Research Project Report


“Mobile Banking in India”




I, Mr. Annirban Bhattacharya hereby declare that this Research Project Report on “Mobile Banking in India” is the record of authentic work carried out by me during the period from last semester and has not been submitted earlier to any university or institute for the award of any degree/diploma etc.




This is to certify that Mr. ANNIRBAN BHATTACHARYA of MIT Pune’s, MIT School Of Telecom Management (MITSOT) has successfully completed the RPT work titled “Mobile

Banking in India” in partial fulfillment of requirement for the

completion of PGDM course as prescribed by the MITSOT. This RPT report is the record of authentic work carried out by him/ her during the last semester. He has worked under my guidance.

Prof. Archana Deshpande Project Guide MITSOT

Dr. Sanjay M. Bhale Director MITSOT

07 3.... 03 2... 22 6.......... 20 4.....5 FEATURES & BENEFITS OF MOBILE BANKING …………………………………...........2 CRITICAL ANALYSIS ….3 MOBILE BANKING USERS – SERVICES PREFERENCE …………………………....1 STRATEGIC ANALYSIS…………………………………………………………............ COMPANY DESCRIPTION ……………………………………………………………....................................……........... 12 3........ REFERENCES …………………………………………………………………………….Table of Contents 1.... 19 4.......... OBJECTIVE AND SCOPE ……….............................. 25 .. EXECUTIVE SUMMARY ………….................1 BUSINESS PLAN ……………………………………………………………….............2 LIMITATIONS AND PROBLEMS OF MOBILE BANKING ………………….... INDUSTRY OVERVIEW …………………………………………...........1 REGULATIONS FROM TRAI ………………………………………………………… 09 3..... 01 2.....…… 19 4... FUTURE ASPECTS ……………………………………………………………………….1....………………... 24 7....6 CHALLENGES WITH ADOPTION OF MOBILE BANKING ………………………..........2 MOBILE BANKING USERS – SERVICE USAGE PATTERN …………………….......... CONCLUSION ……………………………………………………………………………............ 18 4........... 15 3........... 16 4................ 21 5.1.......... 05 3.1 CHANNELS AVAILABLE IN MOBILE BANKING..............…….… 11 3....... 13 3...4 MOBILE BANKING ISSUES – OVERALL ANALYSIS ……………………………....7 RECOMMENDATIONS ……………………………………………………………….... 12 3................

III Figure No. 3. 08 12 .LIST OF FIGURES Chapter No. Amount Transacted Mobile Banking Service Preference Page No.1 3.2 Name of the Figure Transaction volume vs.

III 3.2 3. Name of the Table Mobile Banking Service usages pattern (a) Mobile Banking Service usages pattern (b) Analysis of Mobile Banking Issues Page No.3 11 11 13 . Table No.LIST OF TABLES Chapter No.1 3.

Chapter Objective and Scope 1 1 .

In this report I also cover the main issue that is the security. Literature will also show that possibility of security threat exists for transaction of payment using mobile device. but due to economic. A mobile payment service in order to become acceptable in the market as a mode of payment the following conditions have to be met:        Simplicity & Usability Universality Interoperability Security. According to my research. in India there are around 77 public and private banks which are providing net banking to its customers. But my study is limited to study the service patterns. regulatory. Privacy.The main objective is to study that why mobile banking in India might seem a little premature as Indians are not so confident to carry all the transactions via computer or a mobile and the mindset of Indian customer for mobile phones is just limited to a usual phone for voice call and messaging. service preference and level of agreement of the respondents with issues of public banks such as State Bank of India & Punjab National Bank and private banks such as ICICI & HDFC. and demographic challenges the mobile banking is still facing numerous problems to be accepted from Indian Customers. 2 . and Trust Cost Speed Cross border payments The mobile banking system has many advantages as compared to the disadvantages. The scope of my report is limited to the Indian banks only.

Chapter Executive Summary 2 3 .

to be major beneficiaries of a simpler and convergent market. this does not necessarily mean that 60 out of every 100 India adults in cities have bank accounts. Talking about India is socially and economically divided into two segments.2% of the country‟s 650. Thus. there are more than 7 billion mobile phone subscribers. Alternatively. Banks themselves also bear a large share of this cost. only 5. the banking coverage among the adult population is 39%. That fact positions banks.7% of overall 32. Approximately 59% of India‟s population is unbanked. Simultaneously.5 billion people have bank accounts. They currently spend one third of their operating costs on payments. nearly 60 percent of the mobile phone subscribers reside in the developing world. The country promises to be one of the powerhouse‟s of the world by 2100 with its middle class very similar to the developed world‟s in consumer habits. large tracts of the country remain mired in poverty. The under banked population in developing countries refers to the people who have limited access to financial services. as it is common for one person to have multiple accounts.Across the world. In rural India. many entities with a focus on global development have turned to the mobile phone as a viable platform for delivering financial services to under banked and unbanked populations. maintain savings and make remote payments. but do not receive a financial institution‟s services. These obstacles can be at least partially overcome by financial services being delivered through mobile phones. 4 . increasingly fragmented financial services have developed in competition with individual banks and financial institutions.5 billion people who have a mobile phone. However. That leaves approximately 2.000 villages had bank branches despite the fact that 39.525 bank branches were in rural India. The cost for the current fragmented nationally based payment systems is approximately 2-3 percent of the Gross Domestic Product. which in turn constraints and inhibits their economic opportunities. processors and end-consumers. In addition. infrastructure and behavior. the unbanked population pertains to those without formal bank accounts that operate in a cash economy. In developed economies. while just 4. in contrast to 60% in urban area. lacking basic services such as banking. education and trading markets. along with other payment service providers. limiting their ability to take out loans. In 2010.

In 2010.63 crore in February 2011 alone. ICICI bank posted a growth of 532% and HDFC percent growth.32. State Bank of India (SBI). 3) Mobile banking costs make for a compelling business case . 2.000 bank branches in India and covering the whole population with physical bank branches will take more than 20 years.The largest bank in India.Almost every bank in India has Mobile Banking alert feature Mobile Banking application .making the case of using mobile phones for financial services (like payments) compelling.318 mobile transactions with a transaction volume of Rs. SBI posted YTD growth of 1. but no bank account . 4) Large part of the population has a mobile phone.according to Citibank the bank branch is 10 times more expensive than doing a transaction on a mobile phone.Using USSD as channel to carry out mobile banking WAP bases Low bandwidth Mobile Banking Site NFC Based Banking solutions(Not much accepted in India due to unavailability of NFC handsets) CDMA  BREW Application 5 . posted 529. Almost 60% of the population does not have a bank account. This demonstrates that the areas of India which are covered by financial services are of immense economic potential. 2) Take banking to the masses . So we can say from the above data that why the way out is mobile banking due to following four major reasons: 1) For Financial inclusion.1 Channels available in Mobile Banking: GSM      SMS as channel .there are only 90.Specific to Mobile handset platform using GPRS & SMS as a channel USSD .865 % in transaction values.

kMobile ING Vyasa .Mobile Banking Union Bank .Hello Money (USSD) 6 .UMobile Barclays.NGPAY Kotak Bank .iMobile SBI Bank .Citi Mobile HDFC Bank .          WAP based mobile Banking SMS Banking Mobile Banking application available in Market: ICICI Bank .Freedom Citi Bank .

Chapter Industry Overview 3 7 .

India being the second largest country after China (1.26 billion out of which 70. the total population of India is around 1. If we talk about numbers then mobile banking in India has increased by 6. Figure 3. e-commerce market which accommodates any commercial transaction via internet.06 billion mobile phones) in terms of number of mobile phones but only 24. But if seen mobile banking scores more over Internet banking as a user can do „Anytime Anywhere Banking. the mobile payment is regulated by RBI and governed by big telecos in the country. Mobile commerce is yet to become a natural successor in India to electronic commerce.1: Transaction volume vs.40 million from Rs.If we talk of global. Mobile Banking is the activity of commencing commercial transactions between both B2B and B2C entities via mobile devices. This facility will increase tendency to save time and energy.39% to 4.3% to Rs 5.43 million in October 2012. we can say around 87% of population of the world are using mobile phone in their day to day life. A natural evolution of e-payment will eventually facilitate mobile commerce and will evolve linearly like other value added services in a mobile even though it had failed to pick up as it was expected to grow like other nations. The mobile banking has the capability to pay electronically and in India. It is a part of the broader. more than 89 Crores mobile phones are being used.‟ It is the hottest area of development in the banking sector and is expected to replace the debit & credit card in future. 4. there are over 7 billion population. Amount Transacted 8 . As of February 2013.72 million as of November 2012 as compare to 4. especially amongst the working population will further intensify the ecommerce market by a large extent. The total amount transacted for the month increased to 8.e.98 million.23% population i.24% of users in India uses the mobile banking with a time period of less than 6 months.

It has prescribed norms for telcos for facilitating communication related to banking and parameters for quality of service. 9 . We believe that these regulations were long due.The increase of number of transactions and the amount transferred was a “win-win” situation for the banks as well as for the mobile operators. Access providers can also optionally allow banks to use WAP or STK (SIM Application Toolkit) to provide banking services to their customers.       Bill payments /Mobile recharge DTH Top up/ recharge IMPS.Mobile to Mobile Transfer Funds transfer Balance enquiry Change MPIN 3. USSD (Unstructured Supplementary Service Data) and IVR (Interactive Voice Response) to provide banking services to its customers. since they require an OTP (one time password). At times.1 Regulations from TRAI: The Telecom Regulatory Authority of India has issued new regulations on mobile banking to ensure faster and reliable communication for enabling banking through mobile phones. Here are some of the highlights of the TRAI regulations on Mobile Banking: a) On mode of delivery & time frame Every Access Provider acting as a bearer needs to facilitate banks to use SMS (Text Messages). the non-delivery of these transactional messages lead to failed transactions. the following operations can be conducted through advanced mobile phones which are further viewed in channels such as the Internet via the Channel Manager. and would specially benefit online transactions. Using compact HTML and WAP technologies. It all depends on how service providers make changes to abide by these regulations. which is delivered through mobile networks.

5% success rate in delivering financial transactional messages and time taken to deliver either error or success confirmation message should be less than two minutes for 99. In addition. IVR. there should be 100% transaction update in the system. or not more than two stage of options in case of USSD and IVR. the access provider also needs to ensure that a report confirming the delivery of the message is sent to the customer or the bank or send an USSD communication to the customer confirming the completion of the transaction. c) On Security Every Access Provider is mandated to protect the privacy and security of m-banking communications and ensure the confidentiality of end-to-end encryption. The access provider should ensure that the customer is able to complete basic services like cash deposit. Every Access Provider should maintain a complete and accurate record of mobile banking transaction messages for six months for audit purposes. The regulation mandates access providers to maintain a 99. message sender cannot later deny having sent the message and the recipient cannot deny having received the message. money transfer and balance enquiry. in case of SMS. cash withdrawal.e. However. 10 .5% of the messages. the access provider should ensure that the message is treated as a transactional message and is sent through separate telecom resources. WAP and STK and less than or equal to two seconds for USSD. In case SMS is used for the transaction. in case the SMS is not delivered to the customer due to any network or handset related issues. in not more than two stages of message transmission. b) On Quality of service Service providers should ensure to meet the quality of service standards as specified by TRAI for cellular mobile telephone service. integrity.The bank generated message should be delivered to the customer by the access provider within a prescribed time frame of less than or equal to 10 seconds for SMS. authentication and non-repudiation of such communication i.

06 6.87 were availing mobile banking services from public/govt.39 Daily 24.24 42.2 Mobile banking users: Service usages pattern Data was further subject to Percentile Analysis which suggested that among mobile banking users majority. 87. Among private banks HDFC Bank was leading in mobile banking services. ICICI Both Public & Private Banks % Users 87.3.45 18. SBI 2.42 Weekly 45. .3 11 . PNB Private Banks 1.06 Table 3. banks.18 Monthly 30. Percentile Analysis also suggested that majority of users were using services from less than 2 years and frequency of uses among majority of users was weekly as shown in Table 1.1: Mobile Banking Service usages pattern (a) Mobile Banking Users Time Period Less than 6 months 6 months to 2 years More than 2 years Table 2: Mobile Banking Service usages pattern (b) % of users Frequency of use % of users 39. Bank from which availing services Public Banks 1. HDFC 2.87 6. State Bank of India was largest mobile banking service provider overall followed by Punjab National Bank.

2 60. Checking balance through mobile banking was most used service where as checking status of D.7 65. or cheque was least used as shown in Figure 2. and thus may influence success of mobile banking in India as shown in table 3.9 Figure 3.6 30.4 26. 12 .2: Mobile Banking Service Preference 3.8 86. telecom operators etc.3 Mobile banking users: Services preference Data related to various mobile banking services in users were interested was also subject to Percentile Analysis to explore currently most preferred services in mobile banking.D. RBI.3. % of users using particular service Balance Check Last Trasactions Check Bill Payment Fund Transfer Share Trading Cheque Book Request Cheque/DD Status Check 8.1 21.4 Mobile banking issues: Overall analysis Overall Percentile Analysis was done for the responses of mobile banking users and non-users to explore selected issues in mobile banking which may impose challenges to service providers (banks).

2 33.1 42.08 % respondents strongly agree or agree that mobile banking service standards are lacking among Indian banks which makes it difficult to do mobile banking from multiple service providers. The customer must also be able to personalize the application to suit his or her convenience.7 43.Level of Agreement of the respondents (in % terms) with issues Mobile Banking Issues Mobile Handset Operability Security / Privacy Standardization Downloading & Installing application Software Customization Telecom Services Quality Strongly Agree 34.5 3.3 37.8 5.1 27. 13 .1 Neutral 10. majority of the respondents were either indifferent or disagree. On the issues of download & installation of application s/w.8 15.3 4.1 24. customization (user‟s preferred language) and telecom service quality.3 Strongly Disagree 0. 3.9 10.2 10.1 43. Reason may be that study was conducted in urban area so technological aspect of application s/w.1 20.8 9.6 7.1 9.8 12.6 Table 3.6 10.5 9.9 Disagree 6.3 52.0 1.3: Analysis of Mobile Banking Issues On standardization again majority 59.1 Agree 47. Simplicity and Usability: The m-payment application must be user friendly with little or no learning curve to the customer. absence of local/preferred language and telecom service quality like network unavailability were not perceived as major issues.3 26.7 12.1 27.5 Features & Benefits of Mobile Banking (Mobile Payment Characteristics) A mobile payment service in order to become acceptable in the market as a mode of payment the following conditions have to be met: 1.

Cross border payments: To become widely accepted the m-payment application must be available globally. Security. 5. 4. Privacy and Trust: A customer must be able to trust a mobile payment application provider that his or her credit or debit card information may not be misused. 7. resistant to attacks from hackers and terrorists. Speed: The speed at which m-payments are executed must be acceptable to customers and merchants. 6. Mobile payments have to be as anonymous as cash transactions. 3.2. Payments must be possible in terms of both low value micro-payments and high value macropayments. A m-payment solution should compete with other modes of payment in terms of cost and convenience. This may be provided using public key infrastructure security. regional and global environments. the system should be foolproof. Secondly. The coverage should include domestic. biometrics and passwords integrated into the mobile payment solution architectures. Third. or from a business to a customer (B2C) or between businesses (B2B). when these transactions become recorded customer privacy should not be lost in the sense that the credit histories and spending patterns of the customer should not be openly available for public scrutiny. Interoperability: Development should be based on standards and open technologies that allow one implemented system to interact with other systems. 14 . Universality: M-payments service must provide for transactions between one customer to another customer (C2C). wordwide. Cost: The m-payments should not be costlier than existing payment mechanisms to the extent possible.

Although the guidelines cover Microfinance Institutions (MFIs). India does possess some infrastructure in the forms of postal payments.000 villages. requiring significant initiative from financial institutions. it would have been more effective to allow non-profit organizations or evangelical organizations to build their own MFI without being encumbered by large existing infrastructure. For a very inexpensive solution. (a) Regulatory Challenges Although the RBI is supportive of mobile banking in India. this may pose a constraint for interoperability between Indian mobile payments and the world. Therefore.6 Challenges with Adoption of Mobile Banking Economic Challenges: The rural population in India is spread across 600.3. it excludes providers from the lucrative remittance market in India and limits areas from which mobile operators can be profitable. each with a low transaction value. there are many regulations that are being put into place: i) Restricted to Financial Institutions: The guidelines state that only existing financial institutions and banks are allowed to offer mobile banking. any mobile banking must be inexpensive enough to be attractive for the end-customer over existing methods. 15 . significant economies of scale cannot be achieved by these due to existing large fixed costs. ii) Rupee Transactions: All transactions must be done only in India‟s national currency. the rupee. Profitability can only be achieved by large volumes. reasonable transport and local governments. While this may not be a threat in the beginning. Also. whose model has been very successful due to the lack of alternative payments in South Africa. Unlike the very successful M-PESA of South Africa.

(b) Demographic Challenges: India has 18 official languages which are spoken across the country. „Standardization‟ is another major issue as lack of standardization of mobile banking services in the country resulted in increased complexity while using mobile banking services (especially when using mobile banking services of multiple banks). To resolve it service providers i. creating difficulties in deployment of mobile banking solutions. due to availability of various handset models (supporting different type of technology) in the market. this will be cumbersome to overcome. For a pan-Indian mobile banking solution. This limits the full potential of mobile banking to extend micro-credit and bring banking to the large number of unbanked customers in India. Additionally.7 Recommendations Study shows „mobile handset operability‟ is an important issue in mobile banking. For resolving this issue banks are advised to developed mobile banking standards in guidance of RBI. Majority customers perceived „privacy and security‟ a critical issue. The state governments also are dictated to correspond in their regional language for official purposes. two-thirds of the population in India is illiterate. Issues of „download & installation of application s/w‟.e. banks must coordinate with mobile handset manufacturers so that all handsets irrespective of manufacturer and technology (GSM or CDMA) become compatible with single mobile banking technology. Here banks are advised to educate customers on this issue to raise their awareness. 3. 16 .iii) Existing Account Holders: The guidelines also state that only those having a valid bank account would be allowed mobile banking. Especially for the customers‟ worries like losing money if once mobile handset is lost (substantial number of respondents worried about it). „Customization‟ (user‟s preferred language) and „telecom service quality‟ were not perceived critical or important. Secondly banks and telecom operators are suggested to draft comprehensive joint policy regarding security & privacy so that customers can be assured at both banks and telecom operator‟s levels while doing mobile banking.

absence of local/preferred language and telecom service quality like network unavailability were not perceived as major issues. 17 . But banks are well advised not to overlook above issues as these may be critical in pan India adoption of mobile banking.Reason may be that study was conducted in urban area so technological aspect of application s/w.

Chapter 4 Company Description 18 .

HDFC has 1. fund transfer. the bank has made further strides in adding more capability to the internet banking platform. State Bank of India has 5.878. 82% of the banking needs of a HDFC bank customer who has registered for mobile banking are done outside the bank branch.9% to Rs. During this financial year. Banks have gradually moved from offering non-financial services to financial services on mobile phones .583 ATM's in 1.the evolution curve has been: alerts (on ATM withdrawls. The financial performance of HDFC Bank during the financial year ended March 31. Via semi closed wallet accounts. launched mobile banking for 2G customers and launched applications for various mobile platforms. Vodafone and Idea are offering such services. 4.1. but can't withdraw cash. Almost 63% of Citibank account holders use the digital medium for banking. opening fixed deposits. The bank has currently has a nationwide network of 2. credit card purchases etc). cheque book request.5 crore from Rs. This has dropped to 18% now. people can send and spend money through the mobile network. two years back 40-45% of the banking transactions were happening in the bank branch. HDFC stand tall in the list.540. 14.3 crore in the previous financial year. 19 .As mention earlier that in India there are around 77 public and private banks providing their mobile banking service to all the customers.1 Business Plan According to HDFC Bank. 2012 remained healthy with total net revenues increasing by 17.1 Strategic Analysis 4. payments (of utility bills). In future more services will be added.000 per day) etc.2 million registered mobile banking users and this is increasing by 2 lakh new mobile banking users per month. Airtel.776 Branches and 10. debit and credit statements. HDFC was incorporated in August 1994 and commenced its operations as a Scheduled Commercial Bank in January 1995.2 million mobile banking users. cash management at low end (up to Rs 50. The Reserve Bank of India has allowed use of 'semi closed wallet' by mobile companies. Talking about private bank which provides top service and products. 17.568 Indian towns and cities. So.

SMS 20 . Rapid increase in the Mobile user base 1.000.To expand mobile banking reach. 2. Application distribution Threats 1. 3. Opportunities 4.1.both were started last month. Regulatory restrictions by TRAI and and acceptance of the Mobile RBI to launch Mobile banking as a separate channel. With technology advancements in users. Acceptance of new technology by banking to expand. This creates a security layer for the user . 2. Lack of awareness about the new support required to leverage Banking transactions. The latter helps a user to store a limited value on his mobile. channel among the mobile users. Lowering of Mobile Tarrif rates .anytime. anywhere. Rapid growth of Mobile and wireless 3. Mobile handsets rich features can be embedded in the application. Security concerns about the new channel 3.GPRS plans. Ease of availability . Mobile as a technology provides all the 1. Say a credit card limit is Rs 2 lakh but a user wants to buy books online worth Rs 2.2 Critical Analysis Now as I have analyzed the current Indian Mobile banking system then according to it SWOT analysis of this industry will be as follows: Strengths Weakness 1. 2.000. Mobile Handset Operability market. He can create a new limit on his card using net safe light and use the code generated for online shopping. technology even in rural areas makes a bigger market available for mobile 2. 4.he uses the card for online payments without worrying about it being misused as the limit is only Rs 2. HDFC Bank has started Hindi mobile banking service and a 'net safe light' virtual card .

This restricts use of full scale mobile banking. They have to depend on SMS. less than 20%. And the limit of transactions for mobile payments is Rs 50. There's no incentive for merchants to accept mobile payments as they don't get any commission.Rs 400 to Rs 500 per person.000 outlets today accept Airtel Money or any other mobile payment. the smart phone penetration is limited. 21 . 3) The mobile payments model via telcos makes money on scale. This is more than the average revenue per subscriber (ARPU) for telcos. According to Airtel it will take two years to be relevant and five years to make money. users can't download banking app on basic phones.000 per month. 4) Despite being convenient. Mobile payments today are at the same stage as credit cards 20 years back and ATMs 15 years back. 5) Less than 10. the cost of Know Your Customer (KYC) for mobile banking or mobile payments is huge .4. 2) A user can have up to nine mobile phone numbers (allowed by TRAI) but only one mobile bank account (says RBI). which is cumbersome.2 Limitations and problems of Mobile Banking 1) Despite a high base of mobile phone users.

Chapter Conclusion 5 22 .

on business models and on regulatory issues. merchants and consumers have to come forward and make value-producing investments. The subcommittees are expected to go over their particular concerns in depth and submit a report shortly.committees have been formed – on technology. A regulatory framework and widely accepted standards will be the pillars on which mobile payment applications will be built. Three sub. IIT Madras taking the lead role.The Mobile Payment Forum of India (MPFI) has been formed with Institute for Development and Research in Banking Technology (IDRBT) and Rural Technology Business Incubator (RTBI). It has member s and representatives from the telecommunications industry. Businesses. The first meeting of MPFI was held in Hyderabad on the 15th of September 2007. 23 . financial institutions (banks and microfinance institutions) as well members from the Reserve Bank of India. Research so far has outlined a diversity of thinking and innovation that exists in the mpayments arena. Numerous solutions have been tried and failed but the future is promising with potential new technology innovations. Lots of challenges are to be overcome for a successful implementation of mobile payments to be widely accepted as a mode of payment.

Chapter Future Aspects 6 24 .

phones with NFC (near field communication) have entered the market. This will further reduce the need to go to a branch. In US. Not yet available in India. Banks will be able to approve and give loans via mobile banking within the next five years.1. Cheque truncation can be done via mobile phones. It will take 5-6 years for the model to mature. In US it is called 'Cheque 21' or 21st century cheque payment. phone can act as a virtual credit card). 4. 2. NFC is a chip embedded in a phone enabling the phone to interact with a point of sales terminal (with this. 3. Europe. 25 . Mobile banking is the future because of its cost effectiveness and ability to reach out to customers in remote areas.

Chapter References 7 26 .

org/wiki/List_of_countries_by_number_of_mobile_phones_in_use http://www.medianama.inclusion.php?option=com_content&view=article&id=179 Sanjiv Shankaran & Anup Original source Reserve Bank of 27 .com/2013/01/223-transactions-vs-amount-using-mobile-bankingindia-nov-2012/ http://www. Livemint. September http://www.wikipedia. 2010 Mobile Banking Transactions In India – May 2009 To Feb 2011 by Nikhil http://en.aspx?Id=2463 http://m-commerce-mobileapps.