MPower: An intelligence-based Hybrid Wallet and Micro-Blockchain

Platform

MIT Fintech certificate course: Future Commerce

STRATEGIC ROADMAP

RANDOLPH, Priya | CHEUNG, David | TUREL, Kaiwan | FREIRE, Marusa | CHOUDHURY, Partho

The story of NikkiNikki is a single mother in rural India with two children. She is living day-to-day with little savings and she worries whether she can continue to give her children a better life through education.

To make ends meet, she is supported by her brother who transfers money to her on a monthly basis and also from welfare payments. As there is no easy way to access these funds, she has to walk alongside dusty and busy roads until she can arrive at a Bank correspondent agent, who charges a large commission so she can finally withdraw the cash.

Like other members in her community, she has no financial records, cannot access microfinance. So unless other channels open up to her, she will continue to struggle and worry about the future and that she can consistently provide for her family.

McKinsey Global Institute estimates that Indians, who live like Nikki, lose more than $2 billion a year in foregone income simply because of the time it takes travelling to and from a bank.

The Story of Nikki

Credit Information

Systems Collateral &

Secured Transactions

Systems

Retail Payments,

Remittances(P2P) & Cash

Transfers (G2P)

Savings solutions

360 financial ⁰visibility

Low-Cost, No-Frills Accounts

& Online Marketplaces

Our solution, MPower, will take advantage of the opportunity to develop and experiment new technology-based solutions to address and directly improve the lives of the financially excluded.

There is a new openness and demand for solutions

to empower financially excluded people like Nikki and to move them out of

poverty

Regulators and policy makers see the opportunities and want to

familiarize themselves with the risk profiles of technology-enabled financial services

A collaborative partnership with the Government and Banks will undoubtedly help India to achieve its ambitious Universal Financial Access goals, while empowering people, like Nikki to move out of poverty.

!MPower

This report provides in-depth analysis for the creation of MPower - an intelligent-based Hybrid Wallet and Micro-blockchain Platform that drives Financial Inclusion

Bottom-up approachFragmented solutions. Small disconnected communities. Micro finance. Cash-based economy, reliance on branches

Problem-first methodologyAddressing immediate problems only like lending and purchases.

Business and Infrastructure-focusMicro-Finance Institutes imposed the rules and absorbed risks. Minimal customer-experience focus.

Top-down approachAddress the solution at a universal scale with a broader reach.

Customer-drive, Solution-first methodologyIterative customer-centric design using Hybrid Wallets and Permissioned Local Blockchains for Banks/ MFI.

Technology-focusBlockchain for Financial Inclusion to disrupt existing policies and infrastructure of transacting and integration with Government services.

IMPORTANT ELEMENTS COVERED IN THIS REPORT IMPORTANT ELEMENTS NOT COVERED IN THIS REPORT1. This report touches upon 3 different use cases to

demonstrate the significance of a solution like MPower.2. This report explains the regulatory aspects, its limitation and

recommended changes needed to policies, from an Indian regulatory context.

3. This report presents a business case for Government, Banks and MFI to uptake the solution by highlighting the benefits to them

1. While this research can include use cases for countries other than India, this report does not cover those in the research itself.

2. This report does not cover regulatory aspects from countries other than India.

3. This report does not cover the technical requirements of the solution whose design is explained.

As part of delivering this solution, we will undertake a Plan – Do – Review approach to iterate and strengthen our solution for all stakeholders.

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Rationale behind the currently designed ApproachA brief summary of the Whys and Hows of the MPower integrated solution and research methodology

(Universal Platform - Localized Micro-blockchains extensible to a network of interconnected chains - Data for Social Good)

The Why The How

Financial Inclusion

Zero Cost and Micro

transactions

Benefits to the poor

Regulation

Financial Inclusion

Zero Cost and Micro

transactions

Benefits to the poor

Regulation

1. Digital Transactions are not conducive to Micropayments

2. Infrastructure prevents supporting Digital Transactions for the Under-banked

1. Cash economy denies them even basic benefits like low cost of goods, better living

2. No platform available for brands to discover customers at this segment

1. Not conducive for the lower segment2. Current policies universally applicable to all

payments

1. Hundreds of Millions Still Unbanked2. The Government Of India is trying hard to

provide Financial Inclusion using the Jan Dhan and Aadhaar services.

1. Digital payment method as easy as cash transactions.

2. Support for using these accounts and the Aadhaar in digital transactions and Micro payments.

1. Hybrid wallet common to all banks2. Permissioned blockchain for zero cost

transactions

1. Digital Inclusion provides them their first financial footprint

2. Customer discovery platform for Merchants, Brands and Lending Institutes

1. Proposal to introduce qualifying clauses to the current regulation

2. Hybrid wallet license exclusively to be used for the lower economic strata

!MPower

!MPower

The Global ContextAs extending access to finance to some of 2 billion working-age adults globally is the first building block to build a better life, the World Bank Group set a goal of achieving Universal Financial Access (UFA) by 2020.

• The UFA goal was explicitly defined as “universal ownership of a store-of-value transaction account”. • Based on the specific circumstance of each country, G20 members aim at taking concrete actions to

promote digital financial inclusion at their own country level.• India has committed itself to reach 20.6% of the world’s unbanked people. • It is crucial in India that the policy makers designing financial inclusion, G2P, and electronic governance

have a regular dialogue at the federal and state levels, and leverage resources, to make the channel more viable.

The Indian GoalsIndia has ambitious goals to deliver electronic welfare payments, banking services and digital local government services to each of its 638,000 villages

• Economic development is usually a long journey and digital financial solutions can radically speed the progress at a relatively affordable cost.

• The challenge in the next five years will be to build a robust digital infrastructure that can reach every remote village in India as well as a system that is transparent, eliminates leakage and corruption, and provides a range of services.

• To face this challenge, India has launched new payment banks to bring innovation to the market and has dispensed licenses to a range of fintech companies, telecoms firms, and even the local postal service.

Current pain points in the areas of Payments

Current Pain

points1

Lack of timely

banking services

Long, unwieldy

process to access funds

Low penetration for saving accounts

Untapped channels

Low access to credit in rural

areas

1. Reserve Bank of India, 28 Dec 2015, “Report of the Committee on Medium-term Path on Financial Inclusion”, Accessed on 11th November 2016, https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=836

61% rural credit through moneylenders

and family

Only 3% receive wages directly into

account

Less than 10% receive government transfers

High amount, but low skills Banking Consultants

59% of all households possess a

mobile phone

Rollout of national identify schemes

(Aaadhar, Pan)Only 300 basic

accounts per

1000 population

Nearly 35% of all accounts have

a zero balance

Inability to provide decentralised

banking services

There is a definite opportunity to solve the problem of providing access to real-time payments for the Financially excluded in India as shown in the current pain points

through our Iterative and Structured approach to Use Cases

Review

Plan

Do

● Define Use cases and high level interaction flows with users

● Identify market, ARPU, and LLTV per use case● Identify challenges and potential mitigation

strategies● Confirm strategy and pivot as required

● Develop wireframes and test concepts with targeted customers

● Engage and discuss with regulators to test ideas

● Evaluate potential of use case and pivot as required

● Review feedback from customers and regulators to include in next iteration

Use Case 1:P2P payments

between family members and

friends

Use Case 2:Government

payments and Employee

wage payments

Use Case 3:Purchase for

Goods & Services

Enabling TechnologyBlockchain as

ledger for user financial transactions

Enabling Technology

API integration with Aaadhar and PAN for

authentication

Enabling Technology

SMS communication

MPower will address each of these pain points

USE CASE 1 – P2P transfers between Friends and Family

• 16 Million rural households receive remittances

• Average remittance per receipt is INR 16k (USD 240)

• Each sender sends an average of INR 13k (USD 194) per transfer

• Total number of senders: U-R=19.6 M, U-U=2.7 M

• Total contribution to GDP is USD 10 B (0.5% of GDP)

• 10% leakage is typical in traditional remittance systems in existence today

1. India has one of the largest domestic migrant (inter-state) populations in the world (30% of total)

2. Flows are heavily seasonal, especially between states that are heavily dependent on farming labor and those with arid/semi-arid topographies

3. Urban-Rural and Urban-Urban are the major flows; Rural-Rural and Rural-Urban flows are minimal

4. Government focus and state support is primarily focused towards external inflows, and domestic flows have historically been ignored

• Mostly impacts the poor, lower caste/strata of society, and less educated sections

• Primary usage of domestic remittances is:• Consumer spending (55%)

• Education and healthcare (14%)• Housing (10%)• Debt repayments and entrepreneurial activities (15%)• Savings (6%)

• Domestic inflows have a very critical impact on disposable income and food security within the rural hinterland

RTGS

NEFT

IMPS

Relevant Information

Benefits• Predictable transaction costs benefit both the operator and the

beneficiary – leads to better financial planning for the end beneficiaries

• Turnaround times are greatly reduced – the need for planning remittance scheduling to sync with pay cycles and event triggers is largely eliminated

• Due to absence of physical middlemen, pilferage and corruption is largely eliminated

• Instant confirmations on personal handhelds/mobiles ensure greater transparency and trust

• No artificial constraints on daily transaction volume or ticket size mean that demand for this service does not have an upper ceiling

• Helps improve cash flows within micro-economies (family/friend circles)

Control transaction costs, increase transaction velocity and eliminate transaction leakage to improve the earning power of the beneficiary

Implementation Challenges• Educating the target population would be time

consuming and slow down the pace of uptake• Interoperability across competing operators• Target population is a highly sensitive demographic

for regulators and policy makers, making them more risk averse than usual

• Current regulatory vacuum implies that the tide could swing either ways once rules and regulations firm up

• Scaling up the ecosystem of participating agencies could be time-consuming and fraught with roadblocks not yet articulated herein

USE CASE 1 – P2P transfers between Friends and Family

Market Players

- Central Government- State Governments- Banks- Department of Post- Nonbanks (MNOs)- Banking correspondent companies (BCNMs)

Relevant information

• The Annual financial flow through informal instruments was between 75 percent and 330 percent of the average household income.

• An electronic platform for G2P and P2G payments could save around USD 22.4 billion a year – almost 10 per cent of the total payment flows between the government and households.

Current Situation from Nikki’s perspective

Image Source:S. Banerjee. S. Rotman. S. Rana. (2014)

The Current situation’s pain points

No FI progress Digital cash transfers although is offering movement but no mensurable effective progress in terms of Financial Inclusion (FI)

Inefficiency At least 16 million G2P accounts are being used only for one transaction a month to disburse G2P payments.

FraudRisks of fraud, diversion of benefits to unintended individuals, and collection of unregulated commissions and fees.

Manual costsHigher transaction, administrative and overhead costs of making manual payments, auditing and reconciliation compared to electronic processing.

NO easy access to cash, to financial services and also to other basic

government services.

USE CASE 2 - Government payments and employee wage paymentsDigitizing India’s $100 billion subsidy machine is a massive task organized across ministries, departments, and 29 state governments

Future situation from Nikki’s perspective

Image adapted from S. Banerjee. S. Rotman. S. Rana. (2014)

Benefits

1. Enhancing the reliability of government programmes and simultaneously measuring the effective progress in terms of Financial Inclusion (FI).

2. Enabling G2P digital accounts to be used for other payment transactions like purchase of goods and services and remittances or payments between family members and friends. (our use case 3)

3. Eliminating risks of fraud, diversion of benefits to unintended individuals, collection of unregulated commissions and fees.

4. Lowering transaction, administrative and overhead costs of making payments, auditing and reconciliation.

Implementation Challenges

• Regulatory restrictions on how financial and other organizations can enable and provide G2P payments.

• Lack of coordination among policy experts who design G2P payment channels and those who design financial inclusion programmes.

• Limited information available for risk-averse regulators and policy makers, when assessing the risks of new technologies and new payments services business models.Create incentives for multiple banks to use this platform.

• Need of incentives to multiple stakeholders to use the platform.

Empowered by digital access to financial services, digital payments and electronic

government services (feature and/or mobile phones)

USE CASE 2 - Government payments and employee wage paymentsMaking possible digital payments to users ‘wherever’ and ‘whenever’ they are, and improving their overall economic welfare

USE CASE 3 - Payment for Goods and ServicesNikki’s Monthly Expense and Challenges Faced

USE CASE 3 - Payment for Goods and Services

Implementation Challenges

• Digital illiteracy

• Financial illiteracy among users

• Requires mass scale tick up of digital wallets

• Changes in Regulations permitting payments across mobile platforms

• Interoperability across mobile platforms

Making possible irrefutable payments with flexibility, convenience and benefits.

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Label

• Efficient cash distribution means more cash to afford other monthly necessities

• Time saved for Nikki instead of travelling to withdraw cash from an agent

• Receive financial credits for food into designated wallet

• Provides freedom to choose • Purchase at her own convenience

• Reduce dependency on cash – providing more security

• Allows greater efficiency in transferring funds, with low transaction costs leading to better cashflow management

• More cash available to prioritise and support continued education for her children

• Could lead to monthly savings with better control over her finances

MPower Benefits

The following value propositions were identified through the in-depth examinations of three use casesAnalytics tools help carve out a beneficial proposition for government, for banks and other financial institutions, for merchants and for

customers,. And can guide their future financial decisions by assessing multiple patterns relating to their expenses.

Value proposition for GovernmentMeasurable effective progress on financial inclusion, more efficiency and lower cost for G2P payments, no risks of fraud, no leakage. Government payments linked to a range of other financial inclusion services that enhance long-term customer value by facilitating their participation in a larger transacting ecosystem makes the channel more viable.

Value proposition for customers like NikkiUniversal digital access to various options of payments, ease of use, low transaction and remittances costs, improved overall consumer experience and financial literacy training, as predictive analytics can develop propositions and financial advice around the management of household expenditures, investment and savings advice. For customers, the real value of a digital channel may emerge if several financial inclusion services are bundled and integrated in the same digital access channel. By making the provision of financial services more efficient, technology can allow services to become affordable to users, which in turn allows more users to participate.

Value proposition for banks and financial institutionsImproved ability to offer targeted products that are relevant to the customers, developing tailor-made and add-on products specific to the requirement, once technology-enabled business model will empower the formal financial sector to more easily and efficiently reach disadvantaged Indian households.

Value proposition for merchantsReduction on the cost of cash management refers to the cost nonfinancial merchants incur when receiving, handling, and processing cash payments. Digital payments also lead to simple records, reports and analytics on their business; basic customer relationship management, including offers and loyalty schemes; and credit scoring for formal working capital. Better interest rates for small business owners that are still relying on cash transactions and on unorganized sources for financing their daily working capital at extremely high rates of interest

The Competitive Analysis

Type of assessmentComparative analysis of four key players in the Indian

market

Model usedConvergence of Business Model and Ten Types

Innovation.

Summary of findings● Similar me-too propositions amongst Vodafone,

Airtel and PayZapp - with similar product feature and performance.

● PayTM most disruptive in market with strengths in overall configuration. However, currently focussed on users with Smartphone - thus limiting its ability to access financially excluded.

● Profit models very similar (small transaction fee dependent on size).

● Lack of a player that is focussing on the overall Experience and Profit Model for the financially excluded market.

The Macro-environmental factors conclude that there is indeed a pressing need for MPower to create a ubiquitous affordable digital transactions channel for the lower half of the pyramid, leading to benefits of a digital footprint, and better finances. MPower will provide national (and global) policy makers with a clear approach to address the gaps in the current models of digital financial services for the poor.

Notation : 100 = neutral, >100=positive viable, <100=more risks than opportunity. As seen, Political and Legal aspects can pose risks to this model and it is

imperative to gain the support of Regulation. MPower is economically viable and will sustain amidst current and future environmental, socio and

technological factors.

In summary, the MPower must be: 1. A business model that is flexible to adapt to changes in the

macro environment.2. Developed as a framework that can be seamlessly absorbed

by incumbents for implementing digital transactions.3. Built to connect as many banks as possible to make access

to payments ubiquitous for all. 4. Created as an extensible model to adapt to new

technologies in payments and authentication for digital transactions of the future.

5. Simple and Improve access channels for those already served by banks and other financial institutions.

The Analysis uses the STEEPLE framework to research the macro economic factors governing the viability of MPower.

Weighing the Challenges and Opportunities presented by each of the factors in the STEEPLE framework, we arrived at a score that determined the positive viability of the MPower placed amidst the given Macro-economic conditions.

The Macro Environment Analysis

Social Technological Economic Environmental Political Legal Ethical

• Universal ID being rolled out

• Feature phones still popular

• Blockchain as an enabler for trusted transactions

• High migration from rural to urban

• Interaction through mobile devices becoming key enabler.

• Data sovereignty is key and should be used for social good.

• Focus on reducing corruption

• Real GDP growth in India

• Infrastructure investment from India key driver behind growth

• Interest rate steadily falling since 2012

• Greater share of wallet with youth and Millenials

• India accounts for 5.8% of all global greenhouse emissions

• Policies for digital transactions not suited for financially excluded

• Customer privacy and security is critical

• Barriers to entry to provide payment services

• Financial inclusion is a initiative

Key Success Criteria for MPower

Collaboration with Governments and

Banks

Integration with Customer

Authentication

Simple and intuitive user experience

Security and Privacy via Blockchain

Accessible to all via feature and smartphones

The Macro Environment Analysis Summary

Key Area of Opportunity

Key Area of ThreatLegend

Impact of the Environmental Analysis on MPower’s Strategic positioning

MPower’s Strategic

Positioning

Differentiate on a simple and

intuitive Customer

Experience

Maintain Product System

and Performance as

per competitors

Differentiate on Servicing

Help incumbents

achieve Financial Inclusion targets

Target white space of feature

phones

Based on our analysis of the macro-economic environment and the competitors within India, we have identified a number of key areas that MPower needs to focus on with respect to its strategic positioning.

Create a parallel model while pressing for Regulation

and Policy change

Be an extensible

framework that incumbents can

plug into.

Combine Analytics with transactions to create Data for

Social good.

Innovate in Marketing methods, Customer Retention

Our three use cases will provide an ecosystem of revenue streams to build the case for MPower(facilitated by Localized Micro-blockchain)

1. G2P

2% administrative fee from the government program and employers to distribute payments

Alternate Stream of Revenue Monetizing data and third parties

access to provide use-cases

0.05% Transaction fee on remittances

2. P2P

MPower would pay facilitators an upfront commission within the local localized Micro-

blockchain, as an incentive, to acquire customers and merchants acceptance

3. P2M0.05% Transaction fee from merchants - with more than 20 transactions a month

Financial Modelling and Market Segmentation

Customer Acquisition CostsSince MPower is a further-out model, we use the competitor PayTM’s CAC and make a broad assumption that our Cost will be 2x this number, given factors like Inflation, Increase in acquiring existing competitor customers and the like. The CAC is factored into the Revenue model to arrive at profitability. The CAC unlike other models will rise steadily for atleast 6 years. It is said to stabilize after the 6 th year onwards when a complete eco-system of merchants and businesses shall have been established.

Life Time Value of a CustomerG2P payments being our biggest revenue stream, our main customer is the Government. The Lifetime Value of the Customer is thus to be calculated not on the basis of frequency of payments, but the retention strategy we employ and the profitability we bring to the Government. Our revenue model projects a probable 4% profit to the Government in its G2P disbursements by employing the MPower system.

Market segmentationOver a period of 6 years, and starting with a 0.10% share, we strive to capture a 10% market share in each of our 3 streams:1. G2P – Total G2P disbursals nationwide2. Domestic Rural remittances

a. Formal channelb. 1% of the informal channel

3. P2M transactions – Transactions nationwide in Kirana stores.

The graph shows our growing market share over the next 6 years.

Revenue Model

Key assumptions● 5 major revenue streams● 2 major cost drivers● G2P Disbursals is the

primary driver for growth in the immediate term

● P2M and P2P streams are expected to exploit the network effect in the medium term

● Revenue item = current market size estimate * market capture expectation * TDR

● Different revenue streams have varying growth rates

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

MPower

Sensitivity Analysis

To help understand the key drivers of the overall revenue model for MPower, a sensitivity analysis has been conducted to show the impact over a 5 year horizon

Sensitivity Analysis - Potential Revenue over five years (in USD millions)

baseline

$US

mill

ions

Key Variables adjusted● Commission Fees (change in variability

per use case)● Market Size (i.e feature phone usage,

financially excluded)● Market Share

Variable range● Tested +/- 50% range, based on a

permutation of variables above.

Analysis of findingsRevenue increases more exponentially with increase in variables, compared to decrease

in variables.

Upper range

Lower range

Legend

Competitors are currently focussing on smartphones capability which limits their ability to reach the financially excluded. MPower needs to be device agnostic.

With restrictive regulation create barriers of entry to accelerate this process, and a closing window of opportunity, collaboration is key

In support of government drivers, aligning our solution with their Aadhar initiative will gain buy in as well as help achieve KYC requirements

With the high likelihood that the end user will be financially illiterate, the user experience is critical to achieve take up and scale

To address political and legal concerns, usage of blockchain and other enabling technologies will provide the security required to satisfy regulators and the end customer

Key Success Criteria for MPower

Collaboration with Governments and

Banks

Integration with Customer

Authentication

Simple and intuitive user experience

Security and Privacy via Blockchain

Accessible to all via feature and smartphones

Based on our analysis of our three use cases, environmental analysis and financial modelling, we need to be successful across five factors

Acquiring a critical mass of customers will be a key factor for the success of MPower. This would be achieved by connecting the dots in the village economy.

A ubiquitous merchant acceptance infrastructure is essential for achieving the long-term sustainability. This would be achieved by incentivizing customers and merchants to accept MPower payments

BCNMs, CSP, Non Bank Players, Local Self-Governments, NGOs may function like facilitators in MPower business model.

Upon reaching critical scale, MPower will generate huge volumes of transaction data, which can be monetized to build an alternate stream of revenue.

The MPower platform will develop an innovative open architecture approach to easily build and integrate customer and merchant-centric services around it. And it will be adopted to provide API access to the developer community and other players to build apps and use-cases using the payments platform.

All possible payments flows within the village economy. Image from B.Lietaer, G. Hallsmith. Community Currencies Guide. 2006

To WIN, we need to sustain MPower’s ecosystem and platforms by becoming a key element of the village economy to mitigate the entry of new players

MPower will redefines the way traditional banks and financial institutions approach the financially excluded while enabling these customers to have an affordable solution to become part of the mainstream economy

1. Introduce an intelligent hybrid wallet solution based on blockchain technologies to bridge the gap between the financially excluded with financial institutions, governments and businesses, using digital money as a powerful catalyst for financial inclusion.

2. Provide a 360 degree financial service for financially excluded by enabling them to receive money (from government, employers, family members), store money (with the ability to generate wealth through savings) and distribute money (transact with local merchants, and transfer to family and friends).

3. Provide a cost effective for financial institutions and governments by reducing the need for physical access points (i.e branches, agents) by allowing the financially excluded to access their funds through their mobile device.

4. To differentiate and deliver an intuitive, and exceptional customer experience. Makes it easier for the financially excluded to conduct their day to day activities, and provide them with confidence on the security of the solution. Thus, we need an agile and iterative approach to test and learn the product on the market, and build a simple, intuitive process on all available mobile phone platforms.

5. The window of opportunity is tight, with existing competitors slowly moving into the feature phone market as they realise that these technologies are not going away. Given the time to get regulatory approval, the best approach is to collaborate with financial institutions and the government, instead of setting up a separate payment entity.

Key Recommendations

In order to achieve our goals for MPower, we need to plan

a sequence of 6 monthly steps with a view to:

(1) Develop a tested product in the market place

(2) Engage key stakeholders and obtain their buy-in and

support

(3) Develop the initial business model for MPower

+ 6 months

Pro

duct

Dev

elop

men

t

Stakeholder engagement

Bus

ines

s D

evel

opm

ent

Capital Management

+ 12 months + 18 months + 24 months

Develop Minimal ViableProduct (MVP 1.0)

Obtain Startup funding

Test and Iterate (MVP 2.0)

Develop prototype

Release public solution

Initiate pilot

Develop Marketing plan

Obtain 2nd Stage funding

Formation Validation Scale

Define Pilot ecosystem (market, features, KPIs)

Develop API integration

Test and on-board Merchants

Iterate with Regulator, Government agencies

Engage pilot merchants

On-board team

Establish partnership with Banks and Govt agency to

support pilot

Engage Regulator, Government agencies

Develop Business plan

Obtain seed funding

!MPower

APPENDIX

The Team

David Cheung

Banker with more than 15 years of international experience across retail and corporate

banking.He currently provides

transaction banking solutions (i.e. payments and cash

management as well as trade and supply chain solutions) to some of the largest MNC clients of the

bankintrigued by fintech / blockchain

and how can we leverage this technology to increase financial

inclusion / benefit the lower 1billion

Kaiwan Turel

Specialist in Central Banking and Financial and Monetary Law, as well as in Financial Inclusion and Digital

Financial Services. Formerly General Counsel of the Legal Department at the Central

Bank of Brazil PhD in Law, The State and The

Constitution, at the Faculty of Law, University of Brasília, Brazil,

defending a thesis on “Social Currencies: Contributions to the

Definition of a Legal and Regulatory Framework of Local

Social Currencies in Brazil” Awarded the Creative Economy

Prize by the Ministry of Culture of Brazil (2012).

Marusa Freire

Technologist with experience in business. Worked in R&D (with 2

patents in his name), systems design, consulting, pre-sales

support and sales.He currently handles account

management responsibilities for a wide range of financial services organizations and public sector agencies in Western India for

Oracle Corporation.MBA (majoring in Business

Strategy, and a minor in finance) from NMIMS, Mumbai, and

attended graduate engineering school in Utah State University,

USA.

Partho Choudhury

Data Scientist, Technology Architect in Data Analytics, Data

Security and Business Intelligence with 15 years in designing

enterprise-level data warehouses and technology for a highly

regulated domain like Clinical trials and drug research.

Certified Clinical Hypnotherapist, Physics enthusiast and Hacker

with a passion in cracking patterns and probabilities in

everything.

Passionate about Financial Inclusion, Digital Technologies and helping the underserved.

Priya Randolph

Specialist in driving the delivery of IT transformation projects across a

myriad of industries. He is currently working in a global

insurance firm in IT strategy development focussing on

delivering closer alignment with business needs.

Has over 20 years IT delivery and consulting experience with a

specific focus on bringing together a convergence between business

and technologists to provide solutions to real problems.

OPPORTUNITIES for MPower (CHALLENGES or GAPS in the current

system)

RISKS for MPower (Competition, Macro factors)

LEARNINGS

LEGAL FACTORSThe business model of a payments bank is not viable. (The cost of compliance for a payments bank is high, they cannot lend, and the Government imposes 75% be invested in govt. bonds) The MPower neatly fits into this gap and can solve the exact problem Payment banks face.

The Reserve Bank of India currently mandates that a wallet of the type “open pre-paid instrument” can only be issued by a bank. An open pre-paid system is one that allows money to be transferred out of it.

Creating a hybrid wallet that is common to all banks and that can potentially transfer money between banks at no cost may be a problem with the regulatory rules that are currently operational. Appeal to regulation for a clause that can help the lower income bracket.

Financial Inclusion is almost an obligatory mandate issued to banks, NBFC and Micro-finance institutes in India. (RBI circulars, publication report, 2016)

Further, the above mandate prevents NBFC and Micro-finance institutes from participating in an open type wallet.

Workaround the legalities of partnering with banks to create the hybrid solution.

A solution like the MPower will help banks meet their Financial Inclusion targets

The Aadhaar identities system is the largest in the world with a billion identities already available.

NPCI may not want to encourage a blockchain-based system for Aadhaar built by a non-government entity.

The MPower as a platform must strive to support IDs and authentication methods in addition to Aadhaar.

The RBI policy of forbearance (allowing bankers to decide charges themselves) with regard to service charges does not help micropayments. Banks are charging money for almost every small transaction or service they offer.

With the MPower, banks will be discouraged from charging a heavy fee. This could be a challenge for the MPower. Explore how this can be overcome.

POLITICAL FACTORS The current government policies for digital transactions are not made with the lower half of the pyramid in mind. The MPower can help create a hybrid wallet common to all banks if the government can nurture a policy for it to serve the underbanked.

While the MPower supports a model that benefits banks, merchants as well as consumers, the regulatory policies for a hybrid wallet are currently not in place. Lobbying for approvals may risk the solution.

Speculate alternative workarounds or channels to implement the same solution until a policy change is approved.

Blockchain protects the interests of the consumer. Agent-related risks that create identity theft, fraud and unregulated commissions and prices can be eliminated with blockchain.

The current system and policies do not incentivise cashless transactions. This implies there is no pressing need for consumers in the cash economy to make the shift.

Appeal to regulation to incentivise cashless transactions at the lower income bracket.

The tables in this slide and the next present the list of factors that create either favorable Opportunities or Risks that the MPower could face. Strategic pointers to overcome such risks are listed in column 3 of each table. Findings and Outcomes from the analysis that must eventually be used to architect the MPower’s business model are highlighted in green text.

OPPORTUNITIES for MPower (CHALLENGES or GAPS in the current system)

RISKS for MPower (Competition, Macro

factors)

LEARNINGS

ENVIRONMENTAL FACTORSHousehold patterns in semi-urban and rural India are mainly community-based and closely-collaborative. This encourages the spread of referrals that can uptake a system like the MPower.

The community mentality implies a snowball effect for either the adoption or rejection of anything new in the market.

Innovate in the methods of marketing, customer acquisition, customer delight and customer retention.

India being the second largest population in the world1, with at least 450 million offline and 253 million first time banked2, the large segment presents the opportunity to businesses, banks and customers to enter into a win-win model.

The economics lies in small value and high volume transactions.

India’s major population is youth and the Millenials are eager to try new technologies.

Customer-experience must be a focus area.

India’s goal is to promote a paperless world and the MPower concurs with this thought.

MPower promotes a Go-green initiative and must position it accordingly in marketing.

OPPORTUNITIES (CHALLENGES or GAPS in the current system)

RISKS (Competition, Macro factors)

LEARNINGS

TECHNOLOGICAL FACTORSThe UPI (unified payments interface) provides interoperability from a usability perspective, it does not reduce the cost of transaction.

MPower will help reduce transaction costs while still employing the popular UPI interface for its ease of use.

Although the country welcomes BLOCKCHAIN, it may take time for Banks and Financial institutes, Agents to readily adopt a system that could potentially cut down on their current revenue channels.

The MPower must develop a win-win model to work with Banks .

There are only 13 commercial bank branches per 100,000 adults. This implies high operating costs for Banks to cover un-serviced areas.

The MPower can save huge costs and time for Banks and increase their customer base.

Jio is now present in more than 18,000 urban and rural towns and over 1,50,000 villages. Also, a $17-billion government program to build a national optical fiber network that will connect village-level governments, aims to cover the entire country in three years.

The wider area will encourage higher penetration of both smartphones and feature phones. The MPower can capitalize on the number of new smartphone users and feature phone users.

Jio and other incumbents could monopolize the market and bring competing technologies.

The MPower must thus become a framework or standard that can allow incumbents like Reliance to be a part of the platform.

The current technology for authentication using Biometrics prevents feature phone users from accessing several financial services without physically travelling to banks. The need is to also provide Biometric authentication to customers who cannot afford it. The MPower proposes empowering merchants with biometric STQC certified fingerprint or IRIS devices that feature phone customers can use to digitally pay.

Technological Literacy of rural people is considerably low.

The MPower aims to create a digital transactions system that makes digital payments as easy as cash payments.Feature phone users will be able to make digital transactions using Aadhaar authentication at Merchants.

OPPORTUNITIES (CHALLENGES or GAPS in the current system) RISKS (Competition, Macro factors) LEARNNGS

SOCIAL FACTORSSmart phone penetration steadily increasing plus the introduction of Reliance Jio that disrupts existing incumbents forcing them to bring the cost of data plans down creates an ideal environment for first-time smartphone users to adopt digital payment methods.

1. The inertia of using cash.2. Telco incumbents can partially provide mobile-based digital solutions that may not solve the problem yet make people feel there is no pressing need for MPower.

The key is in the simplicity of such a solution. And creating a model that incentivises digital transactions

The consequence of Urbanization – Migratory population increases. Remittances should be supportable from anywhere to semi-urban and rural areas.3.

The current system is not cost-effective for micro-payments nor does the infrastructure support easy and fast remittances.The MPower can allow instant low cost remittances.

The community mentality means a snowball effect for either the adoption or rejection of anything new in the market.

The IHAM’s model must overcome cultural inertial towards adopting a new technology.

ECONOMIC FACTORSThe uniform tax regime through the GST (Goods and Services Tax) in April 2017, implies an improvement in the ease of doing business With better market sentiments, we can expect businesses to be more innovative/open to adopting innovative disruptions. This could mean a better reception of MPower in the market.

With a constant tension between India and Pakistan and border skirmishes rampant currently, this can impact the business sentiment, Foreign Direct Investment to MFI and funds directed towards the Financial Inclusion economy and its growth.

Inflation rates growing at the slowest rates and less than the GDP implies consumers can spend more money on non-essentials like financial inclusion products.

The English language not being the primary language in rural and semi-urban areas can impact products that do not support regional languages.

Include language support in IHAM’s user interface apps.

ETHICAL FACTORSSelf-sovereignty of data is of utmost importance with billions getting onto the digital economy. A framework that gives the user absolute self-sovereignty is absent today. The MPower framework recognizes this need and allows the consumers full control of their private data using blockchain.

With the right to data privacy being questioned and the Indian laws not stating clearly either ways, this may not appear at first to be a pressing need.

Data for social good. With a digital footprint, the MPower uses Data analytics to provide better products and financial services to the poor.

Incumbent technologies specializing in analytics can partner with Banks and MFI.

The MPower must seamlessly tie together the blockchain solution with its analytics to feed data to each other.