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Indian Prepaid Industry

Market Study


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Indian Macroeconomic Environment

Indian Prepaid Market Overview

Mobile and Internet Technology

Case Study

Regulatory Framework

Key Drivers

Retail Industry Market Structure

Presentation Design


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India is the world's 12th largest economy and is forecasted to grow by 7.2% in 2010 and 8.5% in 2011


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: aeAdvance 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


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Demographic Overview


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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 middleclass 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 reachRs.14.1 trillion ($306bn) forming 20% of total Indian consumption


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Black Economy in India

The size of Indiasback 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 andpirated goods, unauthorised gambling, and bribery and prostitution, among a host of other sinister activities that go unaccounted


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Prepaid Cards are pre-loaded cash cards used for bill payments or recharging certain services. These cash cards are the latestpayment 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 IPcards, 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 housesalso 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 IndiasMasterCard based prepaid card which is loaded with the facility towithdraw money from ATM. Of late many banks have come up with various formats of pre-loaded cards such as gift cards, travelcards, 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


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Share of Different Payment Instruments

The Reserve Bank of India, nationscentral 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

64.7511.61

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 with98.1mn credit transaction and more 149.3mn debittransaction

NEFT transaction for 2009-10 amounted to 66.3mn whileRTGS amounted to 33.3mn

Total number of transactions through cards was 404.4mnof which 234.2mn was from credit card and 170.1mn fromdebit card



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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 170228.2 260.0 234.1

46 60.1

88.3128 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% involume during 2008-09.

Owing to the controlled spending during the economicslowdown the growth in credit card transactions started

decelerating from 2008-09 while the growth in debitcard transaction continued to remain strong as inprevious years.

Source: Reserve Bank of India

7,3338,951

12,54814,143 13,608

1,276.11,768.3 2,710

4,0145,717

2006 2007 2008 2009 2010

Transaction value of cards since 2007 (in USD million)

Credit DebitThe value of the card based payments rose by 19%during 2008-09.

Volume and value of debit cards is much less than that ofcredit cards due to:

Provision of credit limit facility

Purpose of card usage Debits cards are mainlyused for cash withdrawal

Source: Reserve Bank of India



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Mobile Technology Overview

India is the second largest country in terms of mobile subscribers. The total number of telephone subscribers in India as ofMarch 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 subscription140.32

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 alsocommonly known as m-Commerce. Mobile payment software applications commonly known as Mobile wallets are emergingtechnologies 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 fordownload from the service provider sites. Ngpay, mCheck, Obopay, PayMate, Atom, Oxicash (part of Oxigen) etc are among thekey players in this segment.


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Internet Technology Overview


The total number of internet subscribers in the country was estimated to be around 16.18 million in 2010, reflecting a year onyear (YoY) growth of 19.5%. The share of broadband subscription in total internet subscription increased from 6.22 million inMarch 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 lakhtowns

Less than 5lakh towns

Source: Telecom Regulatory Authority of India

Source: Internet & Mobile Association of India and Indian Market Research Bureau

The countrysinternet 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.


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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 PoSterminals across the nation.

The average cash withdrawal size through ATM isINR 2,845.

Debit card withdrawals through PoS up to INR 1,000is permissible as per RBI guidelines


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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


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Regulatory Framework

Reserve Bank of India (RBI) is the central bank of India vested with the authority to regulate and supervise the financial systemof the country. In-order to ensure orderly development and operations of prepaid instruments in the country Reserve Bank ofIndia 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 prepaidpayment instruments

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

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

As a step towards anti-money laundering, all entities issuing prepaid payment instruments are required to abide by theRBIsKnow Your Customer, Anti-Money Laundering and Combating Financing of Terrorism guidelines

Environment Scan


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Capital requirements

Only banks and Non-Bank Finance Companies complying with the Capital Adequacy requirement prescribed byReserve 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, onincome tax, by using these vouchers.

Environment Scan


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Environment Scan

Key Drivers

Rising consumerism and changing lifestyle: availability of a huge variety of foreign and domestic consumer goods ataffordable 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


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Key Challenges

Environment Scan

Lack of awareness: less awareness among people regarding the availability of prepaid services in sectors other thantelecom 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.


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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 countrysGDP was 12% in 2009. Food and grocery is the largest segment accounting for 75.0% of the totalretail 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 localgeneral stores, street hawkers and vendors

There are about 15mn unorganised outlets in India

Source: Cheers Interactive


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Organised retail formats in India

Format Description Example

Hypermarkets Average size: 60,000 sq.ft. - 120,000 sq.ft.

Multiple line of productsSpencers, Big Bazaar,etc.

Cash-and-carry Average size: 100,000 300,000 sq.ft

Bulk buying requirementsMetro, Bharti-Wal-Mart, etc.

Department stores

Average size: 10,000-60,000

Large layout with mix of merchandise

Major product categoriesHome products, apparel, fashion accessories

Shoppers Stop, Lifestyle, etc.

Supermarkets Smaller version of hypermarket

Multiple lines of merchandiseApna 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 pricesBig bazaar, various factory outlets


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Composition by Segments:

35.30

7.9011.00

3.904.40

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 for35.3% of total consumption in India, followed by Transportand Communication with 19.7%

Clothing and Footwear accounted for 7.9% share in totalexpenditure

Home improvement products such as furniture, furnishing,etc. accounted for 3.9% share

Retail Payment Systems

Source: Central Statistics Organisation

11,296.50

23,560.1031,713.10

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 tobe USD 148,607mn

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

Source: RBI bulletin, July 2010


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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 Durables36 stand alone and 14 shop-in-shop

outletsNA

13 Croma Consumer Durables 49 NA

14 Pantaloons Apparel 45 NA

15 Westside Apparel 41 NA

16 98.4o 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

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