Customizing mobile banking in India:
Issues & Challenges
Harun R Khan
Reserve Bank of India
FIBAC 2012
September 5, 2012
Mumbai
Evolution of mobile banking –
Small steps and a giant leap
Journey of Indian banks from brick and mortar branch banking to anywhere banking
• Core Banking System, ATMs & internet banking
– instrumental for 24 x 7 x 365 ‘anytime’ banking
• Mobile Banking
– leveraging technology to promote
» anytime and ‘anywhere’ banking
» deeper and sustainable financial inclusion
First set of mobile banking guidelines by RBI in October, 2008 provided
• definition: undertaking banking transactions using mobile phones by bank
customers that would involve credit/debits to their accounts
– larger canvas to mobile payments which in a narrow sense involved only
payment mode for a product or service using the mobile phone
• technology and security standards
– pertaining to security, confidentiality, integrity, authenticity and nonrepudiability
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• regulatory framework
Potential of mobile banking in India
Potential
• to provide the banking facilities to people truly ‘anywhere’
– banked, under-banked and unbanked
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to lower associated costs
– as per a study, mobile banking based transaction cost is about
• two per cent of the branch banking cost
• 10 per cent of the ATM based transaction cost and
• 50 per cent of the internet banking cost
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to address the issues of economic viability of brick & mortar branches and issues related
to the BC model
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to usher convenience for consumers in terms of
– using the product anytime anywhere and
– develop ease of using the product once they are made aware of the same
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Leveraging mobile for anywhere banking
A well-accepted and widely available technology at affordable costs and suitable for
banking & payment services provides an immense opportunity to extend banking services
to all areas and sections of society – banked and unbanked
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Of the 0.6 million villages, banking services available in approximately 0.14 million
villages
Approximately 145 million households excluded from banking services
Total wireless subscriber base 936 million of which 316 million subscribers in rural
areas
Less than 1 percent of existing bank customers covered under mobile banking services
Transactions in mobile banking growing impressively though not reached critical mass
– 3.34 million transactions for value `3,067 million in June 2012
– Year-on-year growth of 143% in volume & 211% in value.
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Customizing mobile banking in India
Customised mobile banking products in India:
two major innovations
Inter-bank Mobile Payment Systems
(owned and operated by NPCI)
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Launched in November 2010
provides real time transfer of funds between the customers of different banks on 24 X 7
basis
36.32 million mobile money identifiers (MMID) issued
50 banks have become members so far
processed 75,236 transactions in July 2012
pilots underway to enable transfer of funds using account number or Aadhaar number
at beneficiary end in place of MMID
Mobile linked Kisan Credit Card
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Launched by NABARD in a Regional Rural Bank in October 02, 2011 in Tamil Nadu
m-KCC enables farmers to purchase agricultural inputs in cashless manner
Transactions done through mobile phones of farmers and vendors registered with bank
and TSP
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Issues & challenges in customizing mobile
banking in India
Issues & challenges - I
Why a bank-led model ?
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Bank-led model suitable for
– providing banking services
– providing all four services – deposit, credit, micro-insurance and remittances
– adherence to KYC / AML requirements
Model endorsed by Inter-Ministerial Group of Govt. Of India
Non bank-led model
– suitable only for remittances
• other three products identified under financial inclusion cannot be offered by
a non-bank
– successful only in a few countries
• due to presence of a monopoly operator, very poor banking infrastructure
and availability of a national identification number
– Why the same success story has not been repeated by the same service
operator in a neighbouring country?
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Issues & challenges - II
Cross border remittance through mobile banking
• Is there an uniform standard or dependent on country specific regulatory concerns and
threat perception?
• delineation between home and host supervision blurred
• Quality of inflows
– broader current and capital account issues
– Anti Money Laundering and Counter Financing Terrorism issues
– Requirement of forex flows through banking channels or authorized entities only
• Bank account to bank account cross-border remittance through mobile
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Mobile based remittance from a non-resident to an account of a resident
– MTSS
• Transfer of funds to the beneficiary’s account on to a PPI (which could be mwallet)
– Banks need to comply with KYC norms, ensure quality of flows & report the flows
World Bank (2011) - With very few exceptions, supervision of m-money has not really
been implemented. The level of acquaintance that supervisors have with these new topics
is really uneven; until recently, they were not well versed on the implications of e-money
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concepts
Issues & challenges-III
Customer ownership and grievance redressal
– Who owns the customer?
– Whom shall the customer contact in case of service related grievance?
• with bank-led mobile banking model, the customers get full protection as in the
case of any other banking transaction
• customers have recourse to the Banking Ombudsman’s mechanism
Role of MNOs
– As Technology Service Provider
• collaborative and co-operative model
– TSPs provide technology & banks provide banking services
• Headwinds - revenue sharing model
– As Technical Service Provider and BCs
• win-win partnership for both
– leveraging respective capabilities and reach
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Issues & challenges-IV
Tapping USSD to expand access
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USSD offers ease of use for P2P and P2B
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Huge potential for exponential growth
– IMPS becomes accessible even through low-end hand-sets
– non-bank entities like the (PPI issuers permitted to join the IMPS network through a
sponsor bank
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What is holding up this product from taking off?
– Revenue Sharing?
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MNOs, banks and NPCI need to put in collaborative efforts to make the system grow,
growth in volumes to benefits all the stakeholders
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Issues & challenges-V
Permitting cash out in mobile wallets
– Mobile wallets are e-money products
• used for purchase of goods and services
• fund transfers
– account is KYC compliant
– Cash out not permitted under the existing banking laws
• Non-bank mobile wallet service provider should not be doing banking business
– Great potential to grow as it can be used for payments of goods & services without
the customers having to carry any additional card.
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Issues & challenges-VI
Security & acceptability issues
• Security and privacy of banking transactions is a mandatory requirement
• RBI prescribed mandatory security standards
– all mobile banking transactions permitted only by validation through a two factor
authentication
• one of the factors of authentication is the mPIN
– banks instructed to conduct regular information security audits on the mobile
banking systems to ensure complete security.
– Transactions above `5,000 are to be compulsorily encrypted
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IDRBT has recently launched the Mobile Banking Security Lab
– The Lab aims at exploring and providing solutions for
• safety, security, reliability and inter-operability for both on low end and highend mobile sets
– The Lab will provide the benefit of
• a common technical centre for all banks and financial institutions
• testing platform for testing security applications in mobile banking
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• providing education services on security related matters
Issues & challenges-VII
Quality of service
(TRAI standards for MNOs for facilitating mobile banking)
Standards
– Service providers shall facilitate banks to use SMS, USSD and IVR to provide banking
services;
– The response time for delivery of message generated by the customer or the bank
shall be within the prescribed time frame;
– If the SMS sent by the bank is not delivered to the customer due to network or
handset related problems, an USSD communication to the customer confirming the
completion of the transaction should be sent;
– Service providers have to maintain complete and accurate record of transactions,
using mobile banking services through mobile phones
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Issues & challenges -VIII
Engaged employees
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Catalyst for service delivery
– Front-line human resources and front-end of technology
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Role of employees in driving any business is most important but least understood
– over-reliance on technology
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Role of employees/BCs/agents - strive towards
– customer transition from ‘assisted’ to ‘self-reliant’
– improving customer service
– enhancing customer satisfaction
– removing apprehensions regarding the safety and security of mobile banking
transactions
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Evaluating mobile banking technology and services
on
7A framework
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Availability
Accessibility
Appropriateness
7A
Assurance
Awareness
Acceptability
Affordability
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Availability
• Choice of technology solutions and products for customers
Accessibility
• Expanding reach of the products to all sections of society irrespective of handset being
used
Acceptability
• Making products easy to understand / operate for the customers; use of local langauge
Affordability
• Customer to find value for money in products
Awareness
• Making people aware of the products and services
Assurance
• Customer trust in the products/processes – security and authenticity of transactions
Appropriateness
• All above features will decide appropriateness of any product and its success too. Any
product needs to score well on these parameters to succeed.
Mobile banking scores well on all these parameters
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Concluding thoughts
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Concluding thoughts - I
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Mobile banking on adoption curve
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Awareness is the key
– all stakeholders to work collaboratively
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Whether technology used for interaction with customers is easy and friendly and not
intimidating?
– Interaction with customers
• easy and friendly and not intimidating
– Interfaces
• simple, easy to comprehend and available in the local languages
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Whether our systems are equipped to handle additional transaction volumes?
– Have we done any forward planning in this regard?
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Why only 52 banks have started mobile banking?
– only a few have achieved sufficient traction
Banks need also have to be proactive in up-scaling their mobile banking products and
services
– to safeguard their traditional payment system terrain
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Concluding thoughts -II
– Need for concerted and sustained efforts by all the stakeholders
• in spreading awareness about the benefits of mobile banking
– Reserve Bank ready to collaborate with banks and the IBA as part of its e-BAT
• electronic Banking Awareness and Training
Harness the potential of mobile banking in fulfilling the vision of
(as envisaged in our draft Payment System Vision Document of 2012-15)
• reaching to the customer wherever s/he is;
• deepening financial inclusion; and
• moving towards a less-cash society.
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(Picture source: The Financial Times)
Thank you