The March of Mobile Money THE FUTURE OF LIFESTYLE MANAGEMENT SAM PITRODA & MEHUL DESAI The March of Mobile Money THE FUTURE OF LIFESTYLE MANAGEMENT SAM PITRODA & MEHUL DESAI First published in India in 2010 by Collins Business An imprint of HarperCollins Publishers a joint venture with The India Today Group Copyright © Sam Pitroda and Mehul Desai 2010 ISBN: 978-81-7223-865-0 2 4 6 8 10 9 7 5 3 Sam Pitroda and Mehul Desai assert the moral right to be identified as the authors of this work. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers. HarperCollins Publishers A-53, Sector 57, Noida 201301, India 77-85 Fulham Palace Road, London W6 8JB, United Kingdom Hazelton Lanes, 55 Avenue Road, Suite 2900, Toronto, Ontario M5R 3L2 and 1995 Markham Road, Scarborough, Ontario M1B 5M8, Canada 25 Ryde Road, Pymble, Sydney, NSW 2073, Australia 31 View Road, Glenfield, Auckland 10, New Zealand 10 East 53rd Street, New York NY 10022, USA Typeset in 12/18.3 Dante MT Std InoSoft Systems Printed and bound at Thomson Press (India) Ltd We would like to thank the entire C-SAM family and its well-wishers, without whom this journey would not be as enriching. We would like to thank Mayank Chhaya, without whom we would not have been able to complete this book. We would like to thank our better halves, Anu and Malavika, without whose companionship this journey and book would not be as meaningful. Contents Preface ix Introduction xv 1. UNPRECEDENTED CONNECTEDNESS 1 2. EVOLUTION OF TELECOM COMPANIES 19 3. EVOLUTION OF BANKS 36 4. EVOLUTION OF MERCHANTS 59 5. THE LEATHER WALLET 78 6. EARLY EXPERIMENTS 91 7. SMART PHONES 112 8. THE MOBILE WALLET 127 9. LIFESTYLE: PIPE, FUND AND PROVIDER 155 10. THE FUTURE OF MONEY 170 11. INDIA – THE POWER OF A BILLION 190 CONNECTED PEOPLE Index 207 About the Authors 223 Preface itting across from her at the dining table in our Chicago home one late evening in the early 1990s, as I saw my wife, Anu, write cheques for numerous bills – groceries, gas, retail, travel, entertainment, Sutilities, credit cards, and others – it occurred to me that there must be a better way to do this somewhat monotonous task. I asked her how many hours on an average she spent writing cheques and paying bills every month. She replied with noticeable exasperation, ‘at least eight to ten’, what with my children and I having our own set of cards, everyone spending indiscriminately, some wanting airlines miles in return and others collecting loyalty points for discounts on the new fashions at department stores. If I then added the time she would spend in screening each statement for potential fraudulent charges, organizing $(-#. receipts, cutting paper coupons from the Sunday newspaper, these ten hours quickly stretched into what seemed to be a $(*+,# criminal waste of time, especially given all the technology () and tools around us. As I watched Anu that night, it struck me that she was not alone in her frustration, and that countless $%&'" other women, men and families all over the world could !"# do so much more with their time than write endless paper cheques every month. In the early 1970s, I had invented the digital diary, which digitized the ubiquitous paper diary in which we store our contacts, appointments, and other details that get us through our work and personal engagements on a daily basis. Several companies, such as Toshiba, Casio, Radio Shack, Sharp, and Texas Instruments, were responsible for making my invention a household commodity among people in di/erent age groups from the US to Japan. Little did any of us know then that the digital diary was to later evolve into the personal digital assistant or PDA hand-held computer, and eventually morph into the smart phone that would combine the PDA and mobile phone into the modern-day equivalent of the Swiss knife. That night, as Anu continued to write cheques, I decided to solve what then appeared to be a relatively simple problem. x I had just returned to the US from India after spending over a decade helping the government indigenously develop and launch a nationwide telecommunication infrastructure that would eventually lead to India’s rise as a global Information 1&#)%'# Technology powerhouse. Given my background in technology, with several worldwide patents on telephony and digital switching issued to me over the years, I called my patent attorneys in Chicago and asked them to send me all the issued patents related to credit cards and electronic payments. As the rest of the family sat watching television every evening, I went over a hundred di/erent patents issued by the US patent o0ce, on what appeared for the large part to be inventions on chip-on-cards, or smart cards as the industry calls them. What seemed very obvious to me was the need for a digital wallet, where, quite like the digital diary, we needed to digitize the entire leather wallet – leather jacket, plastic cards, paper receipts, et al. So now Anu, instead of buying an empty leather wallet and stu0ng it with plastic cards from banks, airlines, insurance companies and so on, would buy an empty digital wallet the size of a plastic card with a touch-sensitive colour LCD screen to preserve the image and branding of these cards. She would still approach the same set of providers that sent her these plastic cards, but now request an electronic version of these cards that could be securely and wirelessly sent directly over-the-air to her xi digital wallet. Once her digital wallet was loaded over the air with all the cards she typically carried around in her leather wallet, $(-#. she could go out and transact. Instead of swiping a plastic card, she would now ‘beam’ a card using infrared, proximity $(*+,# radio frequency (RF) or bar-codes at a retail location or beam () it over-the-air to pay a bill to a utility company, to transfer funds between bank accounts or possibly pay for a book from $%&'" a web-store like Amazon. Similarly, the receipt for these !"# transactions would now be beamed back to her digital wallet, archived electronically, and potentially used not only at tax- time but also for other user-approved or opt-in pro2le-driven value- added services. Not only would this simplify Anu’s life, but also the settlement between the stakeholders in the value chain – numerous banks, merchants, issuers and acquirers. With the raging debate on global warming and the damage we have done to the environment, the opportunity to signi2cantly reduce the use of paper and plastic through this digital wallet should be incentive enough to start making the necessary changes to the infrastructure, which, as one can well imagine, would not be a simple task given the installed base of retail terminals. Assuming that there are over 4 billion plastic cards manufactured every year in the US alone, and billions of paper receipts printed in multiple copies, going all digital through paperless transactions and electronic receipts would help substantially in preserving the xii much-needed forest cover every year. I 2led my 2rst patent on the mobile wallet concept in the US in 1994. This patent was issued in 1996 and set o/ my co-author and I on an unbelievable journey over the past 1&#)%'# sixteen years (and counting). The journey has spanned all 2ve continents, from the top of the demographic pyramid to the bottom, resulting in our setting up commercial enterprises, and becoming the driving force behind rethinking various socioeconomic challenges that directly fuel disparity across the world. I have said this many times in public speeches that if we had known then what we know now about the inner workings of the transaction industry the world over – and the role that big business lobbies, vested interests, money power, inertia to change, and a rigid mindset play – we would not have embarked on this journey to single-handedly take this disruptive technology forward. At the same time, just like other life-changing journeys, we would not trade this one for anything else in the world. This is where I believe ignorance and arrogance help – ignorance of complexities, bureaucracies, and fears that ‘It cannot be done’, and arrogance to have the inner strength and con2dence that even a small, unknown person can make a di/erence and transform the entire industry. The March of Mobile Money is the story of our journey and our missionary work, which started from my dining table in Chicago and continues to unfold as we uncover layer upon xiii layer of intriguing complexities, many a time fuelling special interests. In this book we have attempted to present to the $(-#. reader some background information on the three industries that have gone through major transformation in the last ten $(*+,# years due to the Internet, web-based services and evolving () business models – namely telecommunication, banking and retail. More importantly, however, we have presented our $%&'" vision of how transactions, and fundamentally, the nature !"# of money itself, will change as we start spending bits and bytes on mobile phones. Money on mobile phones has the potential to reach 4 billion people in a very short time and bene2t not only the rich at the top of the pyramid but also the unbanked poor in Africa, Asia and Latin America at the bottom of the pyramid, with micropayments, microloans and other 2nancial services.