slow process, and is driven by internal calendars of the
banks (they are public sector institutions and hence not very dynamic).
 AXIS BANK LTD. CASE STUDY

The challenge
The case involves looking at creating an entirely new payments channel.This has the potential to change the entire landscape
of how payments are made in India. The challenge is also to create a brand and position it in the payments space to create
maximum value for all stakeholders. The students should look at this product in an open-ended manner and identify possible
ways of delivering this product to customers.

The scope of work

The scope of work would be to
a) Identify target customer segments and corridors.
b) Identify competition and how does this product compare.
c) How do we connect to such clients.
d) What are critical success factors for this product keeping in mind the target audience.
e) How do we price the payment service and indicative financial projections.

Budget
The budget for the project should be such to make it financially viable with a profitable IRR