RBI has recently issued operating guidelines to banks for mobile banking transactions in India1 (via Ashish Sinha) with the objective of “ensuring a level playing field” (presumably between banks).
Mobile banking is an important piece of the leapfrogging puzzle for BRIC countries because of its twin promises of ubiquitous reach and low cost of reach. At one level, mobile banking can enable banks to service a significant number their existing customers at a low cost, without putting pressure on their branch networks. At another level, mobile banking can be an important enabler to bring the unbanked at the bottom of the pyramid into the economic mainstream.
In a country where the number of mobile phone users (287 million users, including 71 million rural users, at the end of June ’08, as per TRAI2) is likely to overtake the number of bank account holders (about 400 million3, including 25 to 40 million active credit and debit card users4 5 6) in a few years, it’s useful to ask if RBI’s mobile banking guidelines will allow mobile banking to fulfill that promise and deepen the reach of banking in India.
The answer, unfortunately, is “no”, as RBI has limited mobile banking services to existing customers of “banks which are licensed and supervised in India and have a physical presence in India” and insisted on “document based registration with mandatory physical presence of their customers, before commencing mobile banking service”. Combine that with the “daily cap of Rs. 5000/- per customer for funds transfer and Rs.10,000/- per customer for transactions involving purchase of goods/services”, and it’s easy to see how banks may struggle to even convert a substantial number of their present customers to mobile banking.
This is especially sad because mobile phones are finally beginning to find traction in rural India. In April-June 2008, 30% of the new mobile subscribers in India (8 million out of 25 million) came from rural India, according to TRAI 2 7 (via Rajiv Dingra).
RBI, however, displays rare foresight in the areas of interoperability, security and consumer protection. The guidelines insist on interoperability between mobile operators and banks “to enable funds transfer from account in one bank to any other account in the same or any other bank on a real time basis irrespective of the mobile network a customer has subscribed to” and foresee “a robust clearing and settlement infrastructure operating on a 24×7 basis”. The guidelines also ask banks to “endeavor to ensure end-to-end encryption of the mobile banking transaction” and most banks will, therefore, implement a system based on SIM or USSD instead of SMS.
In summary, banks and third party agent network operators (like mChek) have won, mobile network operators and the unbanked have lost, while existing banking consumers have got a mixed bag, as a result of RBI’s guidelines8.
References
- 1 Mobile Banking transactions in India – Operative Guidelines for Banks, Reserve Bank of India, October 8, 2008.
- 2 The Indian Telecom Services Performance Indicators April– June 2008, Telecom Regulatory Authority of India, October 7, 2008
- 3 Please suggest source.
- 4 Financial Cards in India, EuroMonitor, April 2008
- 5 Indian Credit Card Industry – On an Upswing, Reuters India, October 6, 2008.
- 6 Payments in India Going e-Way, Prathima Rajan, Celent, October 8, 2008.
- 7 30% of new mobile users are from rural areas: TRAI, Thomas K. Thomas, The Hindu Business Line, October 9, 2008.
- 8 India’s mobile banking guidelines – who wins and who loses?, Kabir Kumar, CGAP, October 8, 2008.
