Imagine being able to pay a taxi driver by `sending him an SMS'. A lot of people have cell phones, so person -> person and person -> establishment payments can be achieved with very low frictions, once mobile phones are properly in harness for the purpose of payments. I believe the cost of production of an SMS in India is now roughly Rs.0.02, so perhaps a P2P payment can get done for a flat cost of Rs.0.04. That makes it viable when buying something worth Rs.5 or Rs.10. (Rs. 10 is roughly $0.25 at the present exchange rate).
At the simplest, a payment could go hit a bank account. But when you have a prepaid phone, a payment could dip into the cash that's been deposited with the mobile phone vendor. And, once the mobile phone vendor has got some of your history of payments, he might be willing to take some credit risk and let your account balance go negative, thus giving you credit. This credit could get securitised and sold off on the bond market just as is the case with credit cards. All this could be merely a relationship between the customer and the mobile phone company, backed by bulk investors for securitisation paper, without a role for a bank.
Hence, this will be opposed by banks, who will substantially lose their role and revenues from payments. Poorly run banking regulators will be defensive about banks and will try to come in the way. How this political economy plays out is of critical importance, in judging whether this new technological opportunity will be properly harnessed.
A press release from GSM Association shows new work and focus on this subject. The GSM Association (GSMA) is the global trade association representing more than 700 GSM mobile phone operators across 218 countries and territories of the world. In addition, more than 200 manufacturers and suppliers support the Association's initiatives as key partners. I was very happy to see Indian telecom vendors playing a role in this thinking. I guess India is very big on the global scale in the world of mobile phones (In October there were 217 million mobile phones in the country, with growth of 8 million a month).
Leslie D'Monte has an article in Business Standard about these developments.