SME spotlight

Going cashless where cash is king

Nearex COO Mahesh Goel with the SG Mark award for the design of the XipPOS mobile point-of-sale device. Consumers with XipTAG cards tap against the device to make purchases. The system uses mobile networks as phone penetration rates are relatively hi
Nearex COO Mahesh Goel with the SG Mark award for the design of the XipPOS mobile point-of-sale device. Consumers with XipTAG cards tap against the device to make purchases. The system uses mobile networks as phone penetration rates are relatively higher in developing countries.ST PHOTO: TIFFANY GOH

Many local firms have global ambitions for their innovations, none more so than Nearex, which started in 2012 to enable cashless payments in developing countries. Phyllis Ho speaks to co-founder and chief operating officer Mahesh Goel about the company's plans.

Q Tell us more about your products - the XipPOS and XipTAG.

A Similar to Nets FlashPay, a merchant can enter the amount on the XipPOS. Consumers tap the XipTAG against it to pay.

When consumers transact small amounts, they receive phone notifications. But for larger sums, they have to use their phones or the merchant's XipPOS to authenticate their purchase.

Like a mobile phone, each XipPOS is embedded with its own SIM card. This way, merchants are not stuck in the Wi-Fi zone and can operate out in the open.

Our business model is not to sell our XipPOS at the retail price of US$88 (S$120). Instead, we sell them to mobile operators at a subsidised rate of about US$30. Their agents then sell the XipPOS to merchants and XipTAG to consumers.

NO CASH, NO GO

In Singapore, cash has almost vanished. You're not nervous that you don't have $20 in your pocket because you know there's an ATM somewhere and most people will take your Nets card.

But in most of these (developing) countries, with no cash in your pocket, you'll be stranded on the street; nobody will serve you food.

MR MAHESH GOEL, co-founder and chief operating officer of Nearex, on why cashless payments are so important to the developing world

By lowering the upfront cost for merchants and operators, we hope to increase the take-up rate of our products. But when consumers pay with the XipTAG, we share the commission with the operators.

Q An obvious solution to enable cashless payments would be to bring in ATMs and Nets machines. Is this not feasible in the developing world?

A With instability in some places, the formal financial system doesn't reach them. There is no financial inclusion for people there.

Currently, all the payment solutions are for the developed world. The developing world doesn't spend enough, so banks, Visa and MasterCard don't want to go there. For example, a point-of-sale (POS) provider charges between US$200 and US$500, but merchants in emerging economies can earn only US$300 over 20 months or so. It's too expensive for banks to operate when the quantum of deposit is going to be minimal. People do not keep enough cash in the system because their need for cash is so high.

Q Why choose Africa as your main market instead of somewhere closer to home, and why mobile operators?

A Mobile money has somehow not taken off so much in the region compared to Africa. For some African countries, mobile money transactions are worth over 40 per cent of their gross domestic product.

Mobile penetration is high and on the operators' side, it's also pretty stable. In Africa, agents of mobile operators become "human ATMs" in rural areas. They do prepaid top-ups as well as banking.

People bank with mobile operators more than phone companies and other financial institutions put together. Most of these e-money services are also being regulated by the central banks, so that confidence is built on mobile operators.

Q Why are cashless payments so important to the developing world?

A In Singapore, cash has almost vanished. You're not nervous that you don't have $20 in your pocket because you know there's an ATM somewhere and most people will take your Nets card.

But in most of these countries, with no cash in your pocket, you'll be stranded on the street; nobody will serve you food.

Another problem is the lack of small change. When I go to places like the Philippines, I always end up losing money. With cashless payments, you pay the exact amount.

Q What have been some of Nearex's activities over the past year?

A Early last year, we pitched our ideas to two mobile operators, Airtel and Econet, to enable us to take our products to Tanzania, Rwanda and Zimbabwe.

Airtel operates in 17 African countries and is India's largest operator.

Our plans were helped by Mayank's (Mr Mayank Sharma, co-founder and chief executive officer) prior links with operators in the region when he was based in Kenya for his previous job.

While Africa is our main market, we are also exploring South-east Asia and Latin America. Last July, we presented our project to Singtel group associate companies, including mobile operators in the Philippines, Indonesia and Thailand.

With that, we launched our products in Rwanda and Tanzania last month, and will launch in Zimbabwe and the Philippines by August.

We are also discussing with mobile operators in Latin America to launch pilot tests in Honduras, El Salvador and Guatemala.

Q How much cash have you injected into Nearex?

A Our start-up capital was around US$500,000 (S$673,200) - that came from my team, as well as family and friends.

Later on, a Japanese venture capitalist firm, Beenos, injected another US$1.5 million. Last month, Tata Capital, an India-based private equity investment firm, contributed US$3 million in investments.

Q What are some challenges you face, especially as a start-up?

A Investors here are always looking for a reference. Since we are not doing a "me-too" product, we have a lot of challenges in raising money.

Mobile operators also want to see it done by others so they know how much to invest and are sure of the profitability. For instance, from 2005 to 2006, only two operators used mobile money. It took a long time to bring it up to 20, but it got to 200 in no time.

But most of operators' revenue streams from other areas have been saturating. SMS revenues are almost negligible. So in the developing world, e-money financial services provided by operators is seen as a big growth area. Our immediate concern for the next three to four months is consumer behaviour. Have we addressed the real need of the consumers? Will they accept it? Will they use it?

Q So how do you gauge whether consumers will use the products?

A Between June and December last year, we had extensive pilot tests in Tanzania and Zimbabwe. They involved 100-odd merchants and a few thousand consumers from small suburbs. People said the products were simple and easy to use, but they also suggested some improvements. So we adjusted screen brightness to suit the outdoors, improved the feeling of the keys and used a longer-lasting battery.

After that, we mass-produced around 13,000 XipPOS sets and 350,000 XipTAGs in Shenzhen.

Q What about the governments of these countries? Have they been supportive?

A Governments are very supportive because printing and replenishing cash is not cheap.

Also, with digital money, funds become trackable and a lot safer, so there is actually a drive from governments, consumers and merchants to make things cashless.

For example, the governor of Zimbabwe's central bank told me that our project can enable "liquidity confidence". Since Zimbabwe lost its economy to hyperinflation, people transact only in US dollars. They are keeping money at home, so money is not in the system. The central bank doesn't know how much float is in the country.

Because liquid cash is not visible, that puts the country into a lot of challenges. But once digital money becomes widespread, money would be with the central bank.

They can show the world that they are fairly liquid, that the economy is a lot better than they think or others think. Then they can get the right loans and investments for their country.

Q Has Nearex set any targets?

A We want to reach out to six million merchants and 80 million consumers worldwide over the next three years. Our revenue target for this year is US$3 million.

A version of this article appeared in the print edition of The Straits Times on July 08, 2015, with the headline 'Going cashless where cash is king'. Print Edition | Subscribe