How the mobile phone can power banking

Your cell phone has the attention of the Indian banking and financial services community. That is not surprising since 300 million people own mobiles today. And in four years, 700 million will! All bank customers will boast of one.

However, not all mobile owners will have a bank account -- or even want one! What they will want are financial services beyond the traditional banking offering, eg a savings account. The mobile provides the best ever delivery channel for such inclusive banking. If 'No Indian Left Behind' is to be the vision statement for financial sector reforms, mobile provides the best way to achieve it in the next decade.

Banks were savvy about using mobile for extending banking alert/ information/ query-based activities for some time. A few pushed ahead using the mobile (linked to their account) for financial transactions viz bills, premia, tickets, gifts, top up, shopping, etc with the active partnership of specialised homegrown technology providers. Most banks who ventured into mobile banking have realised that while plain vanilla mobile banking is another cost-effective delivery channel for basic banking services, the real benefits -- convenience and revenue stream -- come from enabling mobile payments for their customer base.

One can argue that you and I have been doing mobile commerce all along without knowing it! Pre-paid mobile re-charge for card holders is quite pervasive. Today, the bank customer can re-charge his mobile using any secure channel -- ATM, internet or mobile. The value of this market is about Rs 4,000 crore (Rs 40 billion). It is not only a business proposition with its own revenue profile but also a tipping point for the penetration of mobile banking services. The real-time, pain-killer, distance-independence and anytime-anywhere features persuade the sceptic to try out the service because it solves a problem -- instant top-up remotely without having to go across the counter.

The Reserve Bank of India has come out with its final guidelines on this category of financial services after several iterations (presumably trying not to stifle the take-off of m-banking services). However, the RBI is not a technology regulator; with the fast pace of innovations in this sector, it will never be able to drive forward by looking at the rear-view mirror. To be effective, the regulatory framework for m-banking will have to continuously accommodate its special features.

The following are some key factors will that determine successful adoption of m-banking in the country for banked and unbanked customers, business correspondents, independent technology providers, businesses, regulators, etc:

The registration process needs to be made simpler and on par with other channels. While one can initiate registration by ATM, mobile or telephone, its fulfilment can be done by the very means that other secure channels employ currently, rather than requiring physical presence. The absence of a simple registration process will grossly handicap the adoption of m-banking without adding to safety and security.

The ticket size of Rs 10,000 per day is somewhat better than the original cap of Rs 2,500 and transaction frequency limits. Individual banks can now set their own limits as per their risk appetite. This is important as it is important for customers to see the perceived benefit in using this new channel. Most expenses like air and rail tickets, post-paid mobile bills, premia, card bills etc, which are high-volume day-to-day needs, just don't come for under Rs 10,000 anymore! Credit card usage and internet commerce has had no such restrictions. This has helped the growth of card usage and e-commerce transactions, respectively. So it is hoped that these caps will also be raised in due course (like for ATM service).

Multiple PIN numbers to be remembered for each delivery channel (product) are an obstacle to adoption. As it is, everyone has to remember a plethora of numbers, be their phone, PIN, PAN short codes, passwords, user ids for mobile, credit and debit cards, internet and telephone banking, internet mail, commerce and social networking, ATM, etc. Some banks do have the same PIN for internet and telephone banking. This is a good start. It is, therefore, imperative to have a minimum number of PIN numbers (if not just one) for an account holder without prejudicing security.

Finally, the use of the mobile phone for bringing about much-needed (and talked about) financial inclusion is a critical social need with good economics for all stakeholders. Nearly half of the rural and farmer households have no formal access to credit or financial services. It is these missing markets that banks want to bring under their fold. It is clear that banks by themselves can't roll out such services across the country. Therefore, NGOs -- microfinance institutions, in particular -- have taken on a key role as business correspondents, which allows for branchless banking. Therein lie the opportunities.

In many countries, eg Kenya, Tanzania, Philippines, South Africa, Japan and South Korea, the cell phone has become an instrument of payment/transfer of money. A cell phone can today facilitate welfare transfers such as NREGS, disbursements/ remittances, micro-credit, insurance, repayment/ collection, all in real time through simple, easy-to-use instructions and in a cost-effective way. The recent report of the Committee on Financial Sector Reforms, chaired by Prof Raghuram Rajan, states that using technology "transactions as small Rs 100 can be done at a reasonable transaction cost..." The mobile serves as an effective medium for electronic transfers and the accompanying transaction authorisation system.

In summary, banking today is a consumer financial service. It has to have elegance and simplicity woven around its user interfaces and touch points for it to become less daunting to the illiterate, uninitiated and veteran alike. Without this, the goal of boosting integration into the formal financial system, rather than continued dependence on the unaccounted informal financial system, will remain elusive.

The next challenge is for the RBI to set broad guidelines for addressing financial inclusion via use of the mobile phone. Within a few months of usage experience under its belt, the RBI will have useful customer data to refine its thinking further to continue to give a fillip to the industry, while safeguarding customer interests and mitigating systemic risks.

The writer is co-founder, PayMate.

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