Indian Prepaid Industry Market Study

Indian Macroeconomic Environment

Indian Prepaid Market Overview

Mobile and Internet Technology

Case Study

Regulatory Framework

Key Drivers

Retail Industry Market Structure

Presentation Design
India is the world's 12th largest economy and is forecasted to grow by 7.2% in 2010 and 8.5% in 2011
Indian Macroeconomic Environment
Economic Snapshot
9.5%
9.7%
9.2%
6.7%
7.2%
2006 2007 2008 2009 2010ae
GDP Growth in India (%), 2006-2010
Source: Economic Survey 2009-10
Note: ae Advance estimates
The deceleration in GDP in 2008-09 can be largely attributed to
the:
Decline in agricultural output due to a fall in the production of
non-food crops and the high base effect of 2007-08 on
agricultural sector
Fall in exports due to global recession resulting, reduction in
GDP contribution from manufacturing sector
Continued capacity constrain in the electricity sector

Demographic Overview
India has the second largest population in the world, of which 70% is rural population and 30% belong to the urban India

An estimated 57% of the population falls under the 15 to 59 years age group, which is primarily the income generating group

The middle class population of the nation , which is currently estimated to be around 50 million is projected to reach 500mn by 2025
Indian Macroeconomic Environment
Demographic Overview
Indian Macroeconomic Environment
Composition of Indian Consumer Market
The Indian consumers can be primarily categorised in the following four income group

Household earnings between Rs.90,000 and Rs.200,000 ($1,952-$4,338) per year comprising small shopkeepers, farmers,
semiskilled industrial and service workers

Household earnings between Rs.200,000 and Rs.500,000 ($4,338- $10,846) per year including young college graduates to mid-
level government officials, traders and business people

Household earnings between Rs.500,000 and Rs.1,000,000 ($10,846-$21,692) per year, which largely forms the upper middle
class and comprise of senior government officials, managers of large businesses, professionals and rich farmers

Household earnings more than 1,000,000 ($21,692, or $118,000) per year. senior corporate executives, large business owners,
high-end professionals, politicians and big agricultural-land owners form the affluent part of the country

The total number of high net-worth individuals (HNI) in India was 126,700 in 2009-10, compared to 84,000 in 2009-08

The total number of HNIs in the country is projected to be about 9.5 million by 2025 and their spending power is likely to reach
Rs.14.1 trillion ($306bn) forming 20% of total Indian consumption
Indian Macroeconomic Environment
Black Economy in India
The size of Indias back money is estimated to about $540bn, which is 40% of the total GDP

Black money includes money deposited in banks abroad, revenue generated through fake and counterfeit products, smuggled and
pirated goods, unauthorised gambling, and bribery and prostitution, among a host of other sinister activities that go unaccounted
Indian Prepaid Market Overview
Prepaid Cards are pre-loaded cash cards used for bill payments or recharging certain services. These cash cards are the latest
payment modes to enter the Indian market, following the successful growth in debit and credit card payments.

Currently prepaid services is provide largely by telecom companies via prepaid calling cards, virtual calling cards, voice over IP
cards, long distance calling cards, prepaid mobile recharge cards etc.

Cash cards are also offered by branded outlets and superstores through gift and discount vouchers or coupons. Corporate houses
also offer such cards to employees through food coupons and vouchers for various tax-related benefits and incentives

Oriental Bank of Commerce was the first bank to launch Indias MasterCard based prepaid card which is loaded with the facility to
withdraw money from ATM. Of late many banks have come up with various formats of pre-loaded cards such as gift cards, travel
cards, meal cards, payroll cards and multipurpose cards.
Overview
Key Players
The key domestic players in the sector are this sector are ITZ Cash Card, ICICI, HDFC, State Bank of India, Punjab National Bank,
Shoppers Stop, Future Group, Trent, Done Card, Oxigen, Paytronic etc

Few Leading international players First Data, Rev, Obopay, Kores Ltd, Hiten Cards etc
Share of Different Payment Instruments
The Reserve Bank of India, nations central bank, permits following payment and fund transfer facilities to be used by citizens and
corporate bodies:

Plastic cards - Debit, Credit and prepaid cards
Paper based payments - Check
Electronic Clearing Service (ECS) - Credit and Debit Clearing
National Electronic Fund Transfer (NEFT)
Real Time Gross Settlement (RTGS)
Mobile payments
64.75
11.61
3.11
10.99
7.98
1.56
Share of payment systems in India (in %), 2010
Cheque clearing
ECS
NEFT
Credit Card
Debit Card
RTGS
The total number of transactions through check in 2009-
10 was 1,380mn
ECS transactions for 2009-10 was more than 247mn with
98.1mn credit transaction and more 149.3mn debit
transaction
NEFT transaction for 2009-10 amounted to 66.3mn while
RTGS amounted to 33.3mn
Total number of transactions through cards was 404.4mn
of which 234.2mn was from credit card and 170.1mn from
debit card

Indian Prepaid Market Overview
Card Usage Pattern in India
Currently about 90% consumer transactions in domestic market are done through cash or check. However, India is considered to be one of the
fastest growing cards market within Asia-Pacific region.
156
170
228.2
260.0
234.1
46
60.1
88.3
128
170.1
2006 2007 2008 2009 2010
Trends in number of cards transaction since 2006 (in million)
Credit Card Payments Debit Card Payments
The use of card based payments rose by 22.5% in
volume during 2008-09.
Owing to the controlled spending during the economic
slowdown the growth in credit card transactions started
decelerating from 2008-09 while the growth in debit
card transaction continued to remain strong as in
previous years.
Source: Reserve Bank of India
7,333
8,951
12,548
14,143
13,608
1,276.1
1,768.3
2,710
4,014
5,717
2006 2007 2008 2009 2010
Transaction value of cards since 2007 (in USD million)
Credit Debit
The value of the card based payments rose by 19%
during 2008-09.
Volume and value of debit cards is much less than that of
credit cards due to:
Provision of credit limit facility
Purpose of card usage Debits cards are mainly
used for cash withdrawal
Source: Reserve Bank of India
Indian Prepaid Market Overview
Mobile and Internet Technology
Mobile Technology Overview
India is the second largest country in terms of mobile subscribers. The total number of telephone subscribers in India as of
March 2010 was 621.28mn, of which wireless segment comprised of 584.32mn subscribers.
94.05
5.95
Telecom Subscription Data (as on March 2010)
Wireless Subscription
Fixedline subscription
140.32
206.83
300.51
429.72
621.28
98.78
166.05
261.09
391.76
584.32
2006 2007 2008 2009 2010
Telecom Subscription from 2006-10 (in millions)
Total Telephone Subscriptions Wireless subscription
Source: Telecom Regulatory Authority of India Source: Telecom Regulatory Authority of India
The developments in wireless and mobile technologies have added to the growth of electronic payment in India, which is also
commonly known as m-Commerce. Mobile payment software applications commonly known as Mobile wallets are emerging
technologies making way in the domestic mobile market.

These applications allow the customers to make payments through debit, credit and prepaid cards and are easily available for
download from the service provider sites. Ngpay, mCheck, Obopay, PayMate, Atom, Oxicash (part of Oxigen) etc are among the
key players in this segment.
Internet Technology Overview
Mobile and Internet Technology
The total number of internet subscribers in the country was estimated to be around 16.18 million in 2010, reflecting a year on
year (YoY) growth of 19.5%. The share of broadband subscription in total internet subscription increased from 6.22 million in
March 2009 to 8.77m in March 2010, representing a YoY growth of 41.05%.
12.86
13.54
14.05
14.63
15.24
Oct-Dec 2008 Jan-Mar 2009 Apr-Jun-2009 Jul-Sep 2009 Oct-Dec 2009
Trend in Internet Subscription Growth
41%
38% 37%
34%
20%
21% 21%
18%
10% 12% 12%
12%
29% 29% 30%
36%
2006 2007 2008 2009
Region-wise Breakdown of Internet Penetration, (%)
2006-09
Top 8 Metros
Other Metros
5-10 lakh
towns
Less than 5
lakh towns
Source: Telecom Regulatory Authority of India
Source: Internet & Mobile Association of India and Indian Market Research Bureau
The countrys internet usage is more often for the purpose of social networking and data collection. Such a trend is pre-dominantly noticed among
college going students, young men, working women and non-working women. About 11% of working men and 11% of working women use internet
for the purpose of e-commerce, especially for bill payments, booking tickets, shopping and online banking while 7% of the college going students
opt for e-commerce facilities, mainly for the purpose of online shopping.
Mobile and Internet Technology
Point of Sale Systems and Automatic Teller Machines - Overview
88.64
11.36
% Share of PoS terminals and ATMs
PoS Terminals
ATM
Source: Cheers Estimate
There are in total 60,282 ATMs and 4.7mn PoS
terminals across the nation.

The average cash withdrawal size through ATM is
INR 2,845.

Debit card withdrawals through PoS up to INR 1,000
is permissible as per RBI guidelines
Case Study
Case Study: Indian Railway Catering and Tourism Corporation Limited (IRCTC)
IRCTC, the Indian Railways online ticketing portal is the largest e-payment facility in Asia. The authority provides an Online
Passenger Reservation System which offers booking facility of railway tickets online and offers other services like checking
reservation status. The organisation is one of the important sector which uses prepaid cards.
70.19
8.11
21.65
Share IRCTC payments made through prepaid cards (in %)
ITZ Cash Card
Done Card
I Cash Card
15% online payments on IRCTC made through prepaid
cards included:

0.9mn payments made through ITZ Cash Card
More than 99,000 payments made through Done Card
0.3mn payments made through I Cash Card
While only 665 payments were made through
Oxicash
Regulatory Framework
Reserve Bank of India (RBI) is the central bank of India vested with the authority to regulate and supervise the financial system
of the country. In-order to ensure orderly development and operations of prepaid instruments in the country Reserve Bank of
India has issued a set of operating guidelines
Eligibility
Only banks permitted to provide Mobile Banking Transactions by the Reserve Bank of India are eligible to launch
mobile based prepaid payment instruments (mobile wallets & mobile accounts)

Other entities are permitted to issue only closed system prepaid payment instruments and semi-closed system prepaid
payment instruments

Entities authorised under Foreign Exchange Management Act to issue foreign exchange prepaid payment instruments
are exempt from the purview of these guidelines

The maximum value of any prepaid payment instrument (where specific limits have not been prescribed) shall not
exceed Rs 50,000/- (USD1,076.4)

As a step towards anti-money laundering, all entities issuing prepaid payment instruments are required to abide by the
RBIs Know Your Customer, Anti-Money Laundering and Combating Financing of Terrorism guidelines
Environment Scan
Capital requirements
Only banks and Non-Bank Finance Companies complying with the Capital Adequacy requirement prescribed by
Reserve Bank of India from time-to-time are permitted to issue prepaid payment instruments

All other entities are required to have minimum net owned funds of Rs 10 lakhs (USD 21,575)

Additionally Under the existing tax laws, meal vouchers can be given to any staff by a company, as a tax-free incentive
subject, to a limit of Rs 50 per day, or Rs 1,300, for 26 working days. A tax payer can save up to Rs 15,600 a year, on
income tax, by using these vouchers.
Environment Scan
Environment Scan
Key Drivers
Rising consumerism and changing lifestyle: availability of a huge variety of foreign and domestic consumer goods at
affordable prices has sparked robust demand for financial cards, especially for credit cards followed by debit and prepaid
cards.
Financial Inclusion: Considerably a large section of the Indian society falls under unbanked sector. Out of the 600,000
habitations in the country, only about 30,000, or just 5%, have a commercial bank branch. Prepaid can gain significant
market coverage by tapping this unbanked sector
Payment infrastructure: Many banks are looking to expand their network of ATMs and PoS terminals. Having multiple
access points at convenient places are the essentials for the success of prepaid payments
Merchant mix: establishing a strong network base across the physical and electronic channel and across the category of
goods and services through merchants will provide a high market penetration for the business
Appropriate marketing and promotional tactics: pinning up the right emotion of the Indian consumers through
advertisements and promotional activities is the key driving factor for prepaid service
Product mix: the other key factors that can influence the positive growth of prepaid services is the denominations in which
prepaid cards are made available to the consumers
Key Challenges
Environment Scan
Lack of awareness: less awareness among people regarding the availability of prepaid services in sectors other than
telecom is a key challenge for companies to overcome.
Low penetration of financial cards: high dependency on cash and check payments by Indian consumers has been
hampering the growth of financial cards resulting to its low penetration
Low internet penetration: in comparison to mobile, internet penetration in India is still very low. Online purchase of goods
and services, electronic bill payments through prepaid cards are still a new concept for a large section of the society as
internet is yet to reach them.
Security: apprehension of receiving a fraudulent card after making payment, risk of prepaid cards being used as an
instrument for money laundering are some of the factors hampering prepaid growth.
Indian Retail Industry
Retail Industry Overview
The retail and wholesale industry accounts for 24.8% of the GDP (at current prices)

The share of retail trade to the countrys GDP was 12% in 2009. Food and grocery is the largest segment accounting for 75.0% of the total
retail trade

Major retail hubs include the National Capital Region (NCR), Mumbai, Pune, Bengaluru, Hyderabad, Chennai and Kolkata.

The overall size of the retail sector is expected to be at US$ 410bn in 2010, growing by US$ 55bn and at a CAGR of 5.5%.
Retail Industry Structure
95.00
5.00
Retail Market Structure in India(in %)
Unorganised Retail
Organised Retail

Unorganised retail is the prevalent form of trade and
accounts for 95.0% of the retail market
The unorganised retail sector comprises of local
general stores, street hawkers and vendors
There are about 15mn unorganised outlets in India
Source: Cheers Interactive
Indian Retail Industry
Organised retail formats in India
Format Description Example
Hypermarkets
Average size: 60,000 sq.ft. - 120,000 sq.ft.
Multiple line of products
Spencers, Big Bazaar,etc.
Cash-and-carry
Average size: 100,000 300,000 sq.ft
Bulk buying requirements
Metro, Bharti-Wal-Mart, etc.
Department stores
Average size: 10,000-60,000
Large layout with mix of merchandise
Major product categories Home products, apparel, fashion accessories
Shoppers Stop, Lifestyle, etc.
Supermarkets
Smaller version of hypermarket
Multiple lines of merchandise
Apna Bazaar, Food Bazaar, etc.
Speciality stores Single-category stores Next, Vijay Sales, etc.
Discount stores
Average size: 1,000 sq. ft.
Wide range of products, mostly branded, at discounted prices
Big bazaar, various factory outlets
Indian Retail Industry
Composition by Segments:
35.30
7.90
11.00
3.90
4.40
19.70
3.40
14.40
Private Final Consumption Expenditure in
India (%) 2008-09
Food, Beverages &
Tobacco
Clothing & Footwear
Gross Rent, Fuel &
Power
In 2008-09, food, beverages and tobacco accounted for
35.3% of total consumption in India, followed by Transport
and Communication with 19.7%
Clothing and Footwear accounted for 7.9% share in total
expenditure
Home improvement products such as furniture, furnishing,
etc. accounted for 3.9% share
Retail Payment Systems
Source: Central Statistics Organisation
11,296.50
23,560.10
31,713.10
51,061.80
225,743
108,392
148,607
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
(P)
Total Retail Electronic Payments (in USD mn)
Total Retail Payments

Total retail electronic payments in 2009-10 projected to
be USD 148,607mn

Total retail electronic payments have grown at a CAGR
of 44.5% from 2003-04 to 2009-10

Source: RBI bulletin, July 2010
Indian Retail Industry
Composition by Segments:
Key Retail Players in India
S No Retail Chain Segment No. Of Outlets Revenue
1 Apollo Pharmacy Pharmaceutical 1000+ NA
2 Mobile Store Consumer Durables 1050 NA
3 MedPlus Pharmaceutical 650 NA
4 More Food and Grocery 640 supermarkets & 5 hypermarkets NA
5 NEXT Consumer Durables 600 NA
6 Guardian Lifecare Pvt. Ltd Pharmaceutical 200 NA
7 Food Bazaar Food and Grocery 170 NA
8 Vishal Mega Mart Mix Retailer 163 NA
9 Big Bazaar Mix Retailer 116 NA
10 Shoppers Stop Apparel 93 NA
11 Lifestyle Apparel 50 NA
12 eZone Consumer Durables
36 stand alone and 14 shop-in-shop
outlets
NA
13 Croma Consumer Durables 49 NA
14 Pantaloons Apparel 45 NA
15 Westside Apparel 41 NA
16 98.4
o
Pharmaceutical 30 NA
17 HyperCity Mix Retailer 7 NA
18 Religare Wellness Pharmaceutical NA NA
19 Himalaya Drug Pharmaceutical NA NA
20 Reliance Fresh Food and Grocery NA NA
21 Vijay Sales Consumer Durables NA NA
22 Reliance Digital Consumer Durables NA NA