With over 850 million mobile subscribers, India is one of the fastest growing markets for telecom services, new applications and handsets. Leveraging the widespread use of mobile telephony, which is now expanding rapidly to rural and semi-urban areas after reaching saturation levels in urban areas, operators are looking for new revenue streams and ways to retain subscribers by providing a better user experience.

Mobile banking (m-banking) is one area that has been generating interest among operators and banks, especially in the past two years. For operators saddled with sliding voice margins, m-banking promises to be a lucrative revenue option. For banks, it is a cheap service delivery platform, costing a fraction of ATM or branch transactions.

The government too has increased its focus on m-banking over the past year with a view to raise the level of financial inclusion of the country’s vast rural and semi-urban population. M-banking can provide a fast and convenient channel for conducting financial transactions through handsets. Mobile banking allows users to access account details, credit/debit card and cheque status,  mini bank statements, and loan and equity statements. It also makes payment reminders and enables insurance policy management.

Globally, the service has proved to be successful. In Kenya, for instance, Vodafone’s mobile payment solution M-Pesa has been a key driver for doubling the number of bank accounts from 6 million to 12 million in a year.

In India, however, the service is yet to take off. Currently, only about 5 per cent of mobile subscribers are registered for m-banking and only 0.5 per cent of them actively use the service.

Issues

There are several reasons for the low uptake of m-banking in the country. Initially, banks were reluctant to promote these services as they did not have a clear business case. Users, on the other hand, were hesitant to use the service due to inadequate information.

Filling up multiple forms and submitting identification documents (address proof, identity proof, etc.) as required by the Reserve Bank of India (RBI) have been a major challenge for rural users in particular. The RBI’s Know Your Customer forms are aimed at preventing money laundering and theft.

Analysts feel that an operator-led business model could help in accelerating financial inclusion, but the RBI guidelines do not allow this. For banking-based services, only bank-led models are approved. This is aimed at preventing money laundering and terror financing. As a result, though m-banking is a cheaper option for banks, they have preferred to wait and let the market mature.

Meanwhile, operators have also taken time to evaluate the market before finalising their business strategies as the mobile money market in India is very fragmented, not just geographically, but also in terms of service types, enabling technologies and participating players.

Another issue is the variety of devices and mobile operating systems that exist in the market. According to industry experts, banks and telecom companies will have to launch mobile applications on WAP sites that run on all handsets and operating systems.

Moreover, there are apprehensions about the security aspect of m-banking services. Analysts, therefore, feel that the rate of adoption will be slow over the next three to five years.

According to a Boston Consulting Group report, the share of mobile transactions in total banking transactions could go up to 20 to 30 per cent by 2020, if banks spread awareness about the platforms and assure customers about the security of transactions. Also, the mobile handset could become the second largest transaction channel after ATMs.

Encouraging m-banking

The government plans to provide a major fillip to the m-banking segment. In September 2010, the RBI expanded the banking correspondent model to include for-profit companies as well as to provide banking facilities in rural areas. This is in addition to regular banking correspondents like non-governmental organisations, cooperative societies and post offices. Following this, the current year has seen several collaborations between banks and telecom operators.

The RBI has also allowed banks to offer m-banking services subject to a daily cap of Rs 50,000 per customer for fund transfer and transactions involving purchase of goods and services. So far, the RBI has given approval to 32 banks to provide these services. Of these, 21 have already launched operations.

The key players in this segment are ICICI Bank, the State Bank of India (SBI), HDFC Bank, Axis Bank, Canara Bank, Syndicate Bank, the Bank of India, the Bank of Baroda, etc. At present, ICICI Bank leads with a 42 per cent market share, followed by HDFC with 25.3 per cent.

New initiatives

With telecom and banking majors stepping up m-banking services, the segment is expected to witness increasing activity in the next two years.

In the past few months, telecom players have shown interest in providing services in the BFSI (business, financial services and insurance) segment through handsets. Several collaborations between banks and operators are currently under way.

Operators are launching services in a phased manner or in certain corridors to test their efficiency and latency. Idea Cellular, for instance, has launched the Idea MyCash service in association with Axis Bank. It is aimed at providing basic banking services including funds transfer through the mobile platform. Idea’s retailers work as banking correspondents and help users open no-frills bank accounts. This helps users to deposit and withdraw money from their accounts through these retailers.

Himanshu Kapania, managing director (MD), Idea Cellular, says, “This is a mobile-based financial inclusion initiative, which provides basic banking services to the unbanked population and enables money transfer between the migrant population in urban areas and their beneficiaries back home.”

In April 2011, SBI and Bharti airtel formed a joint venture (JV) to provide banking services to India’s unbanked population. The JV is SBI’s banking correspondent, and offers banking products and services at affordable costs.

Recently, Reliance Communications (RCOM) also partnered with SBI to launch m-banking services. This allows RCOM’s GSM subscribers to access their SBI account through their handsets.

Moreover, Vodafone Essar has tied up with ICICI Bank and HDFC Bank to offer these services. “Though at a very nascent stage currently, m-banking services are a great opportunity for a country like India to improve financial inclusion,” notes Marten Pieters, MD and chief executive officer, Vodafone Essar.

Tata Indicom also has a tie-up with Corporation Bank and PayMate for offering the Green Money Transfer application – a unique person-to-person mobile money transfer service.

Going forward

In India, the emphasis has mostly been on voice services. Mobile users have only recently begun to use data applications on their handsets. Experts say that the launch of 3G and broadband wireless services, with high data transfer rates, and the entry of smart handsets will drive m-banking services in the future.

So far, these services have been availed of through text messages or the mobile web. However, with the surge in demand for applications on smartphones, handset manufacturers like Nokia are developing an open ecosystem for mobile payments in association with multiple partners (banks, merchants, billers, service providers, etc.). In March 2011, Nokia partnered with the Union Bank of India to launch the Union Bank Money service. The serivce is currently available in the National Capital Region, Mumbai and other parts of Maharashtra, and is expected to be launched across the country by 2012.

To sum up, the Indian telecom industry adds about 15 million mobile subscribers each month. Even if a fraction of these users adopt m-banking, it would be a good beginning for the segment