Mobile Payments in India: A Guide

Mobile payments in India have gained immense popularity in recent years, with a large number of users adopting digital payment methods. The Reserve Bank of India (RBI) has set a target to increase digital transactions to 30% of the total transactions by 2023.

One of the key factors contributing to the growth of mobile payments is the increasing penetration of smartphones in India. According to a report, there are over 500 million smartphone users in India, which is a significant increase from 2015.

Mobile payments in India have gained significant traction in recent years. The Immediate Payment Service (IMPS) was launched in 2010, allowing customers to transfer funds instantly through mobile phones.

Over 900 million mobile subscribers in India make it an ideal market for mobile payments. The basic aim of IMPS is to enable micropayments on low-end mobile devices, making it accessible to a wider audience.

IMPS has gained popularity, with 722 member banks providing the service as of April 2023. The model for delivering IMPS in India is bank-linked, requiring customers to have a registered mobile phone account, a bank account, and register for the mobile payment service with the bank.

Here are some key statistics on mobile payments in India:

The shift towards digital payments is expected to continue, with UPI aiming for two billion transactions a day by 2030.

Financial services in India have a long way to go, especially when it comes to mobile payments. The literacy rate in India is a major challenge, but voice-based services offer a potential solution, working on all handsets and usable by anyone, regardless of their comfort level with technology or literacy level.

In 2016, India's push to digitize its society started to gain momentum, but e-payments were slow to catch on, with 96% of transactions still conducted with banknotes. The National Payments Corporation of India (NPCI) launched the payment infrastructure UPI, allowing users to transfer money instantly without entering bank details or paying transaction fees.

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The adoption of digital transactions in India has been rapid, with the number of UPI transactions topping 100 billion in 2023. Indians use UPI to pay for everything from vegetable vendors to doctors, and the government expects the upward trend to continue, further boosting the number and value of funds flowing into the formal economy.

There are still some holdouts, like Azeez, a 34-year-old rickshaw driver in Old Delhi, who is too scared of losing money to use e-payments. He's uneducated and poor, and worries about making a mistake.

Mobile financial services have several drivers, including high penetration of mobile subscribers, convenient mobile top-up services, and a growing demand for mobile services like ring tone downloads and cricket updates. The cost of cash handling, storage, and transfer is very high in the informal sector, making mobile payments an attractive option.

The un-banked population in India can be classified into three categories: those who don't open accounts due to lack of banking infrastructure, those who don't pass the required account opening criteria, and those who see no need to open an account. Mobile money solutions can make managing bank accounts easier, faster, and cheaper for both customers and banks.

A common need among the un-banked is a low-value, low-cost loan, for which they typically offer no collateral. Mobile payment solutions can provide an effective channel for money transfer for both categories of the un-banked.

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Mobile payments could also open the possibility for new business models, allowing people to pay and receive even small sums of money almost instantly. This has already led to the entry of various value-added services based on mobile payment transactions into the market.

Here are some of the key drivers for mobile financial services in India:

BBPS offers a range of online payment methods, including Internet banking, UPI, and mobile app payments.

The platform is interoperable, allowing users to make payments across different service providers.

BBPS is designed for recurring payments like utility bills and mobile recharges.

It's a recent launch and is yet to gain traction in the country.

Users can automate recurring payments to services like gas, electricity, water, DTH, and telecom on a monthly basis.

You can check out Setu's BBPS product here.

Mobile payments in India have become increasingly popular due to the convenience and speed of transactions. With the rise of mobile payment options, Indian consumers can now pay using their mobile phones, eliminating the need for cash or change.

Plural, a payment aggregator, assists businesses in setting up a robust mobile transaction ecosystem with payments infrastructure that supports countless online payment methods. Plural Links, a fully customisable payment link solution, conveys trust and transparency to customers.

Here are some popular mobile payment methods in India:

The Reserve Bank of India (RBI) has granted in-principle authorisation to Plural to operate as a Payment Aggregator, and to Setu to operate as an Account Aggregator. This move is expected to further boost the growth of mobile payments in India.

Immediate Payment Service (IMPS) is a 24-hour, 7-day-a-week, interbank electronic fund transfer service that allows customers to use mobile instruments to access their bank accounts and transfer funds.

IMPS was launched by NPCI on November 22, 2010, and has since become a widely used payment service in India. As of April 2023, there are 722 member banks providing IMPS as a service.

If this caught your attention, see: Immediate Payment Service

A person can use IMPS to send money to anyone who has also subscribed to the service, regardless of their mobile network or bank. This interoperability is a key feature of IMPS.

To use IMPS, customers need to have a registered mobile phone account, a bank account, and register for the mobile payment service with their bank.

The key features of IMPS Funds Transfer include instant funds transfer, 24-hour, 365-day availability, credit and debit confirmations to sender and receiver, and fast, inexpensive, safe, and secure access.

IMPS can be initiated through various channels, including SMS, Bank Mobile Application, and USSD (*99#).

The transaction flow for IMPS involves the customer's bank, a mobile payment provider, a central switch, and the payee's bank. The customer initiates the transaction by sending an SMS to the bank's gateway, which is then processed by the mobile payment provider.

The following are the details required for an IMPS transaction:

A successful transaction will be notified by an SMS to both parties.

The Mobile Money IDentifier (MMID) is a seven-digit number given to a customer upon registration with a bank for mobile financial services. It's used to identify a user participating in a transaction.

The MMID is made up of four digits to identify the bank of the user and three digits to identify the account of the user. This design allows customers to operate multiple bank accounts linked to a single mobile number, each with its own MMID.

Here's a breakdown of what the MMID looks like:

The MMID is not a secret and doesn't give away any sensitive information about the customer. It's simply an identifier that can be publicly shared, like a merchant's mobile number and MMID, to receive payments from customers.

USSD is a transaction method that allows users to initiate payments over mobile phone networks. You can access USSD by dialling *99# on your phone.

USSD provides an interactive telephonic menu that guides users through the transaction process. This includes inputting the payee's mobile number and MMID, and the user's own MMID and PIN for authentication.

You can perform various transactional functions using USSD, including account-to-account fund transfers between different banks. Inquiries for the bank balance and bank statement inquiries are also possible.

USSD works in 13 different languages, making it a convenient option for users who may not be comfortable with English. Almost all major network operators provide USSD-based payments.

Here are the transactional functions you can perform using USSD:

Mobile payment options in India offer a range of convenient ways to make transactions. One such option is application-based, where banks provide a Java application that can be downloaded on a Java-enabled phone.

This application guides the user through the money transfer process, making it a secure option. An SMS sent through this application is as secure as an Internet banking transaction, since it can be encrypted between the user and the bank.

The application-based system is user-friendly and easy to use, with a simple process that makes it accessible to a wide range of users.

Here are some key features of the application-based system:

This system is available on various channels, including SMS, Bank Mobile Application and USSD (*99#), making it a convenient option for users.

SMS and IVR is a powerful combination used for transactions on mobile phones without Java capabilities. It's a simple yet effective way to complete transactions.

An SMS is sent to a phone number provided by the bank, and an IVR call-back is used for authentication. The transaction is carried forward as a voice-based transaction, at the end of which the user will be prompted to enter the MPIN.

The SMS channel is used to send notification messages, while the IVR channel is as secure as a GSM channel. This is especially useful for users who may not be comfortable with technology or have limited literacy.

Here's a breakdown of how an SMS-IVR transaction works:

This combination of SMS and IVR makes mobile financial services accessible to a wider range of users, including those with limited literacy or no Java capabilities.

Mobile payments and mobile banking have some key differences. One major difference is that mobile payments don't require you to know the other person's bank account number to transfer money.

In mobile banking, you need to know the account number of the person you're sending money to beforehand. You also need to have their account registered with you. This can make transactions like buying tickets or paying auto fare more complicated.

Mobile payments, on the other hand, mask the account number, making transactions like these more convenient. This is a significant difference between the two systems.

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UPI, or Unified Payments Interface, is a preferred mode of digital mobile-based payments in India today. It allows you to directly transfer funds from one bank account to another immediately without any charges.

In March 2023, there were 399 banks live with UPI facilities in India. The UPI transaction volume was a staggering ₹14,10,443.01, which clearly demonstrates its immense potential.

To initiate a mobile transaction using UPI, you just need a mobile phone and a bank account. This makes it easily accessible to a large number of people.

Here are some key statistics about UPI in India:

These statistics show that UPI is a widely accepted and used payment system in India, with a large number of banks and transactions taking place every month.