Mobile Banking: A Wallet for all Pockets

Mobile Banking (also known as M-Banking, m-banking, SMS Banking, etc.) is a term used for
performing balance checks, account transactions, payments, etc., via a mobile device such as a
mobile phone. It was Internet Banking, which ushered in a new era in banking convenience

by bringing the entire operations to the computer, and now mobile banking promises to take it to
the next level.

Internet Banking helped give the customers anytime access to their banks. Customers could
check out their account details, perform transactions like transferring money to other accounts,
and pay their bills, sitting in the comfort of their homes and offices. However, the biggest limitation
of Internet Banking is the requirement of a PC with an Internet connection, not a big obstacle if
we look at the US and the European countries, but definitely a big barrier if we consider most of
the developing countries of Asia like India and China.

Mobile Banking addresses this fundamental limitation of Internet Banking, as it reduces the
customer requirement to just a mobile phone. Mobile usage has seen an explosive growth in
most of the Asian economies like India, China and Korea. The main reason that Mobile Banking
scores over Internet Banking is that it enables 'Anywhere Anytime Banking'.

According to Cellular Operators Association of India (COAI), the mobile subscribers' base in
India hit 40.6 Million in August 2004, and it will be almost 80 Million in 2008, i.e., nearly double.
We all expect 2009 set to be a big year for Mobile Banking. After a slow start at the turn of the
millennium, it would seem this time around, that the devices, the networks, and the users have
finally started using "Mobile Banking". The majority of the Indian banks, whether nationalized
bank or privatized, are already involved in offering mobile services to their customers. Several
banks have even tied-up with mobile phone operators and service providers to carry out
transactions on mobile phones. While some banks allow simple account-related queries on
mobile phones, some have gone a step further and stored the debit and credit cards on mobile
phones as well to enable various transactions.

Four banks - SBI, HDFC, ICICI and Corporation Bank - have partnered with India's largest
operator - Bharti Airtel - to offer m-banking. RCOM has tied up with ICICI Bank, HDFC Bank, Axis
Bank and IDBI Bank. Bharti Airtel has launched its mobile banking and plans to rope in about 100
major banks in India by end 2008.

But despite the addition of around seven million mobile users every month, bank officials feel it is
too early to gauge the success of mobile banking in India. "Mobile banking is still in its nascent
stage, and we will have to wait and watch if it really changes the way

we bank," officials from various banks echo.

Mobile banking has been at the threshold of a revolution for some time. While many operators, as
well as banks, had introduced mobile banking applications, it never became popular due to
security concerns. The number of people using mobile banking services has jumped from under
10,000 to 120,000 in two years. While the trend is growing, lack of awareness of services, apart
from perceived security issues, are inhibiting faster take-off.

There is yet another reason why the service will not spread like wild fire - the credit environment.
RBI has been tightening the banks, which have been offering unsecured and secured loans with
minimal or no customer verification. With RBI tightening liquidity, personal loan defaults have
reached 9% and banks will be very wary of giving you a credit card on the mobile.

Though RBI has specified norms for the banks to provide secure technology and ensure
'confidentiality, integrity, authenticity and non-reputability', security remains a major concern as
well as a hurdle. However, with a few precautions and safety measures, users can have a safer
m-banking experience. The m-PIN, which is issued by the bank, should be memorized and the
PIN-mailer destroyed immediately. Change your m-PIN regularly and do not share it with anyone.
The PIN is valid only for the corresponding phone number, which means users cannot access
their accounts using other hand-sets. Thus, in case of a loss/theft of mobile phone, inform the
mobile phone operator as well as the bank to block the banking application. Similarly, you should
also inform the bank, if you change your hand-set or SIM card.

Reserve Bank of India has set-up the Mobile Payments Forum of India (MPFI), a 'Working
Group on Mobile Banking' to examine different aspects of Mobile Banking (M-banking). The
Group had focused on three major areas of M-banking, i.e.,
(i) technology and security issues,
(ii) business issues, and
(iii) regulatory and supervisory issues.

However, to start with, we must understand who the various stake-holders are, and what there
expectations are.

The stake-holders are as follows: -

a) Consumers
b) Merchants
c) Mobile Network Operators

d) Mobile Device Manufacturers

e) Financial Institutions & Banks
f) Software & Technology Providers
g) Government

Each stake-holder group has the following expectations: -

a) To meet the following expectations of Consumer: -

 Personalized service

 Minimal learning curve

 Trust, privacy and security

 Ubiquitous - anywhere, anytime and any currency

 Low or zero cost of usage

 Interoperability between different network operators, banks and devices

 Anonymity of payments like cash

 Person to person transfers

b) To meet the following expectations of Merchant: -

 Faster transaction time

 Low or zero cost in using the system

 Integration with existing payment systems

 High security

 Being able to customize the service

 Real time status of the mobile payment service

 Minimum settlement and payment time

c) To meet the following expectations of Telecom Network Providers: -

 Generating new income by increase in traffic

 Increased Average Revenue Per User (ARPU) and reduced churn (increased loyalty)

 Become an attractive partner to content providers

d) To meet the following expectations of Mobile Device Manufacturers: -

 Large market adoption with embedded mobile payment application

 Low time to market

 Increase in Average Revenue Per User (ARPU)

e) To meet the following expectations of Banks: -

 Network operator independent solutions

 Payment applications designed by the bank

 Exceptional branding opportunities for banks

 Better volumes in banking - more card payments and less cash transactions

 Customer loyalty

f) To meet the following expectations of Software & Technology Providers:

 Large markets
g) To meet the following expectations of Government: -

 Revenue through taxation of m-payments

 Standards

There are lots of evidences that not only big cities are using mobile banking, but even thousands
of people from rural areas across 12 states are also likely to get their social security pension and
wages paid under the National Rural Employment Guarantee Act (NREGA) Scheme with the
help of mobiles over the coming few months. Bharti Airtel, too, is in the process of tying-up with
two leading banks to extend its mobile remittance services to rural areas, according to its
President (Mobile Services), Sanjay Kapoor.

Airtel has already partnered with the Indian Farmers' Fertilizers Cooperative Limited
(IFFCO) to set up IFFCO Kisan Sanchar Limited in Rajasthan. Under this initiative, the
cooperative department will provide mobile hand-sets to farmers at marginal price through its out-
lets in the rural areas. These hand-sets would be loaded with green SIM cards, which will flash
daily updates on agricultural practices and weather forecasts free of cost.

Various Mobile Banking Services to the Consumers

Banks offering mobile access are mostly supporting some or all of the following services: -

Account Information

 Mini-statements and checking of account history

 Alerts on account activity or passing of set thresholds

 Monitoring of term deposits

 Access to loan statements

 Access to card statements

 Mutual funds / equity statements

 Insurance policy management

 Pension plan management

Payments & Transfers

 Domestic and international fund transfers

 Micro-payment handling

 Mobile re-charging

 Commercial payment processing

 Bill payment processing

Investments

 Portfolio management services

 Real-time stock quotes

 Personalized alerts and notifications on security prices

Support

 Status of requests for credit, including mortgage approval, and insurance coverage

 Check (cheque) book and card requests

 Exchange of data messages and e-mail, including complaint submission and tracking

Content Services

 General information such as weather updates, news

 Loyalty-related offers

 Location-based services

One way to classify these services depending on the originator of a service session is the 'Push
/ Pull' nature. 'Push' is when the bank sends out information based upon an agreed set of rules;
for example, your bank sends out an alert when your account balance goes below a threshold
level. 'Pull' is when the customer explicitly requests a service or information from the bank, so a
request for your last five transactions statement is a Pull-based offering.

The other way to categorize the mobile banking services, gives us two kind of services
- 'Transaction-Based' and 'Enquiry-Based'. So a request for your bank statement is an enquiry-
based service and a request for your fund's transfer to some other account is a transaction-based
service.

The new generation of mobile phones offers the speedy GPRS, EDGE or 3G data transmission
standards and has large, high-definition colour displays. Prices are coming down and services
and features are now considerably easier to handle on the mobile. Mobile Banking, in particular,
has finally become a fast, user-friendly and affordable service. India's leading telecom companies
started their services for Mobile Banking, basically they use these services as a marketing tool to
advertise there services on this basis. Here are few giants of telecom industries in India who are
offering Mobile Banking in various states.

IDBI's CTO, Neeraj Bhai, echoes the sentiment, "Over 12% of our Internet Banking users use our
Mobile Banking services as well."

While ICICI Bank offers its services on GPRS and secure SMS, Barclays Bank's Hello Money is

based on Unstructured Supplementary Service Data (USSD) platform, which is independent of

GPRS.
UK-based Barclays is one of the largest corporate money managers in the world. The bank
launched its consumer banking services in India last year. And recently, the bank made its mobile
banking service available on GSM hand-sets, on Airtel, Vodafone, and Idea networks in forty
cities. Customers can choose between Hindi and English. Further, Barclays aims to include more
languages and extend it to CDMA hand-sets as well.

ICICI Bank has tied-up with Airtel and m-Chek to load a virtual credit card on a mobile phone to
carry on complete banking transactions as well as for making payments. "We conducted a pilot in
Delhi and received close to a thousand responses. Mobile phones can be safer as compared to
physical cards as they are pin-protected, thereby minimizing the risk of misuse," said Mr. Sachin
Khandelwal, General Manager, Head-Cards Product Group, ICICI Bank.

Despite lots of security issues related to mobile banking and lack of awareness on part of
consumers, the technology has taken off on slow pace, still it will be a big hit in coming years.
Due to large number of advantages, and these advantages have over-powered all the
disadvantages of the technology. All these advantages create a WIN-WIN-WIN situation for the
technology: -

 End-users benefit from greater control of their personal finances, as well as time saved by not
having to access account details via other channels (Internet, phone, ATM, among others).

 Bankers are of the opinion that mobile banking gives the banks an opportunity to expand their
customer base without incurring additional infrastructure costs. It would also help in financial
inclusion as it would provide a large number of unbanked people access to banking services.

 Banks would save a huge amount of money on card issuance and merchant acquiring with
zero point of sale cost. Mobile banking could be used to make remittances from person to person,
banking purposes and to make payments for purchases or services provided.

 Mobile operators benefit from increased customer stickiness, data usage and, potentially,
customer experimentation with other forms of mobile content.

Given this win-win-win situation, we expect uptake of mobile banking services to be robust among
mobile subscribers, users and the banks.

Over the next five years, mobile banking deployments will develop significantly - from "online
banking" applications to one with richer interfaces and multiple mobile payment capabilities. The
successful evolution of mobile banking and payments will be on the basis of the ability of financial
institutions and mobile operators to balance ease of use with security.

I certainly am looking forward to the convenience of banking on my mobile. But, now that banks
will have our mobile numbers (it was optional to give it to banks earlier), could it mean more
unwanted calls and SMS from banks?