Mobile banking is growing in India but not to the same extent as mobile subscribers. What are the technology and adoption challenges faced by banks and other partners in the m-banking ecosystem? A status report By Pupul Dutta
In June this year, a multi-day cloudburst centered on the north Indian state of Uttarakhand, causing devastating floods and landslides and killing thousands in what is billed as the country’s worst natural disaster since the 2004 tsunami. While help started pouring in from several parts of India, the relief work and reaching out to those affected was hampered for several days because of poor weather conditions.
In such a scenario where, among other services, banks became somewhat handicapped, the mobile payment technologies used by firms such as My Mobile Payments Limited (MMPL) came to the rescue of those wanting to remit money to the needy.
Money-On-Mobile (MOM), a mobile payment platform from MMPL, helped collect small amounts of money through mobile remittances from its two lakh subscribers. The objective for MOM was contribution of funds for the rehabilitation of Uttarakhand flood victims. The company wanted to achieve this through micro-payments, amounts as small as Rs 10-50. The m-wallet or mobile wallet technology used in these transactions was best suited for this task. It did not require one to go to a bank or even have an Internet connection to make the payment.
The above is an example of m-banking or m-payment technologies at work when most needed. But even in the everyday lives of millions of Indians, m-banking has increasingly begun to make a difference through quick, easy transactions.
Mobile banking set foot in India way back in 2006, when Indian banks started with the business correspondent model (the correspondents were assigned by banks and equipped with handheld devices to cover rural areas; until now around 2 lakh correspondents have been enrolled to cover an equal number of villages.)
However, it is only recently that we are starting to take full advantage of various mobile technologies for banking and payments. With m-wallets coming into the picture, remittances have become just a click away for India’s unbanked majority. (M-wallet generally refers to payment services operated under financial regulation and performed from or via a mobile device. Instead of paying with cash, check, or credit cards, a consumer can use a mobile phone to pay for a wide range of services and digital or hard goods.)
Also, with the increasing mobile penetration in rural areas, mobile banking is seen as a tool to facilitate financial inclusion of the rural population. In urban areas, m-banking is seen as a tool of convenience where one is able to do branchless banking at a much faster pace.
Several leading banks have tied up with telecom operators as well as handset manufacturers so as to provide this facility for an enhanced customer service at the same time facilitating financial inclusion. Recent examples include the State Bank of India (SBI) and ICICI Bank’s partnerships with Bharti Airtel and Vodafone Essar respectively.
The m-banking market
As per RBI data, the volume of mobile banking transactions zoomed by the end of 2012 reaching 5.22 million from 2.67 million in 2011. Today, nearly 70% banks in the country offer mobile banking services. At present, the country is estimated to have around 25 million registered mobile banking customers and this number will grow multifold in the next 2-3 years, believe experts.
Currently, India has about 554.8 million mobile users and 143.2 million unique Internet users, according to a study, India Mobile Landscape 2013, released by research firm Juxt. The study estimates that around 94.7 million users access the Net from their desktop/laptop, smart TV or mobile data connection such as GPRS/EDGE and 3G.
Similarly, a study done by SAP and IDC on banking trends in India recently revealed that more than 50% of incremental Internet usage is coming from mobile devices. Services such as Immediate Payment Service (IMPS) launched by the National Payments Corporation of India (NPCI) has given further boost to mobile banking usage in India. It goes without saying that banks have launched their mobile banking initiatives with all the options of usage from the low-cost Java phones to the high-end smartphones.
Harun R Khan, Deputy Governor, RBI, says, “A potential factor that has attracted all the stakeholders (in mobile banking) including policy-makers to this innovative technology is the lower cost associated with this model in providing banking services amongst existing customers and in taking banking to the hinterland as well. A market study claims that a mobile banking based transaction costs about 2% of the branch banking cost, 10% of the ATM based transaction cost and 50% of the Internet banking cost.”
Technologies in vogue
Mobile banking is seen as an extension of the existing payment infrastructure of a bank to mobile phones, as a channel for leveraging the mobile network and its reach, to deliver banking services to consumers.
So, for the end-to-end mobile banking value chain, it is typically supplied or customized either by a mobile banking vendor or the specialized technology unit within a bank. Initially, mobile banking technologies could be categorized into two environments: server-side technologies and client-side technologies. The former includes applications built on a server, away from the consumer’s SIM or mobile handset (examples: SMS, IVR, USSD2 and WAP).
In the client-side category, applications, solutions and service offerings are built or embedded on a consumer SIM or mobile handset. Examples of client-side applications include S@T and J2ME (Java). Nevertheless, the environment has advanced a lot from the J2ME service offering and now applications are available on different OSes.
“Mobile banking has moved from the J2ME platform to Android, iOS and Blackberry platforms, which continue to be the preferred platforms for mobile banking. Slowly, the Windows platform is also catching up with others,” explains Shalini Mehta, Executive Vice President, Kotak Mahindra Bank.
At present, m-banking offers functions like funds transfer, IMPS, inquiry services, bill payments, mobile/DTH top-ups and m-commerce (or mobile shopping).
According to Mehta, Kotak Mahindra has invested in creating a unique design and experience for m-banking on various platforms. “A hybrid approach is smartly being used for select features. It allows opening HTML pages inside the app frame,” she says.
Nonetheless, the market has just begun to open up and we are yet to see advanced features and capabilities in mobile banking.
According to Vikrant Chowdhary, Director – BFSI, SAP India, the market is just maturing to advanced, truly multi-channel solutions. He touts the Sybase 365 platform from SAP as an enterprise-grade development platform that can help banks or solution providers quickly build compelling, intuitive mobile apps. “We enable customers to take advantage of a robust set of services and libraries, while leveraging in-house skill sets, to create innovative mobile apps with cutting-edge user interface design,” he claims.
Platform interoperability
The issue of interoperability between various mobile banking standards seems to be a myth than reality. According to an article on Wikipedia, “There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking. In practice, it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movement between service providers will naturally adopt the same standards as in the banking world.”
As far as India is concerned, interoperability is a work in progress. According to Geoff King, Head of Mobile Money, Aircel, interoperability is a thing to be worked on constantly by telcos and service providers. “A goal amongst m-banking providers is to be able to allow sending money between different mobile operators’ wallets,” he says.
In the opinion of Surinder Pal Singh, Joint General Manager, Punjab & Maharashtra Co-Operative Bank Ltd, the desire for interoperability is largely dependent on the banks themselves. While SMS can provide basic services, banks have to work on mobile applications that provide better security, are easier to use and allow more complex capabilities similar to those of Internet banking.
The m-wallet business model
The revenue model for m-wallets usually varies from company to company but most often, companies prefer a cost-per-transaction approach.
Suresh Sethi, Business Head/CEO of M-Pesa, the mobile wallet brand from Vodafone, says, “We generate revenue from every transfer. Usually it is 10% fee of every transaction done which is payable by the bank.”
For the banks, it is the incremental reduction of costs for serving the customer that matters — something that allows them to pay the transaction fee to mobile operators. If they were to serve the consumer through a branch for the same service, the cost would be much higher.
Aircel, which claims to provide affordable services to migrant workers, charges the customers as well.
“Generally, a customer is charged a small percentage fee on transactions and the proceeds are divided between various parties involved — which includes the trade agent, platform providers, the partner bank and the telecom operator. This obviously makes it a very narrow margin business. At Aircel, we charge a very minimal amount which is between 1.5% to 3% of the amount of transaction,” says King.
My Mobile Payments, on the other hand, does not believe in burdening its customers with any extra cost. Shashank Joshi, Managing Director, MMPL, says, “Transactions happen between registered consumers and registered merchants. The consumers are not charged anything and we make money from merchants.”
Growth and challenges
Till recently, SMS-based banking was the only option available for customers, and they also used it to recharge their mobiles or top up their DTH accounts. It still has remained the most popular mode of mobile banking. However, as the penetration of smartphones grows, banking through other options such as mobile apps are set to grow manifold.
M-wallet is also being projected as the next big thing in the payment ecosystem. It is believed that there would be different kinds of wallets with varied propositions for different segments.
However, many believe that the strict regulations and restrictions put by the RBI could slacken the growth of mechanisms such as m-wallets. One dampener is that RBI guidelines require the holder of an m-wallet to be subject to “a fully compliant KYC” process. In practice, what this translates into is that unless a person has a bank account, they cannot use their mobile for cash-out facility.
A case in point is that of Vodafone, which till recently used to offer a semi-closed wallet for mobile remittances (in which the cash-out was not possible). But after the telco tied up with ICICI bank, it can offer customers the cash-out facility on mobiles as well. This is still in a nascent stage and Vodafone has very few customers at the moment.
So how does ICICI contribute in this collaboration? “According to the current RBI guidelines, Mobile Commerce Solutions Ltd, which is Vodafone’s fully owned subsidiary, has a license to issue a semi-closed prepaid instrument (wallet) to people. For an M-Pesa wallet, a person needs to provide only a few basic KYC documents and he can avail this facility. Now, with our tie-up with ICICI Bank, we give people the capability to send money which can be used for cash-out as well.”
In this way, a bank-sponsored wallet changes the nature of the wallet from semi-closed to an open one. Imagine a migrant worker in Mumbai who wants to send money to his family in Bihar: under the current scheme of things, he cannot do that unless a bank steps into the picture.
Another challenge that mobile banking currently faces is the relatively slow adoption by users owing to concerns about the security of transactions. According to Annie Mathew, Director, Alliances and Business Development, BlackBerry, India, “I think mobile banking’s biggest challenge has been consumer trust over the security of such transactions. That said, just as online banking caught on, as mindsets change with awareness, mobile banking will see more of an uptick. While banks are creating mobile applications, they are focusing on securing it and also working toward consumer education in relation to this. It is only a matter of time for mobile banking to become the norm.”
Lack of a well-developed ecosystem is another challenge. There is currently a very small percentage of merchants and vendors who have adopted the mobile banking services.
Besides, the interoperability issues between different mobile operator accounts is still to be sorted out and is something that can put off potential m-banking customers.
According to Anand Naik, Managing Director – Sales, India and SAARC, Symantec, the various players in m-banking need to take a holistic approach that brings together identity and device security, information protection, context and relevance and the benefits from leveraging the cloud.
So, while the mobile phone is a potent tool to facilitate financial services and thus financial inclusion, several issues remain to be addressed.
