A Small Fortune

Let’s talk numbers first. In 1981, the first credit card in India was issued by Andhra Bank. Two decades later, in 2001 (March), the country had 4.87 million cards in circulation, according to Venture Infotek Global, which tracks such data. By March 2008, that number had skyrocketed to 27.5 million. (The March 2009 numbers are not in yet.) Given that a lot of people own multiple credit cards, the actual number of credit card owners evidently would be much less.

Now consider these statistics. India’s first micropayment company, ITZ Cash Card, started operations in 2004. Today, the sector has five major players — ITZ Cash Card, mChek, PayMate, Fino and Beam. Together, their claimed subscriber numbers — there is no independent data source yet — add up to an impressive 15 million (see ‘Plastic Money’).
 
Micropayment companies, though, want more. “We expect our consumer base to grow to 20 million soon,” says Manish Khera, CEO of Mumbai-based Fino, which claims the largest subscriber base of 6.3 million. The next biggest, ITZ Cash Card, part of the Rs 2,177-crore (2008-09 revenues) Zee Group, has 6 million. “We are trying to use the FMCG model to market ourselves,” says Naveen Surya, managing director of ITZ Cash, which has 2,000 distributors in 2,000 towns. “We are looking at a subscriber base of  7 million next year.”

These companies’ growth is driven by the desire to survive, and make profits. That is because the nature of micropayments is such that companies will need lots of subscribers to even remain in business, never mind profitability.

How It Works
So, what is a micropayment? It is a non-cash transaction — using mobile phones or swipe cards — involving payment of less than Rs 250. The basic objective is to enable small purchases without using cash. For example, a villager buying soap worth Rs 20 should be able to pay for it from his mobile. Here is how: a user registers with a micropayment provider by sending an SMS. Post-registration, he recharges his micropayment account using a coupon. He can then go to any merchant registered with that provider, and make purchases by sending SMSes. In such transactions, the profit margin is very low, to the tune of 1.5-3 per cent, which is why companies need massive volumes to run their businesses profitably.

Micropayment companies say their main target customer base is the vast mass of people who have no bank accounts. So far, though, apart from Fino, which has 95 per cent rural customers in its subscriber base, no other company has cracked this segment of the population. Fino provides services such as loans, saving accounts, insurance and remittance to its rural customers.

The other companies have largely been building their businesses based on higher-value transactions in cities, such as paying utility bills, recharging mobile phones, booking railway and movie tickets, renewing direct-to-home (DTH) television subscriptions, paying insurance premiums, and shopping at mom-and-pop stores. Bangalore-based mChek, for instance, has launched pilot programmes to target the poor, such as a cash-free microfinance initiative with Grameen Koota, a microfinance organisation. But most of its revenues at this point come from higher-value services such as DTH payments, for which it has tie-ups with Tata Sky and Airtel. It also has tie-ups with Visa and Mastercard, but not with small shops. “We are less into shopping and more into payments — utilities and mobile recharge,” says Sanjay Swamy, mChek’s CEO.