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August - 2008 - issue > Cover Story
-mChek-Including-the-Excluded-Millions
Jayakishore Bayadi
Friday, August 8, 2008
It was more than just a dream come true for mChek CEO Sanjay Swamy and his team when they demonstrated the first mobile-initiated person-to-person money transfer to the media on behalf of Bharti Enterprises Chairman Sunil Mittal and SBI Chairman O.P. Bhatt at the International 3GSM Congress at Barcelona in February 2007. This wasn’t a niche application – rather a first step towards realization of the vision for a paperless society; a society where anyone with a bank account and a mobile phone can send and receive money as if they were sending a text message! Twelve months later, mChek received the prestigious GSM Award for the best product in billing and customer care at the same event. This path breaking concept to democratize electronic money had gone from concept to reality and now is progressing towards the vision of transforming the way people live – a convenience for many and a fundamental enabler of financial services for those at the bottom of the pyramid of the society.

This pioneering vision of mChek, a Bangalore based startup, will certainly create multiple dimensions of positive impact to society. For example, today a farmer from a village takes a big risk while carrying large amounts of cash after selling his commodity in a mandi. If mChek has its way, the buyer would make the payment to the farmer through his mobile phone, as soon as he or she receives delivery and the farmer would receive notification of the payment via his/her mobile. Neither has to carry cash. While returning home, the farmer pays money for his farming and household requirements through his mobile. That’s the power of a paper-less and a plastic-less society where your wallet, credit and debit cards and bank accounts are integrated into a petite device you carry.

mChek’s unique solution leverages the mobile phone to enable consumer financial transactions on the go. Simply put, with a bank account, a mobile, and one’s mChekPIN, one can perform a broad range of financial transactions – ranging from sending or receiving money, paying merchants and billers or even buying and selling shares and mutual funds.

mChek is able to bring this value to customers because the platform fundamentally makes for very efficient business – often at a fraction of the cost of a normal transaction; at the same time, the ‘anytime anywhere’ convenience to the consumer make for a win-win proposition across the entire eco-system.

The Opportunity
With over 250 Million mobile phone subscribers in India, and an additional 7-8 Million being added every month, mobile phones are increasingly being looked upon as a medium to reach out to the masses, especially in the rural belt.

“Given that poor connectivity, high costs of opening and operating bank branches, and security risks of cash management are major challenges in India, mobile payments present the most compelling opportunity for India to leapfrog the developed nations”, explains Swamy. “Mobile payments may be perceived for convenience for many, but, it is an essential enabler of financial services for the majority of the population”.

India has about 200 million unique bank account holders. Till now, it was logical to think that vast majority of the mobile subscriber base owned a bank account. But this is changing rapidly as mobile phones penetrate the unbanked masses in India. In fact, about 60-65 percent of the newly added mobile subscribers do not have a bank account. If a mobile also becomes a financial transaction instrument, this could be the significant opportunity for banks in India to leverage solutions like mChek, and bring the masses into the banking fold at a viable cost structure.

Emphasizes Swamy, “Making banking accessible to the distributed masses and enabling banks to serve them in a cost-effective manner will go down in history as the greatest social benefit attributed to technology. The age of anytime anywhere branchless banking is finally here!”

Can the Mobile really be your wallet?
Why does mChek assume that its mobile payment solution will drive people towards banking? The reason is obvious. “Telecom and banking systems are amazingly similar – which is why mobile for banking and payments makes logical sense”, says Swamy. In both segments, a user uses their “balance” (prepaid) or a “line of credit” (postpaid) to transact. In the case of the telcos, the products purchased are limited to whatever one may consume on the phone - talktime, ringtones, and wallpapers. One may check their balance or bill and get an itemized call statement. For most users, banking constitutes making a deposit, making payments and informational services such as balance inquiry and mini-statements.

Now, if mChek marries your bank account to your mobile phone and enables you to perform financial transactions through your handset, it could be of immense value - both to the consumer and to the bank. In other words, if every mobile phone had a bank account attached, people could receive money from government disbursements or may be from family members or as salary and use the same mobile phone to make payments. According to a report, the domestic remittances market is worth over INR 50,000 crores and the vast majority of these transactions are completely cash based, which is an expensive instrument to handle and transport. “If this transaction could go electronic through a mobile, it will eliminate the need for the physical points of presence for money transfer service providers and the need for the sender and recipient to visit the service provider outlets”, avers Swamy.

Creating Social Impact
Additionally, once the user has a bank account, the benefits of banking (in particular, security of money, earning interest and easy recall of transactions) are significant – several users today receive their salary by cash, or withdraw their entire salary from their bank account on the first day of the month itself. This is typically done because of lack of proximity to a bank and a poor acceptance network for non-cash transactions. Not only does mChek allow you to make a payment with your mobile phone, it also allows you to “receive” a payment with your mobile phone – as such anyone with a mobile phone can both send and receive money into their bank account. By keeping money in the bank accounts for a longer period of time, the user can now benefit by earning interest and creating a track record for loans, etc. as and when required.

Mobile as a revenue generator
Not only does the mobile play the role of the wallet, it can also double up as a business platform. For example, an owner of a tiny kirana store may not be able to buy a Point of Sales (PoS) terminal as it costs him around Rs. 10,000. “However, if a petty shop-keeper can use his mobile phone for receiving payments from customers by using his mChek-enabled mobile at a small monthly fee, his mobile phone becomes an inexpensive PoS or even a Kiosk,” says Swamy. This lowers the cost of managing cash as well as enabling simple and thorough tracking and record keeping.

Building Trust
mChek’s vision is to reach a stage where a person should be able to open a bank account when he subscribes to a mobile phone. “Hence, our first step is to bring all the mobile subscribers into the banking fold, second, to set up acceptance networks, and third to spread education about it,” articulates Swamy.

mChek is passing through the early stages of its technology adoption cycle. However, mChek has been successful in winning the trust of many of its early adopters. Anita Pai, Executive Vice President, ICICI Prudential Life Insurance has stated that within two months of enabling policyholders to pay their premiums through mChek, they have collected more than Rs 20 lakhs!

The key challenge for mass adoption would be creating adequate awareness on the convenience and security aspects of transacting through mobile. “Awareness could be built through education from the banks, telcos and the brands people trust and that’s why we are very particular in partnering merchants with right credentials” explains Swamy. He also firmly believes that their success is due to the robust technology that is protected by Intellectual Property Rights (IPR). “mChek has been built for mass scale deployment keeping scalability and security in mind right from day one.” emphasizes Bharavi Gade, Co-Founder, Principal Technology Architect, mChek.

mChek’s adoption gained substantial momentum when Bharti Airtel launched the post-paid bill payment facility on mChek platform during September 2007 – which again vindicates Swamy’s belief in partnering trusted brands.

The Strategy
mChek categorizes customers into four broad segments: people with a phone and a bank account; people with no phone but with a bank account; people with a phone but no bank account; and people with no phone and no bank account. mChek is currently targeting the first and the third segments.

“Early adopters will perhaps be from the big cities - but as awareness and scope of utility services provided through mChek increase, mass adoption will be from Tier-2 cities as people there have money, but only limited options for electronic financial transactions,” opines Swamy.

From another perspective, mChek’s strategy of ‘Think global Act local’ has paid off well in driving uptake of its application. Partnering VISA globally and Bharti Airtel locally is a testament to this strategy, which has enabled them to win on home turf besides giving them the unique and envious capability of providing services across the world.

The Business Model
"Why write a cheque when you have mChek?" asks Swamy. mChek comprises of two business divisions: Mobile Payments is a group that develops solutions to enable money transfers/payments and Mobile Security is a group that seeks to create remote security solutions for financial institutions. mChek derives its revenue from transaction charges paid by telecommunications operators and financial institutions.

Mobile Payments
mChek Payment provides capabilities that allow quick, secure, and profitable deployment for telecommunications firms and financial institutions. mChek Payment enables privacy-protected, fraud-resistant transactions for mobile users through physical merchants and remote transactions, allowing transactions like direct merchant purchases, airtime top ups, online airline tickets purchases, balance inquiries, and person-to-person transfers. Measured against competitors, mChek Payment is the only solution worldwide that provides 'card present' capabilities for remote point of sale transactions.

Previously, over-the-counter (OTC) transactions required a credit card, which increased the risk of credit card fraud, and sometimes led to identify theft. mChek Payment removes the step of having the merchant handle financial details, instead asking the user to directly authorize transactions.

Further, mChek provides access to its services through multiple deployment mechanisms, which allow carriers to customize the application for their purposes while enabling consumers – regardless of carrier – to use the mChek Payment service. To enable this flexibility, mChek Payment can be accessed through an application embedded directly on the service provider's SIM card, through a server-side application, or an independently downloadable JAVA application.

The mChek Technology
mChek is a robust solution that is secure and easily scalable. mChek's platform is built using open source Java frameworks for high performance and redundancy. The platform is deployed on high-end servers with storage area network hosted in a data center. Also, the technology is built in such a way that the customer experience is made simple, easy, and consistent across multiple channels like customer mobile, merchant mobile, E-commerce site, IVR applications, call center PC processes, ATM, and PoS.

The mChek architecture consists of two parts that talk to each other. First, a centralized server system; secondly, the application that runs on the mobile phone. The server has three key interfaces – to banking, telecom and merchant networks, each having a different protocol such as SMS/USSD, ISO 8583, and HTTP and is capable of handling sudden spike in transaction capacity.

"Normally, for banks and telcos to deploy any new technology in their existing technological infrastructure, they need a fair degree of customization. However, mChek architecture ensures seamless integration into the existing infrastructure of mobile operators, banks, merchants, and clearing systems, without compromising on security and thereby preserving the roles and business processes of each of the ecosystem players," says Gade. In fact, mChek application has passed the rigorous Payment Card Industry’s Data Security Standard (PCI/DSS 1.1) and has also been certified ISO 27001/BS7799 compliant.

Also, right from the initial days, mChek was clear that the application should be handset agnostic and lightweight to enable mass adoption. It also knew that, to achieve this, a java based approach will not be sufficient, as people will tend to use the technology more if it comes inbuilt with the instrument or SIM. For instance, a villager may not be able to download the application, which could hinder the roll out of the application to the masses. So, mChek has now developed a SIM-card based approach, where the application takes a small kernel of about 15KB of the SIM that is still capable of enabling all types of transactions. Several leading SIM card manufacturers across the globe have certified mChek’s SIM-embedded solution. Soon, Airtel SIM cards and select handsets of a leading mobile phone manufacturer will have mChek application embedded in them.

Going Forward
mChek, which got its first round of funding from Draper Fisher Jurvetson (DFJ), is planning to raise its second round of funding to expand its operations. The company is also tying up with more Internet players and plans to introduce its services to over-the-counter purchases. mChek plans to expand the scope of services such as bill payment, Internet shopping, merchant transactions across verticals, and enable the much-expected people-to-people money transfer soon subject to finalization of guidelines from the Reserve Bank of India. mChek also operates in Sri Lanka where it has tied up with Dialog Telekom, NDB Bank and Ceylan Bank.

Fifty years ago, firms like VISA and MasterCard had a vision to offer individuals and businesses a better alternative to cash and cheques. Over the years, their version of ‘plastic money’ has transformed currencies and commerce, dismantling economic barriers and transcending national borders by freeing people and businesses to buy and sell with ease and security. Today, VISA’s market cap is $55.98 billion whereas Master Card has a market cap of $34.26 billion.

Perhaps, mChek is also on the same path. As mobile phones have become a necessity even to the people at the bottom of the pyramid, financial transactions through this common instrument will play a key role in enabling real financial inclusion.

Swamy however isn’t taking anything for granted. “This is the second over of the first ODI and we are 4 for no loss”, he states. “A lot needs to happen for us to realize the potential of the industry; and no matter what we accomplish the sheer magnitude of the opportunity and social impact will always make us feel we could’ve done more. However we’ve come a long way – and our secret sauce isn’t just technology or business relationships – it’s our high caliber and committed team.”

With rural financial inclusion especially being one of the key focus areas for India, Swamy and his team have realized the need to reach out to people in remote parts of the country by providing customized value-added services for this market. mChek has been at the forefront in envisioning a series of services that can be only be effectively provided through mobile phones such as village-level railway ticketing, Internet purchases for those without credit cards, and low-cost financial services for the low-income groups through banking agents.

mChek also expects that the next set of service delivery innovations on the mobile will be centred on commerce, entertainment and health and it is geared to drive the next wave of mobile value-added services driven by mChek’s platform and services. Participants in the mobile banking ecosystem (financial institutions, telecommunication providers, and card associations) share mChek’s belief and are eager to realize this enormous opportunity by reaching out to mobile users irrespective of their socio-economic status.

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