Mobile Banking in India
1. Mobile Commerce
Mobile Commerce is a transaction where the transfer of ownership or rights to use goods and services are initiated and / or completed by the customer using a mobile phone. Mobile commerce was first started in 1997 in Finland when Coca Cola used SMS messages to send the payment details to their vending machines.
2. Mobile Banking
Mobile banking services are provided by the banks by they allow their customers to access their account information and carry out banking transactions. Mobile banking is an integral part of the Mobile commerce. Checking account information, cheque status, setting alerts like payment reminders, locating ATMs and bank branches, placing orders for cheque books etc are some of the popular services offered by mobile banking. Mobile banking has the potential to bring the banking services to the lower segment of the Indian population who have no access to internet connections and banking services. This will be an innovative way to achieve the Government goal of financial inclusion and reaching the banking services to rural India. Mobile Banking is the hottest area of development in the banking sector and may even replace the credit/debit card system in future. However as the Reserve Bank of India has certain restriction on allowing non-bank organizations in carrying out money transfer, development of mobile banking applications is being sponsored primarily by banks in India.
3. ATM and Internet banking
ATM and internet banking have been around in India for a long time now and they have achieved a reasonable level of success in terms of penetration. Future growth of ATM and internet banking is restricted due to higher cost involved in ATM roll out and inadequate growth in the use of PC and internet in the country as compared to mobile growth. The Mobile penetration has already reached 58% from 4% during the last 10 years in the country and there are 630 million mobile users. The monthly addition of mobile users is 15 – 20 million which is the highest in the world. Mobile banking reduces the cost of banking operations when compared to other options like ATM and branch roll out.
4. Categories of mobile banking services
Mobile banking services are classified on the basis of how information flows to the customer. A mobile banking service may be a pull or push transaction or it may be a transaction based service or inquiry based service. A pull transaction is one in which a mobile phone user requests a service or information from the bank. For example, inquiring about an account balance is a pull transaction. A push transaction, on the other hand, is one in which the bank sends information based on a set of rules. A minimum balance alert is a good example of a push transaction. Transaction-based services are those services where a fund transfer or a payment is made from one account to another. An inquiry based service could be push or pull transaction like account balance enquiry, minimum balance alert etc
5. Modes of mobile banking
a. Interactive Voice Response (IVR)
In the case of IVR service, the customers dial the IVR number from their mobile phone; they are greeted with a menu of options; the customer selects an option and a text-to-speech program reads out the desired information. It also only allows for inquiry-based transactions.
b. Short Message Service (SMS)
SMS banking has several advantages like it is available in every mobile phone and user friendly. It is cost effective and accommodates two way communications. The disadvantages of SMS are related to the inherent limitations of 160 characters in length.
c. Wireless Application Protocol (WAP)
WAP technology facilitates accessing Internet pages from a mobile phone. WAP banking has its disadvantages like smaller screen, requirement of smart phone, lack of anti-virus and firewall protection.
d. Standalone Mobile Application
Some banks provide a downloadable client through which subscribers can access banking services. These applications facilitate complex transactions to be carried out. However these applications are expensive to develop and require smarter phones.
6. Challenges of mobile banking
a. Mobile banking services are limited to network coverage provided by the mobile service provider.
b. Mobile banking is prone to frauds and the mobile service providers and the banks need to have a strong fraud monitoring systems in place.
c. Government and RBI guidelines need to be complied by both the mobile service provider and the banks.
d. Customer identity verification is a major issue for the mobile operator. More than 80% of the customer base in India is prepaid where the address and ID proof are difficult to establish.
e. Money laundering is another major concern for the banking system
7. Semi closed Wallet
RBI has started issuing licence to mobile operators to operate semi closed wallet. The operators are allowed to accept up to Rs 5000 from their customers which can be used at the selected outlets for making payment.
These semi closed wallets are the prepaid payment instruments that are redeemble at a group of selected outlets. The mobile user is not allowed to withdraw cash and the money cannot be converted to talktime. The telecom operator is not allowed to create money or credit. The money thus collected from the customers need to deposited in an escrow account with a bank.
8. Mobile Banking in Africa
Even though mobile banking is now available in all western countries, Africa is considered as one of the leaders in mobile banking with advanced solutions and successful references. In Kenya, M-PESA service of Safaricom allows the customers to send money to their family and friends throughout the country using a mobile phone. The recently introduced M-KESHO allows the customers to deposit money into bank account and earn interest on deposit. Interestingly, Africa’s underdevelopment has also played a major role in the success of their mobile banking.
9. Conclusion
The RBI guidelines have restricted the mobile banking transactions to Rs 2500 per transaction subject to an overall cap of Rs 5000 per day per customer. RBI has reservations about any non banking organizations creating credit and there are fears over money laundering. The expansion of banking services particularly to rural India through the traditional banking model of branches and ATM has got restriction due to high cost involved. To achieve the goal of financial inclusion, Government and RBI need to change the present approach. The only option left to the Government is to allow the telecom operators to join the banking industry to carry the banking services to millions of Indian people who reside in Rural India. The telecom industry over the last decade developed the expertise in handling large volume of small transactions and they are highly successful in spreading their distribution network and reaching the customers over the entire country. There should not be any more delay in trying a new model which will usher the country to the next level of banking revolution. The scope for mobile banking is tremendous considering the cash transaction of Rs 15 trillion carried out in the country.
10. Some statistics on mobile banking in India (source HT dated 19-Aug-2010)
19.7 million people visited business / finance web sites in June 2010
Year-on-year growth in online traffic to finance web sites is 45%
Banking / financial web sites share 50% among the total internet users in June 2010
72% of the visitors to the business / finance sites were men
Web sites of ICICI bank, HDFC group and SBI attracted most traffic
A siginficant portion of people accessing Indian baning sites are from abroad. ICICI topped with 12.3% visitors outside India.
1% (8 million) of the country’s 650 million cell phone users avail mobile commerce services. This is expected to go up to 50 million by 2012.