Customizing mobile banking

in India:
Issues & Challenges
Harun R Khan
Reserve Bank of India

FIBAC 2012
September 5, 2012
Mumbai

Evolution of mobile banking

Small steps and a giant leap
Journey of Indian banks from brick and mortar

branch banking to

anywhere banking

Core Banking System, ATMs & internet banking

instrumental for 24 x 7 x 365 anytime banking
Mobile Banking
leveraging technology to promote
anytime and anywhere banking
deeper and sustainable financial inclusion
First set of mobile banking guidelines by RBI in October, 2008 provided
definition: undertaking banking transactions using mobile phones by
bank customers that would involve credit/debits to their accounts
larger canvas to mobile payments which in a narrow sense involved
only payment mode for a product or service using the mobile phone
technology and security standards
pertaining to security, confidentiality, integrity, authenticity and
non-repudiability
regulatory framework
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Potential of mobile banking in India

Potential
to provide the banking facilities to people truly anywhere
banked, under-banked and unbanked
to lower associated costs
as per a study, mobile banking based transaction cost is about
two per cent of the branch banking cost
10 per cent of the ATM based transaction cost and
50 per cent of the internet banking cost
to address the issues of economic viability of brick & mortar branches
and issues related to the BC model
to usher convenience for consumers in terms of
using the product anytime anywhere and
develop ease of using the product once they are made aware of the
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same

Leveraging mobile for anywhere

banking
A well-accepted and widely available technology at affordable costs and
suitable for banking & payment services provides an immense
opportunity to extend banking services to all areas and sections of
society banked and unbanked
Of the 0.6 million villages, banking services available in approximately
0.14 million villages
Approximately 145 million households excluded from banking services
Total wireless subscriber base 936 million of which 316 million
subscribers in rural areas
Less than 1 percent of existing bank customers covered under mobile
banking services
Transactions in mobile banking growing impressively though not
reached critical mass
3.34 million transactions for value `3,067 million in June 2012
Year-on-year growth of 143% in volume & 211% in value.
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Customizing mobile banking in

India

Customised mobile banking products in India:

two major innovations
Inter-bank Mobile Payment Systems
(owned and operated by NPCI)

Launched in November 2010

provides real time transfer of funds between the customers of different
banks on 24 X 7 basis
36.32 million mobile money identifiers (MMID) issued
50 banks have become members so far
processed 75,236 transactions in July 2012
pilots underway to enable transfer of funds using account number or
Aadhaar number at beneficiary end in place of MMID

Mobile linked Kisan Credit Card

Launched by NABARD in a Regional Rural Bank in October 02, 2011 in
Tamil Nadu
m-KCC enables farmers to purchase agricultural inputs in cashless manner
Transactions done through mobile phones of farmers and vendors
registered with bank and TSP
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Issues & challenges in

customizing mobile banking in
India

Issues & challenges - I

Why a bank-led model ?

Bank-led model suitable for

providing banking services
providing all four services deposit, credit, micro-insurance and
remittances
adherence to KYC / AML requirements
Model endorsed by Inter-Ministerial Group of Govt. Of India
Non bank-led model
suitable only for remittances
other three products identified under financial inclusion cannot
be offered by a non-bank
successful only in a few countries
due to presence of a monopoly operator, very poor banking
infrastructure and availability of a national identification number
Why the same success story has not been repeated by the
same service operator in a neighbouring country?
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Issues & challenges - II

Cross border remittance through mobile banking
Is there an uniform standard or dependent on country specific regulatory concerns and
threat perception?

delineation between home and host supervision blurred

Quality of inflows
broader current and capital account issues
Anti Money Laundering and Counter Financing Terrorism issues
Requirement of forex flows through banking channels or authorized entities only
Bank account to bank account cross-border remittance through mobile
Mobile based remittance from a non-resident to an account of a resident
MTSS

Transfer of funds to the beneficiarys account on to a PPI (which could be m-wallet)

Banks need to comply with KYC norms, ensure quality of flows & report the flows
World Bank (2011) - With very few exceptions, supervision of m-money has not
really been implemented. The level of acquaintance that supervisors have with
these new topics is really uneven; until recently, they were not well versed on
the implications of e-money concepts

Issues & challenges-III

Customer ownership and grievance redressal
Who owns the customer?
Whom shall the customer contact in case of service related grievance?
with bank-led mobile banking model, the customers get full
protection as in the case of any other banking transaction
customers have recourse to the Banking Ombudsmans mechanism

Role of MNOs
As Technology Service Provider
collaborative and co-operative model
TSPs provide technology & banks provide banking services
Headwinds - revenue sharing model
As Technical Service Provider and BCs
win-win partnership for both
leveraging respective capabilities and reach
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Issues & challenges-IV

Tapping USSD to expand access

USSD offers ease of use for P2P and P2B

Huge potential for exponential growth

IMPS becomes accessible even through low-end hand-sets
non-bank entities like the (PPI issuers permitted to join the IMPS
network through a sponsor bank

What is holding up this product from taking off?

Revenue Sharing?

MNOs, banks and NPCI need to put in collaborative efforts to make the
system grow, growth in volumes to benefits all the stakeholders

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Issues & challenges-V

Permitting cash out in mobile wallets
Mobile wallets are e-money products
used for purchase of goods and services
fund transfers
account is KYC compliant
Cash out not permitted under the existing banking laws
Non-bank mobile wallet service provider should not be doing
banking business
Great potential to grow as it can be used for payments of goods &
services without the customers having to carry any additional
card.

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Issues & challenges-VI

Security & acceptability issues
Security and privacy of banking transactions is a mandatory requirement
RBI prescribed mandatory security standards
all mobile banking transactions permitted only by validation through a
two factor authentication
one of the factors of authentication is the mPIN
banks instructed to conduct regular information security audits on the
mobile banking systems to ensure complete security.
Transactions above `5,000 are to be compulsorily encrypted

IDRBT has recently launched the Mobile Banking Security Lab

The Lab aims at exploring and providing solutions for
safety, security, reliability and inter-operability for both on low
end and high-end mobile sets
The Lab will provide the benefit of
a common technical centre for all banks and financial institutions
testing platform for testing security applications in mobile banking
providing education services on security related matters
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Issues & challenges-VII

Quality of service
(TRAI standards for MNOs for facilitating mobile banking)
Standards
Service providers shall facilitate banks to use SMS, USSD and IVR to
provide banking services;
The response time for delivery of message generated by the
customer or the bank shall be within the prescribed time frame;
If the SMS sent by the bank is not delivered to the customer due to
network or handset related problems, an USSD communication to the
customer confirming the completion of the transaction should be
sent;
Service providers have to maintain complete and accurate record of
transactions, using mobile banking services through mobile phones

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Issues & challenges -VIII

Engaged employees
Catalyst for service delivery
Front-line human resources and front-end of technology
Role of employees in driving any business is most important but least
understood
over-reliance on technology
Role

of employees/BCs/agents - strive towards

customer transition from assisted to self-reliant
improving customer service
enhancing customer satisfaction
removing apprehensions regarding the safety and security of
mobile banking transactions

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Evaluating mobile banking technology

and services on
7A framework

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17

Availability
Choice of technology solutions and products for customers
Accessibility
Expanding reach of the products to all sections of society irrespective of handset being
used
Acceptability
Making products easy to understand / operate for the customers; use of local langauge
Affordability
Customer to find value for money in products
Awareness
Making people aware of the products and services
Assurance
Customer trust in the products/processes security and authenticity of transactions
Appropriateness
All above features will decide appropriateness of any product and its success too. Any
product needs to score well on these parameters to succeed.
Mobile banking scores well on all these parameters

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Concluding thoughts

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Concluding thoughts - I

Mobile banking on adoption curve

Awareness is the key

all stakeholders to work collaboratively

Whether technology used for interaction with customers is easy

and friendly and not intimidating?
Interaction with customers
easy and friendly and not intimidating
Interfaces
simple, easy to comprehend and available in the local languages

Whether our systems are equipped to handle

transaction volumes?
Have we done any forward planning in this regard?

Why only 52 banks have started mobile banking?

only a few have achieved sufficient traction

additional

Banks need also have to be proactive in up-scaling their mobile

banking products and services
to safeguard their traditional payment system terrain
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Concluding thoughts -II

Need for concerted and sustained efforts by all
stakeholders
in spreading awareness about the benefits of mobile banking

the

Reserve Bank ready to collaborate with banks and the IBA as

part of its e-BAT
electronic Banking Awareness and Training

Harness the potential of mobile banking in fulfilling the vision of

(as envisaged in our draft Payment System Vision Document of 2012-15)
reaching to the customer wherever s/he is;
deepening financial inclusion; and
moving towards a less-cash society.
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(Picture source: The Financial

Thank you