Friday, August 1, 2008

Mobile phones double up as credit cards

Credit cards came into India long before mobile phones did. But when it comes to penetration levels, credit cards are nowhere close to mobile phones. India has over 250 million mobile phone subscribers, as opposed to only around 10 million credit card holders.

There could be many reasons why credit cards have not picked up in India. Foremost amongst them is the fact that banks are rather choosy when it comes to issuing credit cards. They often turn down applications on bizarre grounds.

For instance, two banks turned down my application for a credit card on the ground that I am a journalist (cops, lawyers and scribes are a dangerous customer segment, too, I am told).

Besides, few people meet the minimum income criteria set by the banks. In India, taking large chunks of payments in cash in order to avoid tax is still a very common practice, especially amongst the self-employed, traders and business communities. As a result, the legitimate annual income (or income in white) is often much lower than the actual income, making the person ineligible for owning a credit card.

Today, there was news that the apex bank--the Reserve Bank of India (RBI)--is in the process of formulating guidelines for a payment system using mobile phones. RBI is in discussions with banks, service providers and industry bodies to develop the payment system.

"The rapid expansion of this mode of communication has thrown up a new delivery channel for banks," RBI said in the policy statement. The apex bank plans to post the draft guidelines for this payment system on its Web site by Jun. 15.

Mobile phones as credit cards may well face some of the challenges that banks have faced issuing credit cards, such as meeting the minimum annual income criteria, checking the track record of the mobile user, hiring recovery agents to deal with defaulters etc.

But, on the whole, mobile phones have wider acceptability than other gadgets. Even the educated, upper-middle class in India has concerns using the credit card for transacting over the Internet. It would be interesting to see if people get over those fears when their mobile phone doubles up as a credit card.

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