The Reserve Bank of India (RBI) has come out with guidelines for mobile banking. Following this, a host of mobile service providers and banks are looking to offer these services. tele.net speaks to mobile operators, VAS companies, payment solution providers, handset vendors and analysts about the scope of mcommerce in India, the likely issues, and the role of the regulator in facilitating the growth of this service...

What is the potential of mobile commerce in a country like India?

Ajay Adiseshann: Electronic financial transaction markets or e-payment markets are expected to grow at 70 per cent over the next two years. This fact, coupled with a mobile penetration figure of 325 million subscribers, makes mobile commerce a potential success area.The huge difference between broadband and mobile subscriber numbers will make the mobile a de facto e-payment device.

Saket Agarwal: The Indian telecom sector is one of the fastest growing sectors in the world. With an average addition of 8 million subscribers month after month, the country now has a teledensity of more than 30 per cent. The cost of owning a mobile phone and the cost of using a mobile has come down significantly. There was a time when outgoing calls used to cost as much as Rs 16.80 per minute and even incoming calls were charged. However, today outgoing calls are as cheap as Re 0.50 per minute and incoming is free, not to forget that some operators like Virgin Mobile even pay you to receive calls.

With mobiles becoming the main mode of communication, mobile commerce and banking will see high acceptance among customers. With over 300 million mobile subscribers and still growing, m-commerce has huge promise.

Ashish Desai: While the m-commerce market is currently at a nascent stage, the ubiquity and utility of the mobile device promise to change the way consumers use cash and interact with service providers. As the penetration of mobile phones continues, and the need for real-time cashless payments grows, mcommerce and the idea of mobile banking will gain acceptance. Developments that support the provision of mobile financial services in emerging markets, where a large number of individuals are unable to access banking services, will take place.

We see a demand for mobile banking, payments and money transfers, and expect these services to take off, given the right market conditions. There are issues of security and the ability to route real-time transactions over the cellular network to the necessary payment gateways in a secure and cost-effective manner, but as the various players in the m-commerce space come together, supported by the necessary regulatory environment, there is general optimism that m-commerce will be able to fulfil its potential of extending financial services to hitherto unserved demographics.

Prasanjeet Khuntia: There is huge potential for m-commerce, for two key reasons. The first is that we have a large subscriber base and the industry is still adding 8-10 million users every month. Second, there are a lot of basic services such as bill payments for water, power, telephone and other services that are still not conveniently accessible in India. While new kinds of payments have come in, they have not percolated down to an extent that this convenience is available to everyone.Most of the transactions that are taking place through e-commerce today, using a credit/debit card or services like PayPal, can be implemented on a mobile phone using a web browser. In that sense, m-commerce is a convergence of e-commerce and mobiles. It will be interesting to see the way m-commerce is implemented.

Anil Pande: Today, India has over 250 million mobile customers and about 10 per cent of them have internet access. The mobile subscriber base is slated to double in two to three years. Therefore, m-commerce offers a convenient medium to subscribers to avail of banking and commerce services. From the banks' point of view, it is a costeffective medium to provide branch-less banking. And from the mobile operators' perspective, it is another service that can be offered to consumers and increase the utility of mobile phones.

The Reserve Bank of India (RBI) has recently issued guidelines for mobile banking. How will these impact the stakeholders?

Ajay Adiseshann: The guidelines issued by the RBI have provided clarity and purpose. Some of our banking partners have already received the requisite clearances and are planning to launch our services in a big way.

Saket Agarwal: The RBI's recent guidelines on mobile banking, which sealed daily transactions at Rs 5,000, are a good beginning. In India, we still have to establish conviction and confidence among the end-users of mobile banking, and assure them that their transactions are secure. The limit set by the guidelines is a non-issue, as ARPUs are just about Rs 250 (implying less than Rs 3,000 in a year). Guidelines actually spur growth.

Ashish Desai: The RBI guidelines state that any operator wanting to provide a payment or money transfer service will need to tie up with banking institutions. This may impact the speed with which mobile banking services can be brought to unbanked segments of the mobile subscriber community, as operators will need to tie up with banking institutions and support subscribers in getting a bank account. There is a need to conform to regulations to ensure security of data and prevention of fraud, and a need to expand access to formal banking channels to further spur economic growth.

Bharti Telesoft is a technology provider and as such, is not impacted directly by changes in regulations, though we need to ensure our products work within all regulations and guidelines.

In rural and urban sectors, a distinction is largely drawn between the banked and unbanked segments. If we assume that urban mobile subscribers are largely banked, it will be possible to quickly deliver mobile banking services to banked individuals, as the required regulations are being met. If we assume that the rural segments are largely unbanked, it is necessary to first create a bank account for people wishing to use m-commerce services. As this could be a complex process, there may well be delays in extending services to this segment.

Prasanjeet Khuntia: The very fact that the RBI has released a set of guidelines for mobile banking is a positive step because this shows that the government recognises the potential of this service.

A couple of things stand out in the guidelines. One is that only customers with debit/credit cards can do mobile banking and the second is that physical presence and document-based registration is required for customers. Given that the basic premise of the service is based on convenience, the process of registration, which is fairly complicated, will itself put off some customers.

There is a transaction limit of Rs 5,000 per customer per day, which seems to be very little. This could be viewed in different ways. But the most important thing is that there needs to be a start. I believe that it is easier to start these services from urban places and then move on to rural ones. For urban customers who hold credit/debit cards, this limit is very low.

There are four stakeholders in the mcommerce business –­ banks, merchants, payment companies and the operator. In this entire system, the RBI is putting in a restriction that banks have to offer services to customers of all mobile operators. This is going to be a difficult task as for all operators, implementation is not yet guided by any strict guideline for technology.Currently, it is not technically viable for all the operators to provide this service. This is also going to be a challenge to start with.

Anil Pande: The RBI has been very open in presenting guidelines, which enable enormous possibilities for offering m-commerce services without compromising on usability and security. The RBI has considered the requirement of consumers as well as the infrastructure and capability of various stakeholders' systems to devise an inclusive set of guidelines. We believe that these guidelines will present greater clarity and speed up m-commerce services.

What regulatory measures can be taken to facilitate the growth of m-commerce services in India?

Ajay Adiseshann: More than specifics, the fact that there is a guideline in place gives it an overall legitimacy as against not having one and the resulting grey areas.

Saket Agarwal: To catapult growth in the mobile commerce sector in India, the regulator should allow free access to customers.These services should be kept out of the operator's AGR in order to avoid consumer taxation on account of licence fees.Customers should be allowed to experience the service to adapt it. Indian telecom is expanding into the rural areas and close to 40 per cent gross additions are coming in from these areas. With this reach, telecom operators can bring value addition to their customers by providing mobile banking/commerce to them.  

Ashish Desai: m-commerce is still at a relatively nascent stage in India. To spur growth, it will be necessary to combine strong guidelines (for fraud prevention), security and an affordable solution, given that consumers demand value for money.

To cater to this market, Bharti Telesoft offers m-commerce services, such as mPayments, over a cost-effective, universally available menu-driven access mechanism (on GSM networks): unstructured supplementary service data (USSD).Affordability, ease of use and universal availability are key criteria in ensuring the success of these services.

Prasanjeet Khuntia: The regulators have to keep in mind that the basic premise of m-commerce is convenience. If we realise this, a lot of things can improve. For instance, for a whole lot of people who do not have a debit/credit card,mobile banking is going to be a service to be excited about. This is in contrast to the people who already have a credit/debit card and are able to use the service at least through the internet if not through mobiles. The potential therefore lies in the first lot of customers.  

Anil Pande: The RBI has included the role of all stakeholders in promoting m-commerce. Its clear mandate to banks to offer non-exclusive services will present enhanced opportunities for growth of m-commerce.

What are the key concerns in terms of security and privacy that need to be dealt with?

Ajay Adiseshann: Security and privacy are two areas that Indian banks have been dealing with on various fronts, for different services. The objective here is to leave it to the respective banks to put systems in place in conjunction with their respective payment service providers to ensure that adequate levels of security are present while ensuring that customer privacy is adequately addressed.

Saket Agarwal: The success of mobile banking or commerce depends on how secure the systems are. To ensure stringent security and privacy, transactions should be session based instead of "store and forward". Also, handsets at home become a shared commodity which children and other family members also use at times. In order to ensure security at that point of time, an additional PIN should be required for use. Also, the password should not be stored in the system.

Ashish Desai: It is critical to continuously develop and offer competitive features that enable endservice providers to differentiate their offerings in the market.

Our experience shows that the emerging markets are slowly but steadily moving towards effectively addressing both the banked and unbanked segments on a single platform. Though USSD provides an affordable access mechanism, for a more enriching experience, users will require a GPRS connection, which is a more costly access mechanism.

As 3G is rolled out, services will improve since 3G networks support high speed applications up to 144 kbps while in motion and 2 Mbps while stationary, provide increased network capacity through new spectrum, and allow subscribers to access their services while roaming.

Prasanjeet Khuntia: The most fundamental difficulty is sensitive customer data. There has to be a system to look into customer attrition across all the four stakeholders in the business, as well as employee attrition, which is going to be reasonably large in smaller companies. This is because customers do not want their account details and other personal details being taken over by employees who are moving from one firm to another. In the past, several such instances have been reported. This is going to be one of the most challenging parts of the service.  

Anil Pande: Adequate safeguards are present in the models of mobile banking and commerce to prevent compromise of privacy and security. With superior mobile technologies being made progressively available on mobile terminals and networks, such mobile transactions shall become as secure as, or perhaps more secure than, internet transactions.

What models of m-commerce do you recommend for a country like India?

Ajay Adiseshann: The RBI guidelines make one thing absolutely clear: m-commerce in India will have to take the banking route. At Paymate, we have been advocating just this from the outset. In addition to interoperability and providing services right down to basic, no-frills handsets without data plans are what set us apart and would be the right way forward. Finally, revenue models will continue to evolve. Currently, it is free for the customer but going forward, customers might be willing to pay for convenience.

Saket Agarwal: Basically, there are two models: pay per use, wherein the customer pays for each transaction, and subscription based, which entails a monthly rental for customers to carry out transactions.  

Ashish Desai: Emerging markets are already benefiting from the diverse offerings of m-commerce. However, the demographic and credit profile of a large segment of the potential customer base, namely, the base of pyramid (BoP) segment, in emerging markets hinders the growth of institutional banking.

To improve demographic and geographic penetration and bring high-volume, low-value cash transactions into the mainstream formal channel, financial institutions will need to adopt automated, low-cost service delivery channels. The availability of financial points of presence is central to providing banking access in emerging markets –­ and more particularly, providing financial access in a cost-effective manner. Compared to developed economies, the formal financial infrastructure is relatively basic in emerging markets.

Prasanjeet Khuntia: There are two types of models –­ one that is centred on mobile operators and the other, on banks. We will have to see how the models evolve in India. For banks, getting into technology is not easy, and neither is it easy for mobile operators to get into payment systems. So, it is a hugely collaborated thing. Some kind of a revenue-sharing model where the three entities –­ bank, operator and the payment company –­ come together and decide the revenue share, is still at the evolution stage.

Anil Pande: The commercial model would evolve and depend on the role division between the mobile operator and the bank. If the mobile operator is actively participating in customer acquisition for mobile commerce, it needs to be compensated by the bank for this effort. In addition, the transaction fee paid by merchants to the bank should be shared with the mobile operator.Also, some level of customer care would need to be provided for m-commerce by the operator and the bank should reimburse the operator for that effort.