PYMNTS.com asked industry expert and author of Paying with Plastic, David S. Evans to profile industry thought leaders and executives to find out what’s next in the world of payments.
For this exclusive NEXTcast interview, Co-Chairmen of the Prepaid International Forum for India, Amit Sethi and Sachin Khandelwal sit down and weigh in on the prepaid ecosystem and what’s driving innovation.
EVANS: Hello, this is David Evans. PYMNTS.com asked me to interview two experts today on prepaid, and we’re honored to have with us today, Amit Sethi, who is the managing director of India and South Asia for TSYS and is also the Co-chairman of the Prepaid International Forum for India, and we also have Sachin Khandelwal, who is the senior general manager for ICICI Bank and is the Chairman of the Prepaid International Forum for India. So, Amit and Sachin, thank you very much for joining me, today.
If I could begin by just asking each of you to just say a couple of words about how you got into payments and what your current position is. So, Amit, maybe if you could go first. How long have you been in payments, and what are you doing now?
AMIT: I’ve actually been in the banking and payments industry for the last 23 years or so. I started my career in banking with Hong Kong and Shanghai Bank, primarily in corporate banking and cash management services, which is the wholesale-payments piece of the business, banking business and then, subsequently, worked at Bank of America in San Francisco, in the merchant acquiring business and then moved to retail banking and capital markets, and then, eventually also worked for Visa International in San Francisco. So I’ve been in payments for a long time. I also worked for some technology companies, like Oracle, in the outsourcing space. So, in a sense, it’s a combination of financial services, payments, technology and outsourcing.
And payments, as you know, is a very technology-intensive business. It’s a very technology-driven business. My current role at TSYS is, I’m the managing director for the India and South Asia division, responsible for business development activities within this region, as well as overseeing our software development and customer-support activities out of India.
So, we currently have about 300 people in India, and we are growing in this market. We believe that the Indian market holds a lot of potential, from a payments perspective, as, currently, over 90% of the transactions done in the Indian market, consumer transactions, are in cash. So, the potential for all forms of payments, credit, debit, and especially prepaid, is very high.
Evans: Sounds like a great opportunity. And, Sachin, maybe just a few words about yourself?
SACHIN: Out of 17 years, I’ve been with ICICI Bank for the last 10 years. Most of it has been on the retail banking side, out of which the last four years, almost, is considering around the payments group. I’ve taken care of our credit, debit, prepaid cards business and merchant-acquiring and e-commerce. We sit in a vantage position with about 35 to 40% market-share in these businesses, and I’ve worked very closely with Visa, MasterCard and even with the regulator in drafting a lot of guidelines on prepaid in the last year or so.
EVANS: Excellent. Amit, I’m going to start with you for the first question. From where do you sit in the prepaid ecosystem and what are the next killer innovations in prepaid?
AMIT: Our position in the prepaid ecosystem, or in the larger payments ecosystem, is really two-fold. Number one, we are a full-service, outsourced provider of payment services, both observation, clearing and settlement and value-add services, and managed services around payments. In addition to that, we also sell technology, so we license software for clients to implement for in-house deployments. We offer both flavors, outsourced processing as a third-party service provider, along the entire value-chain of payments, as well as providing licensed solutions to clients.
We believe, very strongly, in the prepaid market – because it’s a growing market around the world, and as a validation of that, we have been a patron member of the PIF since 2007, and we are a patron sponsor of the PIF India chapter as well – and this chapter was started in August of 2009.
In terms of our own credentials, we have wide experience in the prepaid space, having processed 19 million accounts, globally, for a variety of large to medium-sized banks and prepaid program managers. So, there’s a wealth of experience that we bring to the table.
From our vantage point, we believe that technology is a key enabler and differentiator for providers around the world, and, specifically, what is important in this space is having low-cost solutions – cost-effective solutions – and scale, in the business, that enables providers to drive down the costs and increase the profitability of the prepaid business. Over and above that, technology also enables the prepaid providers to provide innovative programs, products and pricing to the customer base in a variety of different vertical markets.
We see innovation, in the future, coming from various channels. The key channel, for a country like India is mobile. There are about 500 million-plus mobile subscribers in India, but it is a matter of time until prepaid and mobile get combined and prepaid is offered on mobile devices.
EVANS: So would you say, Amit, that the combination of prepaid and the integration into mobile phones – is really the killer innovation that could transform the payments business in India?
AMIT: From a channel perspective, clearly. And, of course, Sachin would have his views on that, being from one of the leading banks that is driving the prepaid market in India, but over and above that, I think the other innovations will come from entering into different vertical segments of the prepaid market, specifically areas like remittances and money-transfers, government-benefits payments – which apparently – is a market that is still nascent and growing. And the other area of opportunity is transit and transportation solutions. So, there are a couple of areas that have high potential, and eventually, down the road, I think the Indian market is going to take innovations that have been done in other parts of the world. Plus, there will be a lot of domestic innovations that can be exported to other parts of the world, as well.
The other key area of opportunity I see, beyond these markets that I mentioned, is also healthcare.
EVANS: Let’s turn to Sachin. If you are a venture capitalist investing in prepaid right now, where would you put your investors’ money? Would you put it in healthcare, remittances, in money transfer, payroll or something else? And feel free to answer that either with respect to India or with respect to other geographies that you think might be interesting.
SACHIN: Given our exposure, and largely due to being an Indian bank here, let me restrict myself to India. The one more area which is not mentioned by you is transit, so let me just rank them and give my reasons where I would put some money .
Remittances and money transfers are big. There are 100 million domestic workers in India. If you know, remittance – inward-remittance, overseas remittance, India is the largest inward-remittance market; 50 billion out of 350 billion total market last year – dollars, and other than that, there is a 100 million working population, so money transfer and domestic remittance is a large opportunity. That is a big one.
The second one is around payroll on the government-side. While payroll and prepaid has been done in the private sector and by us and some other banks, the government payment and government departments, which is a very large number – that’s a huge opportunity. Somebody just needs to crack that, in terms of getting the right hardware-software combination going.
In healthcare, one has to separate them in India, in wellness and insurance. For insurance, the penetration is very low, hence, the potential is high, but the larger opportunity in healthcare is in the second segment, which is wellness, because you’ve got government hospitals, and once there is unique ID, you can walk into any of the government hospitals and get almost – 600 million people could use benefits of these, if there was a prepaid card issued for that.
This is really the order and transit, of course, is again a very large opportunity not yet tapped and – and the fourth opportunity would be transit because it throws open the large number of options for new metro and train and bus and various large-scale transport solutions coming into India, but that is something which is still evolving.
EVANS: Well, let’s stick with you, Sachin, for a minute. So government regulation of prepaid, which I know has been an issue in India. Is this an unfortunate necessity, or is it a barrier to innovation, or both?
SACHIN: You have to keep in mind Amit’s initial comments about the number of people who do not have proper access to banking, and that’s primarily because they don’t have proper KYC and documentation in India. Once we have this unique identity – unique ID card project that will roll out – that will throw open a large opportunity. So, the current regulations are actually opening up, and one has to keep in mind that it’s not just one regulation.
Let me bring to your notice that, while the prepaid guidelines have changed twice in the last nine months, there are clearer guidelines which have come about. One is the business correspondent. In India, if you don’t have banks and ATMs, the rural masses are being allowed to reach out by business correspondents who are attached to banks and work like a bank-branch individual agent. You can do cash-in and cash-out and do your transactions there. So, that has opened up significantly, in India.
Another guideline is the mobile-payments-forum guideline on mobile solutions, which has now allowed the prepaid form factor to come on the mobile phone.
The third thing is allowing cash at POS and this is not just cash back at a POS machine, but you can actually go and swipe a prepaid or a debit card and get cash at POS merchant.
These three large guidelines are opening up the opportunity. The restriction, or the barrier, that has been put in place is largely on mobile, which is a huge carrier in India. It is restricted to bank-account-to-bank-account. However, what they are doing in India is a very significant project on interoperability, but from one mobile ecosystem, you can send money and transfer money to another mobile number, so phone-to-phone money transfer can happen.
If you look at these three, four, guidelines in conjunction, the larger KYC AML – Anti-Money-Laundering and KYC-related restrictions which have been put by the regulator – I think, if you look at all of them together, these are opening up the market in a significant way, and I don’t think they are as much of a barrier. Innovation is coming into the marketplace, in the last few months.
EVANS: Thanks very much. Let’s turn back to you, Amit. What player, in the card ecosystem, does prepaid disintermediate, cannibalize or compliment?
AMIT: First of all, I’d like to mention that prepaid is a very nascent market. It is still in its early stages of growth, and, given the earlier comment that over 90% of the transactions – consumer-payments transactions – done in India are in cash, there is tremendous potential for growth, at this point in time. So, I think, at this point in time, it’s really disciplined and managed growth to the regulatory guidelines, and most of the payments, currently, are in the banking sector – the prepaid payments. So, at this point of time, it’s really going to be validation of the markets and growth.
So, in the short-to-medium term, I don’t expect any player to cannibalize another, since the overall market, itself, would be growing, but eventually, as the market matures, I would expect other entities to enter the market – the prepaid market – as well, namely, mobile operators, retailers, prepaid program managers, but, at this point of time, the market is in growth mode, and the size of the market is increasing, and a lot of the banks are launching new prepaid programs. So, there’s enough business to keep, essentially, prevent cannibalization and achieve organic growth.
EVANS: In India, how is money going to get on the prepaid card? Is it going to be people paying with cash to get money on prepaid, or is going to be the use of credit cards, which, I gather, are limited, at this point, in India? Is it normally going to be the transfer of cash on to prepaid or some other mechanism?
SACHIN: I think the large amount of business growth that will come will come from cash. Now, like I mentioned the business correspondent model, there’s a lot of cash-out possibilities. The retailers, petrol pumps and telecom retailers, in particular, who have reached all the villages of India, they give a large option. What you have to keep in mind is the use of prepaid cards, prepaid products is going to be more from the under-banked and unbanked segment. From this segment, the larger earning and income comes in cash, so the load-in will not happen much at ATM or branches or on the Internet, but a larger loading will happen in terms of cash at cash-in points, and, similarly, the beneficiaries. Most beneficiaries are prepaid. It’s going to be people living in the rural villages and up-country markets where the cash-out option will happen at agents or at ATM’s, and that is where the market will grow the most.
EVANS: Sachin, what’s the impact of innovation on the evolution of prepaid, in your view?
SACHIN: Innovation plays a very key impact on prepaid evolution. Some two or three large changes that have happened in various markets, if you look at globally, have been brought in by regulation or by demand. Government payment on prepaid cards, in Russia, has been implemented on prepaid cards. That has thrown open a huge market.
A classic case is the food vouchers in Brazil. Food vouchers are mandated and compulsory for all employers to offer, and once they’ve moved on to the prepaid platform, it has thrown open a very large market, which has then gone on to expand on to gift cards and other meal cards and various options.
So, given that – the way we see innovation, and innovation in India on the mobile side is very significant, and that will come on something which is either a tap and go solution, which is for a proxy payment, or, if it is a rebate payment, it is a more on uncarded and small merchants.
India has 12 million merchants organized, but only half a million merchants have a card terminal. The balance, 11.5 million merchants, all of them have a mobile phone. The moment one is able to translate that into getting the small merchant to accept payments – because the challenge for somebody sending money to a person that in the villages, will be, what does that person do with the money? If I get money from my earning son on a mobile phone, and I’m living in a village, I need to either cash it out, or I need to buy goods from my merchant, and that is really where the innovation will bring in that next stage of revolution, where I’m saying 11 million merchants, and these 100 million domestic workers who are working outside their home place, can actually start sending money to their hometowns.
EVANS: Excellent. Amit, what are the key enablers for low-cost speed to market in prepaid?
AMIT: Yes. Just to take off on Sachin’s point, it is going to require a lot in deployment of prepaid, both on the consumer side as well as on the merchant side – or the distribution side, if you will – and all of that, in order to achieve the low cost, would require a combination of hardware, software and low operating cost. So, it will be a combination of hardware solutions, as in, devices that can actually cash-in and cash-out, whether they be POS machines or the other tele-machines or some kind of device at the consumer end as well as at the merchant’s end, or the outlet end, and, also, software solutions that reduce the cost of processing over a very large customer base, and I think one of the key things will be government-mandated programs that, essentially, get the scale that is necessary to get the cost down.
And, one of the things that is a little different in the Indian market, compared to other markets around the world, is that the government has programs for financial inclusion, and over their multi-year planning, are planning to get banking services and payments services to people in smaller cities and rural areas – and all of that will be enabled by technology which will require combinations of hardware, software and processing services.
So, the business model will have to be combined by a different operating model, and if you look at a country like India, which has one of the largest populations in the world, there’s a fair amount of scale that needs to be accommodated.
EVANS: What is the penetration of cash machines – what we would call, ATM machines – in India, at this point?
AMIT: The ATM machines- and, Sachin, correct me, if I’m wrong – but I sense, the number is closer to about 50 to 55,000 ATM machines –
EVANS: So quite small, given the size of India.
AMIT: Very small, and if you look at the POS machines, there’s about close to half a million POS machines, so the distribution points will have to go mobile, given the widespread distribution of mobile phones around the country and the ubiquity of phones, even in the rural areas, and then coupled with the business and operating model of use of business correspondents and, perhaps, as and when regulation allows it, use of other distribution networks, like the mobile operator, Prepaid Points or retail outlets, or even the post office, I think, will give the distribution that’s necessary to achieve scale in prepaid.
EVANS: Amit, the final question for you. TSYS, I know, is a key supporter of the Prepaid International Forum. Just generally, what is TSYS’s position in the prepaid ecosystem?
AMIT: Yes. We are one of the world’s largest processer of prepaid payments. Like I mentioned, we process about 90 million accounts, globally. We are the largest private-label, prepaid processer in the U.S., and we are a leading gift card and prepaid-services processer in the U.K. Over and above that, we sell processing services and licensed software to clients in about 23 countries.
When the PIF was started, we recognized the value of the PIF as being an open forum acting as a collective body to share best practices and develop the business models, consumer education and legal and regulatory frameworks around prepaid, and as a result of that recognition of the importance of PIF, we became a patron of PIF, and have been for the last two-and-a-half years.
EVANS: Amit and Sachin, thank you very much for your time, today. You provided wonderful insights and lots of information on India. Really appreciate the time today. Best wishes to you for the rest of 2010, and I hope you guys have a great rest of the day. So thanks, again, for your time.
About Prepaid International Forum
PIF is a global not-for-profit trade association established in 2007 to represent all parties participating on a commercial basis in the prepaid economy.
It is dedicated to the progression of prepaid commerce around the world and acts as a principal point of liaison between the prepaid economy and government agencies, regulators, consumer bodies and the media. It is focused on the entire prepaid world and facilitates the development of cross-industry guidelines and codes of practice.
PIF has attracted a global membership of over 60 prepaid product issuers, programme managers and suppliers of products and services to the prepaid commerce industry spanning four continents. The reach of PIF has expanded across and beyond Europe with firmly established Chapters serving the UK and Europe, Brazil, India and Australia/New Zealand.
For more information, please contact:
Diane Brocklebank, Head of Member Relations
T: +44 (0) 20 3008 8423
E: diane.brocklebank@prepaidforum.org
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