Table of Contents

Executive Summary......................................................................................................................2 Introduction .................................................................................................................................3 Mobile Commerce scenario in India............................................................................................8 Understanding Mobile Commerce ............................................................................................ ! "##lication of Mobile Commerce.............................................................................................. $ Mobile Commerce and %an&ing................................................................................................ ' Services offered in Mobile %an&ing...........................................................................................2 Models for Mobile %an&ing %usiness .......................................................................................28 Mobile %an&ing (uidelines In India.........................................................................................32 Tec)nology and Security Standards .........................................................................................3* %usiness and +egal Issues ..........................................................................................................38 ,egulatory and Su#ervisory Issues...........................................................................................*! Sco#e of Mobile %an&ing............................................................................................................*i. Mobile %an&ing as .istribution C)annel...................................................................../2 ii. Mobile %an&ing as Source of ,evenue........................................................................./3 iii Mobile %an&ing as Image 0roduct.............................................................................../* Conclusion ..................................................................................................................................// %ibliogra#)y .............................................................................................................................../-

Executive Summary
Mobile Commerce has gained increasing acceptance amongst various sections of the society in previous years. The reasons for its growth can be traced back to technological and demographical developments that have influenced many aspects of the socio-cultural behavior in todays world. The need (and or wish! for mobility seems to be the driving force behind Mobile Commerce. The launch of "MT# technology has provided Mobile Commerce with the necessary verve. Mobile $inancial #ervices build a cornerstone of Mobile Commerce. They comprise of Mobile %ayment and Mobile &anking. Mobile &anking' the primary research ob(ect of this pro(ect consists of gauging the scope of mobile banking in )ndia and shedding light on a! Mobile banking and its sub-applications* . Mobile "ccounting 2. Mobile %ro&erage 3. Mobile 1inancial Information Mobile $inancial )nformation can be considered as an independent module and offered as a stand-alone application. +ach of the first two sub-applications is offered' in contrast' invariably in combination with information services. b! Mobile &anking and its business models , -&) guidelines for the same. c! Mobile banking insights , consumer perspectives. There is large-scale interest in Mobile &anking. The customer interest and the willingness to pay however vary for individual services. )t is therefore necessary to design offers taking cogni.ance of the needs and wishes of relevant target groups. Mobile &anking presents an opportunity for banks to retain their e/isting' technologysavvy customer base by offering value-added' innovative services and to attract new customers from corresponding sections of the society. The time seems to be ripe to convert the non-negligible customer interest into business-driving customer demand. 0 proactive attitude on the part of the banks therefore seems to be recommendable.

Introduction
T)e %an&ing %usiness 2utloo& 0sia %acifics retail banking consumer drives growth &ank deposits in the 0sia %acific region (0ustralia' China' )ndia' 2apan' #outh 3orea' Taiwan! are recorded to be over "#411 trillion by 1515 with over 655 million bankable households. 7hile the vast ma(ority of bank deposits in 0sia %acific is still 2apan' bank deposits in China and )ndia will grow rapidly. Chinas share of 0sia %acific bank deposits doubled from 18 percent of total 0sia %acific bank deposits in 1555 to 19 percent of total 0sia %acific bank deposits in 1515. +ven more ama.ing is the fact that )ndias bank deposits' albeit smaller in total than Chinas bank deposits' are pro(ected to grow by over :55 percent during the same period. The number of bankable households is also increased rapidly' from 165 million bankable households in 1555 to 619 million bankable households in 1515.

0sia %acific markets will likely provide the greatest opportunities for financial services companies looking for future growth. ;riven by strong consumer demographics' political and market reform' and economies of scale in production' 0sia %acific nations have reali.ed significant growth over the past five years and this trend will likely continue through 1511 and beyond.

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0s is evident in 0sia %acific economies' specifically those of China and )ndia will continue to be leaders in global growth through 1511. 0sia %acific e=uity markets' with the e/ception of Chinas reforming stock markets' have reali.ed high growth over the past three years' reaching' in many cases' multi-year highs. 7ith such promising growth prospects' global financial institutions are focusing their resources on 0sia %acific and investing heavily in the region. $rom buying stakes in ma(or state-owned Chinese banks to developing branch networks in )ndia' foreign banks continue to place their bets on 0sia %acific. The 1558 financial results of a ma(or financial services group are a case in point* they show Modest profit growth of between 15-1< percent in +urope and >orth 0merica' but in 0sia and ?atin 0merica' growth rates of <5-85 percent.

0s 0sia %acific and global corporations continue to focus investment in the region' the demand for financial services in everything from corporate lending to capital market access will likely grow. )n addition' as the success in the 0sia %acific corporate sector trickles down to the consumer' retail banking will likely see a rise in demand from mortgages to credit cards. &y 1515' ;TTs @$#) group e/pects the middle classes in both )ndia and China to each be larger than the entire "nited #tates population and roughly e=uivalent to that of +uropes population. This consumer segment will likely drive retail banking in the region and present lucrative opportunities for financial services firms.

7ith rising incomes' growing urban affluence and favorable demographics' the rapid growth of these financial products is not surprising. The demographics of our country will also be a key driver in creating a large retail customer base that banks (ust cannot afford to ignore with 8:A of the )ndian population under 18 years of age. 0s this population enters the Bwage earnerB category by the year 1511' the propensity to use multiple financial products will be high. Cver 65A of this age group will be under :5 years of age and a prime customer segment for insurance' mutual funds' credit cards etc. 0lready' many banks en(oy a higher cross-sell ratio with customers in the 18-<8 age group than they do with older customers. The )ndian economy is e/pected to witness the sharpest drop in its dependency ratio from 6: in the year 1555 to 88 in 1515' the economic benefit of which will be huge. 0s the dependency ratio in the economy falls' )ndiaBs already high household savings rate of 1DA of @;% is likely to rise further. Moreover' within the dependents' the share of young dependents is likely to fall' while the share of old dependents is e/pected to rise. This will reflect in a shift in household investment patterns towards an increasing share of savings in mutual funds' life insurance and pension schemes. Cne of the key reasons for low penetration rates for most financial products has been low affordability. This' however' is e/pected to change with the )ndian economy e/pected to continue to grow at its current pace with some economists even estimating that )ndia will be a trillion dollar economy by the year 1515. The resultant increase in household income as a result' is growing to throw up that much more opportunity for banks. 7ith banks gaining prominence as distributors of financial products' the shift in household savings to assets like mutual funds and insurance will increase customer profitability. %rofitability of these products is estimated to be nearly five times that of a plain vanilla fi/ed deposit product of a bank. 7e are' as a result' increasingly going to see banks in )ndia making significant gains in their fee income. 7hile only three years ago' most banks made the ma(ority of their fee income from corporate banking' many private banks today earn as much as 68A of their fee income from retail banking.

Major Banks In India By Asset Size

5% 7%

45%

23%

10% 10%

Axis Bank Bank of Baroda

HDFC Bank Ltd. Bank of India

ICICI Bank Ltd. State Bank f India

#ource* -&) The )ndian banking industry showed great resilience in springing back to shape as also ad(usting to the impact of the reforms. $rom a high overhang of bad debts and large loan delin=uency in the early 1995s' )ndian banks turned the corner in a decades time with a stronger balance sheet and surging profitability. >ot deterred by the burden of bad debts that emerged in the aftermath of banking sector reforms and introduction of prudential norms' the banking industry showed sound growth and e/pansion in the post reform period. Capital levels have increased' profitability has risen' productivity improved and so has several developments in enhancing the =uality of customer service. )ntegration of banking industry with other ma(or segments of finance' notably the securities markets is also growing. )ntegration with international markets is also on the rise' where )ndian banks are increasing their presence and operations. 0ll these augur well for the prospects of the )ndian banking in the future. 0n important aspect of the )ndian economy at present is having a vibrant domestic financial system and a strong e/ternal sector. @iven the growing pace of globali.ation of finance' )ndian domestic financial system in general and banking industry in particular stand to gain from opportunities arising within the country and outside. -&) announced constitution of an internal working group to e/amine the report of the Eigh %owered +/pert Committee on Making Mumbai as an )nternational $inancial Center and implement the recommendations as appropriate. Making Mumbai as an international financial center would be of great significance for )ndian finance and banking in view of the enormous opportunities such a development could bring in. The stance of the monetary policy to get a hold on rapidly rising asset prices and growing inflationary tendencies in the back of high economic growth' though might appear to

impact the business of banks' but could prove helpful in the long run since the prudential measures could ensure appropriate pace of business and better risk management. 0t the same time there are challenges that may appear daunting. &anks in 0sia' particularly in China have phenomenal si.e as compared to )ndian banks. ?iberali.ation is leading to creation of global banks through growth and consolidation. )n this background' an important and most urgent challenge for )ndian banks is to create a si.e that would be effective in dealing with the global competition. )ndian banking also needs larger amounts of capital to sustain their growth in the future for which they need to step up performance and efficiency that would attract investors. 0nother e=ually important challenge would be harnessing the benefits of technology. Though progress is made' technology solutions integrating the banking operations to derive synergies and efficiencies in %ublic #ector &anks need to move at a much faster pace. #imilarly' %ublic #ector &anks need to step up the use of infrastructure related to -eal Time @ross #ettlement and +lectronic $und Transfer #ystems that could benefit their customers. There is much scope to further increase the share of non-interest income' which will raise profitability and productivity. >otwithstanding the challenges' the )ndian banking industry can look forward to a promising period ahead. Eigh economic growth offers banks a host of opportunities in new businesses and also in e/panding the e/isting ones. @rowing international operations of )ndian business will provide )ndian banks with global opportunities in banking. -ising income levels of people will give scope to design and develop a wide range of personal financial products and fee based services. $ocus on infrastructure development and certain key sectors like rural economy' health and education offer e/citing business opportunities for the e/tensive branch network of %ublic #ector &anks located in the rural and semi-urban areas. 7hile opportunities could be numerous' responding to them positively and reali.ing them to a desired e/tent would be a great challenge. 7ith right strategies in harnessing technology and human resources developing market segments' design of new generation products and services' focus on efficient customer service and pursuing global aspirations can take )ndian banks to the ne/t generation banking

Mobile Commerce Scenario In India Mobile payments may not be the most happening thing in the )ndian market today' but the situation is certainly ripe for the m-phenomenon. )ndia currently has 155 million mobile subscribers' :8 million credit or debit card holders and over <D million internet

users. These figures are what prompted Coruscant Tec' a mobile solutions company' to launch a spin-off company' %ayMate. M-commerce is still at a nascent stage in )ndia. Mobile %ayments is available on websites for shopping' (ob portals' matrimonialG also for purchase of tickets' flowers' dining' hotel bookings' bill payments for various services etc. M-commerce is making its presence felt in )ndia mostly through shopping' utility bill payments' travel and entertainment. Eowever' it is almost always in con(unction with online payment. $or instance' &ill 2unction offers both online and mobile payment' as does airline 0ir ;eccan and more recently' %H- Cinemas. 0ccording to 0rvind -ao' C+C and co-founder' CnMobile' a mobile solutions company' ITelecom operators' merchants and service providers are beginning to see the need for m-commerce services' by starting to work towards fulfilling their respective roles in the overall chain. Eowever' it will take another four to si/ years before we see substantial m-commerce usage like in #outh +ast 0sian countries.J )n fact' 2apan - with the highest number of mobile phone users in the world - is witnessing a trend where electronic and mobile payments are replacing real cash transactions. :< per cent of 2apans internet users make payments through their mobile phones (eMarketer!. Telecom operator 0irtel launched its mobile wallet facility' mCh=' in #eptember 1558' in collaboration with )C)C) &ank and Hisa. Eowever' a year later' the idea of a mobile wallet still hasnt caught on' and 0irtel does not have significant numbers to show otherwise. 0 company spokes person says' IThe pilot pro(ect covers Mumbai and >ew ;elhi and >C- across 155 retailers. Eowever' we feel that the markets need to mature a little more before we e/tend the same service across other cities.K "ndoubtedly' mobile users would have their fair share of apprehensions about conducting financial transactions over the mobile spectrum. Eowever' people always have their doubts about using a new technology. This was the case about a decade ago when online payment was still new concept. Cutting to the present' there are about 8.5 million online banking users in )ndia today (#ource. )0M0)!. #imilarly' users can be e/pected to develop greater faith in their mobile phones in the coming years. Currently' service providers are taking efforts to ensure ma/imum security in this realm. 0diseshann says' IThe use of %ay Mate does not re=uire the user to enter any confidential information like credit card number as the payments are linked directly to the bank account. +ach customer is given a %)> which is used for conducting transactions.J ;espite security issues' time-starved consumers are bound to turn to a method of payment that comes with the least hassles. Convenience will be the driving factor for mcommerce. This is the reason why services like m-ticketing' prepaid easy recharge and m-coupons. )t is only a matter of time before consumers reali.e that transacting through this medium is (ust as secure as it is with any other medium. )n fact' it allows e/tra security processes to be implanted in mobile phones.

#lowly but surely' more and more applications are being provided by telecom operators to their bou=uet of services. The mobile phone is well on its way to becoming the single device connecting people to the economy. )t wont be long before we will be able to order and pay for your 2umbo 3ing Hada%av through your mobile. Till then' its back to the =ueue.

Understanding Mobile Commerce

)n the following we characteri.e the concept of Mobile Commerce and distinguish it from the concept of Mobile &usiness. 7e further e/amine it in the more common conte/ts of +lectronic Commerce and +lectronic &usiness and present an overview establishing a holistic perspective of Mobile Commerce.

The Conceptual Background and Perspective

&efore defining the mobile aspects of commerce (Mobile Commerce! and distinguishing them from the mobile aspects of business (Mobile &usiness!' it is imperative to establish working definitions of the terms IcommerceJ and IbusinessJ' as they seem to have transcended their dictionary meanings and ac=uired new significance since the advent of the )nternet economy. )n this section we further differentiate between the terms IelectronicJ and ImobileJ' so as to clarify the respective concepts by showing their similarities and highlighting their differences.

Difference between Business and Commerce

The term IbusinessJ' in this study' refers to all activities undertaken by a firm in order to produce and sell goods and services. These activities are' thus' not e/clusively of IcommercialJ nature but also include other processes such as procurement' production' customer relationship management (C-M! and human resources management (E-M!. The C/ford dictionary L1551M describes IcommerceJ as Ifinancial transactionsJ and IbusinessJ among others as Iselling purchasing of goodsJ. The term IcommerceJ' in this work' refers to selling and purchasing of goods and services in both business- and consumer segments and to activities directly related with such transactions. +/amples of such activities are marketing measures and after-sales services. The related activities are included so as to take into account that not each and every transfer of ownership or rights to use a good or service must trigger a monetary transaction.

The term IcommerceJ is' hence' seen as an integral subset of the broader term IbusinessJ. )n accordance with this approach Mobile Commerce is regarded as an integral subset of Mobile &usiness L&use' 1551' p. 91G ">CT0;' 155:' p. 18M. +lectronic Commerce is correspondingly seen as an integral subset of +lectronic &usiness.

Difference between Electronic and Mobile spects

To understand the difference between +lectronic- and Mobile Commerce or between +lectronic- and Mobile &usiness it is essential to understand the similarities and differences between the terms IelectronicJ and ImobileJ. The ad(ective IelectronicJ' used within the specific conte/ts of I+lectronic &usinessJ or I+lectronic CommerceJ' signifies an Ianytime accessJ to business processes managed by computer-mediated networks. $urthermore' the access to such networks is' in this case' stationary. The services are' therefore' not available independent of the geographic location. The ad(ective ImobileJ' used within the specific conte/ts of IMobile CommerceJ or IMobile &usinessJ' signifies an Ianytime and anywhere accessJ to business processes managed by computer-mediated networks. The access takes place using mobile communication networks' making the availment of these services independent of the geographic location of the user. Computer-mediated networks are Ielectronically linked devices that communicate interactively over network channelsJ LMesenbourg' 1999' p. <M. (Tele-! Communication networks are' in turn' used to provide access to these computer-mediated networks. The conventional access to the )nternet using fi/ed-line communication networks' such as ;ial-up connections or ?ocal 0rea >etworks (?0>!' is referred to as stationary access. This form of access is also called the IstationaryJ or IimmobileJ )nternet. The Conceptual &ackground and %erspective at this point it would be useful to differentiate between the terms ImobileJ and IwirelessJ. 0s opposed to the term ImobileJ that signifies an anytime' anywhere access to computer-mediated networks' IwirelessJ is (ust a method of communication between electronic devices' e.g. with the help of infrared interfaces. 7hereas a mobile device is per se wireless' not every wireless device may be suitable for feasible mobile applications $or e/ample' 7ireless ?ocal 0rea >etworks (7?0>! with a limited range of ma/imum <55 meters cannot support feasible mobile applications.

Defining Electronic Business and Electronic Commerce

)n the following we describe the earlier mentioned electronic aspects of the )nternet economy' namely +lectronic &usiness and +lectronic Commerce. +lectronic &usiness +lectronic &usiness is often referred to as I+-&usinessJ or Ie&usinessJ. This book works

15

with the full form I+lectronic &usinessJ. Cther forms are however left unaltered if cited from a reference. The prevailing view in the academic literature regarding +lectronic &usiness is reflected in the following definition* I+-&usiness is the integration of systems' processes' organi.ations' value chains and entire markets using )nternet-based and related technologies and concepts.J L#tanoevska#labeva' 155<' p. 1M The "nited #tates ("#! &ureau of the Census' the statistical division of the "# ;epartment of Commerce' measures +lectronic &usiness as follows* -eal time is a Iform of information processing where output is generated nearly simultaneously with the corresponding input. "sed mostly where the results of the computation are used to influence a process while it is occurring.J L@lobaltec' 155:' p. 1M I+lectronic &usiness (e-business! is any process that a business organi.ation conducts over a computer-mediated network. &usiness organi.ations include any for-profit' governmental or nonprofit entity. Their processes include production-' customer- and internal or management-focused business processes.J LMesenbourg' 1551' p. :M 0ccording to the "nited >ations Conference on Trade and ;evelopment (">CT0;! +lectronic &usiness processes include Customer 0c=uisition and -etention' +lectronic Commerce' Crder $ulfillment and Tracking' )nbound and Cutbound ?ogistics' )nventory Control' $inance-' &udget- and 0ccount Management' E-M' %roduct #ervice and #upport' -esearch and ;evelopment as well as 3nowledge Management L">CT0;' 155:' p. 16M.Electronic Commerce +lectronic Commerce is often referred to as I+-CommerceJ or IeCommerceJ. This book works with the full form I+lectronic CommerceJ. Cther forms are however left unaltered if cited from a reference. +lectronic Commerce has found much more attention in the literature than +lectronic &usiness' owing to its pro/imity to the consumer. There are many definitions of +lectronic Commerce in circulation' with each one emphasi.ing some different aspects of +lectronic Commerce. 0 very simple definition is delivered by 3alakota and -obinson* I+-Commerce is simply the buying and selling of products and services over the 7eb.J L3alakota -obinson' 1551' p. DM The prevailing definitions may be divided in two primary categories* The first category works with a narrow' restrictive definition' re=uiring the whole transaction to take place in electronic form and having a monetary character. $or e/ample' the @erman $ederal #tatistical Cffice reportedly uses the following definition for +lectronic Commerce* ITransactions are regarded as +lectronic Commerce' when the offer for sale as well as the purchase or the actual availment of a product or service is carried out electronically' with the help of a computer-mediated network' against monetary payment.JL$ischer' 155<' p. 1M L0bridged translation by authorsM

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This definition seems to be too restrictive as it does not recogni.e the fact that (ust some parts of a transaction might also be carried out electronically without having to process all the steps of a value-chain in that form. $urther' the emphasis on the monetary character ignores the commercial nature of marketing measures (transactions carried out with the intent to sell a product or service! and after-sales services (transactions carried out in continuation of a preceding monetary transaction!' both important features of commercial transactions. The second category works with a broader definition of +lectronic Commerce' as can be seen in the definition used by the "# &ureau of the Census* I+lectronic commerce (ecommerce! is any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods or services. LNM Completed transactions may have a .ero price (e.g.' a free software download!.J LMesenbourg' 1551' p. :M 0lso according to the Crgani.ation for +conomic Co-operation and ;evelopment (C+C;! it is the method used to place or receive an order' not the mode of payment or the channel of the delivery that determines whether a transaction is considered as an +lectronic Commerce transaction LC+C;' 1551' p. 61M. The primary criteria for +lectronic Commerce' thus' are the (at least partially! electronic form of a transaction and the transfer of ownership or rights to use a good or service whether against monetary payment or otherwise. This discussion shows that +lectronic Commerce &eings as an integral subset of +lectronic &usiness' since all the aspects of +lectronic Commerce also take place in +lectronic &usiness but +lectronic &usiness has a larger scope than +lectronic Commerce.

Defining Mobile Business and Mobile Commerce

)n the following we describe the earlier mentioned mobile aspects of the )nterneteconomy' namely Mobile &usiness and Mobile Commerce. Mobile %usiness Mobile &usiness is often referred to as IM-&usinessJ or Im&usinessJ. )n this study we work with the full form IMobile &usinessJ. Cther forms are however left unaltered if cited from a reference. Mobile &usiness is often described as an e/tension of the traditional +lectronic &usiness to wireless devices LMagic' 1555' p. <M or as an additional channel for it L#tanoevska#labeva' 155:' p. :6<M. Oet others regard it as Ithe application infrastructure re=uired to maintain business relationships and sell information' services' and commodities by means of the mobile devicesJ. L3olakata -obinson' 1551' p. DM.

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The ">CT0; defines Mobile &usiness in the following terms* IMobile &usiness involves business-related communication among individuals and companies where financial transactions do not necessarily occur.J L">CT0;' 1551' p. D9M Thus' we can regard Mobile &usiness as an e/tension of +lectronic &usiness that also provides for some new' uni=ue features' such as location based conte/t-sensitive services accessible via Mobile )nternet and hitherto unknown in +lectronic &usiness. Mobile &usiness shares' but is not limited to' some common features with +lectronic &usiness that also provides a vast range of services not possible with Mobile &usiness' as can be seen in figure 1.

The graphic illustrates the following facts* 1. +lectronic &usiness and Mobile &usiness offer many similar services in both commercial and non-commercial areas. -espective e/amples are sale purchase of goods and services on the one hand and C-M on the other. 1. +lectronic &usiness offers additional services' not feasible with Mobile &usiness' e.g. coordination of -esearch , ;evelopment activities. <. Mobile &usiness' too' offers uni=ue services' not feasible with conventional +lectronic &usiness' e.g. conte/t-sensitive C-M. :. +lectronic Commerce is an integral subset of +lectronic &usiness. 8. Mobile Commerce is an integral subset of Mobile &usiness.

1<

6. +lectronic Commerce and Mobile Commerce offer many similar services' e.g. booking an entrance ticket for a football match. F. +lectronic Commerce offers additional services' not feasible with Mobile Commerce' e.g. selling of high-=uality' non-standardi.ed products re=uires an intensive presentation not feasible on mobile devices. D. Mobile Commerce' too' offers uni=ue conte/t-sensitive' location-based services' not feasible with +lectronic Commerce' e.g. search for the nearest 0TM specific to a dynamic location. This discussion establishes a Mobile Commerce perspective and distinguishes it from other related terms. The concept of Mobile Commerce is now further characteri.ed.

The !eatures of Mobile Commerce

Mobile Commerce is characteri.ed by some uni=ue features that e=uip it with certain advantages against conventional forms of commercial transactions' including +lectronic Commerce . Ubi3uity4 "bi=uity means that the user can avail of services and carry out transactions largely independent of his current geographic location (IanywhereJ features!. This feature can be useful in many situations' e.g. to cross-check prices while standing in a supermarket. 2. Immediacy4 Closely related to the feature of ubi=uity is the possibility of real-time availment of services (IanytimeJ feature!. This feature is particularly attractive for services that are time-critical and demand a fast reaction' e.g. stock market information for a broker. 0dditionally' the consumer can buy goods and services' as and when he feels the need. The immediacy of transaction helps to capture consumers at the moment of intention so that sales are not lost in the discrepancy between the point of intention and that of the actual purchase. 3. +ocali5ation4 %ositioning technologies' such as the @lobal %ositioning #ystem (@%#!' allow companies to offer goods and services to the user specific to his current location. ?ocation based services can be' thus' of fared to meet consumers needs and wishes for locali.ed content and services. *. Instant connectivity4 +ver since the introduction of the @eneral %acket -adio #ervice (@%-#!11 mobile devices are constantly IonlineJ' i.e. in touch with the network (Ialways-onJ feature!. This feature brings convenience to the user' as time-consuming dial-up or boot processes are not necessary. /. 0ro6active functionality4 Mobile Commerce opens' by the virtue of its ability to be immediate' local and personal' new avenues for push marketing such as content- and

1:

product offers. #ervices like ICpt-in advertisingJ can be offered' so that a user may choose the products' services and companies which he wants to be kept informed about. The #hort Message #ervice (#M#!1: can be used to send brief te/t messages to consumers informing them of relevant local offerings that best suit their needs. This feature ensures that the IrightJ (relevant! information can be provided to the user at the IrightJ place' at the IrightJ time. Cn the other hand' the user does not have to fear missing some potentially crucial information or getting it too late. -. Sim#le aut)entication #rocedure4 Mobile telecommunication devices function with an electronic chip called #ubscriber )dentity Module (#)M!.18 The #)M is registered with the network operator and the owner is thus unambiguously identifiable.

18

"##lication 2f Mobile Commerce

Mobile %an&ing* This application makes it possible to complete bank related transactions' e.g. checking account status' transferring money and selling stocks' via mobile devices' independent of the current user location. Mobile Entertainment4 Cn the one hand' this application contains services that provide the user digital data with entertainment value on mobile devices' e.g. ring-tones' music and videos. Cn the other hand it opens an array of interactive services' e.g. betting' gaming' dating and chatting.

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Mobile Information Services* This term refers to mobile services that provide subscribers with content of informational character. +/amples of such services are news updates of any nature (finance' politics' sport etc.!' travel information' access to search engines and Mobile Cffice (e-mails' appointments etc.!. Mobile Mar&eting* This term refers to services based on mobile communication technologies that provide firms with new' innovative instruments' e.g. to increase sale' win and retain customers' improve after-sales services' build and sustain a positive and modern image brand and carry market research. Mobile devices serve thereby as simple and relatively ine/pensive channels of interaction. Mobile S)o##ing4 This application bundles services that allow for mobile processing of transactions involving purchase of goods of daily use. The user can purchase (mostly standardised! products by choosing them from a catalogue accessible from a mobile device. The products need not be of a digital nature. Mobile Tic&eting4 0ll services that must be paid for' before a lawful utili.ation can take place' are suitable for Mobile Ticketing' e.g. traveling in public transport' entry to a cultural event or cinema. This application ensures that the user can purchase a right to utilisation entry (ticket! via a mobile device' replacing the conventional paper ticket. The ticket is sent in digital form to the mobile device. Telematics Services4 Telematics is an artificial term referring to innovative technologies that link telecommunication technologies with informatics (information technologies!. The transport segment has been the primary area of this application' which is also known as )ntelligent Transport #ystem ()T#!. The main services are navigation systems' remote diagnosis as well as access to other mobile applications such as Mobile +ntertainment' Mobile Content Cffice' Mobile &anking and Mobile #hopping.

1F

Mobile Commerce 7 %an&ing

$inance-related services that are offered by employing mobile telecommunication technologies are generally referred to as Mobile $inancial #ervices. The offered services can be divided into two categories* Mobile 0ayment 7 Mobile %an&ing The purpose of this chapter is to serve as a literature review on Mobile &anking. )t describes' in detail' various services pertaining to Mobile &anking and e/plains the technical issues specific to this particular application. +ven as Mobile &anking is defined and its services e/plained' we identify issues that potentially possess critical relevance for the future of Mobile &anking and which cannot be answered in a purely theoretic framework. The financial services business comprises of* 1. .e#osit business* the acceptance of funds from others as deposits or of other repayable funds from the public unless the claim to repayment is securiti.ed in the form of bearer or order debt certificates' irrespective of whether or not interest is paidG 1. +ending business4 the granting of money loans and acceptance of creditsG <. .iscount business4 the purchase of bills and e/change of chouseG :. 0rinci#al %ro&ing Services* the purchase and sell of financial instruments in the credit institutions own name for the account of othersG 8. Safe custody business4 the safe custody and administration of securities for the account of othersG 6. Investment fund business4 all activities that are permitted to investment companiesG F. (uarantee business4 the assumption of guarantees and other warrantees on behalf of othersG D. (iro business4 the e/ecution of cashless payment and other clearing operationsG 9. Under8riting business4 the purchase of financial instruments at credit institutions own risk for placing in the market or the assumption of e=uivalent guaranteesG 15. E6Money business4 the issuance and administration of electronic moneyG

1D

11. the incurrence of the obligation to ac=uire claims in respect of loans prior to their maturity. Scope of Financial Services )n addition to banks there are some other institutions that provide a limited range of similar services. )nstead of offering classic banking services such as deposit- or giro business they speciali.e in services relating primarily to stock markets. The scope of financial services' . Investment bro&ing4 the brokering of business involving the purchase and sell of financial instruments or their documentationG 2. Contract bro&ing4 the purchase and sell of financial instruments in the name of and for the account of othersG 3. 0ortfolio management4 the administration of individual portfolios of financial instruments for others on a discretionary basisG *. 28n6account trading4 the purchase and sell of financial instruments on an ownaccount basis for othersG /. Money transmission services4 the e/ecution of payment ordersG -. 1oreign currency dealing4 dealing in foreign notes and coinsG $. Credit cards business4 the issuance or administration of credit cards and travelers chouse unless the card issuer also provides the service underlying the payment transaction.

"ervices #ffered in Mobile Banking

Mobile &anking' as defined above' includes a wide range of services. These services may be categori.ed as following . Mobile "ccounting 2. Mobile %ro&erage 3. Mobile 1inancial Information These sub-applications of Mobile &anking are discussed below in detail.

19

. Mobile "ccounting Mobile 0ccounting can be defined as transaction-based banking services that revolve around a standard bank account and are conducted and or availed by mobile devices. >ot all Mobile 0ccounting services are however necessarily transaction based Mobile 0ccounting represents basically that part of Mobile &anking which deals with utili.ing account-specific banking services of non informational nature via mobile telecommunication devices. Mobile 0ccounting services may be divided in two categories to differentiate between services that are essential to operate an account and services that are essential to administer an account. 0dditionally' services are re=uired that inform a customer of transactions and other activities involving his or her account. )t is for this reason that Mobile 0ccounting is offered P almost invariably P in combination with services from the field of Mobile $inancial )nformation.

Account Operation in Mobile Accounting The term 0ccount Cperation' as used in this study' refers to activities that involve monetary transactions. #uch transactions may involve an e/ternal account' e.g. when paying bills' or an internal (sub-! account' e.g. when transferring money from own savings account to own securities account held with the same bank. Mobile services that are used to operate an account are* 1. Money remittances4 Mobile devices may be used to instruct the bank to remit money in order to conduct one-time transactions' such as paying bills or transferring funds. This service can also include the facility to cancel an ordered remittance. 1. Issue standing orders for bill #ayments4 The house bank may be entrusted with standing orders for payment of regularly recurring bills' e.g. payment of monthly rent or telephone bill. 15

<. Transfer funds to and from sub6accounts4 $unds from one sub-account may be transferred to another as and when needed' for instance from savings account to securities account and vice versa. :. Subscribing insurance #olicies4 #tandardised' low-cost insurance policies' e.g. a travel insurance policy may be purchased via mobile devices. This service could be particularly attractive in time-critical situations' for instance if a bank customer has to set out on an urgent' unplanned (ourney' he may still be able to subscribe to a travel insurance policy offered by his house bank. Account Administration in Mobile Accounting The term 0ccount 0dministration' as used in this study' refers to activities that are undertaken by an account-holder to maintain his or her account. This may involve activities like access administration and che=ue book re=uests. Mobile 0ccounting services that are used to administer the account are* 1. "ccess administration* Mobile devices may be used to administer the access to an account' e.g. to change the individual %)> or to re=uest new Transaction >umbers (T0>!. 1. C)ange o#erative accounts* Through this service a customer can change his default operative account and do transactions using a different account. This option is attractive for customers holding several sub accounts. $unds of sub-accounts may be hereby utili.ed in a targeted manner without first transferring the amount to the default account. <. %loc&ing lost cards4 Mobile non-voice telecommunication systems (e.g. 70%' #M#! can be used round the clock to speedily block lost credit and debit cards irrespective of the current geographic location. :. C)e3ue boo& re3uest4 Customers using che=ue books can order new che=ue books via mobile devices' as and when re=uired. 2. Mobile %ro&erage &rokerage' in the conte/t of banking- and financial services' refers to intermediary services related to the stock e/change centre' e.g. sell and purchase of stocks' bonds' funds' derivatives and foreign e/change among others. Mobile &rokerage' thus' refers to mobile financial services of non informational nature revolving around a securities account Mobile &rokerage' too' may be divided in two categories to differentiate between services that are essential to operate a securities account and services that are essential to administer that account. 0s is the case with Mobile 0ccounting' Mobile &rokerage

11

re=uires informational services in order to facilitate brokerage activities. $or this reason' Mobile &rokerage is invariably offered in combination with services related to Mobile $inancial )nformation.

ccount #peration in Mobile Brokerage Cperating a securities account is primarily concerned with selling and purchasing of financial instruments. Mobile &rokerage allows placing and cancellation of orders to sell as well as purchase securities and other financial instruments Mobile &rokerage facilitates full-scale orders with all necessary details such as price limits and the desired stock e/change centre. This section however raises interesting =uestions about the usefulness of and demand for the offered services. ccount dministration in Mobile brokerage The following mobile services can be utili.ed to administer a securities account. 1. "ccess administration4 0s with Mobile 0ccounting mobile devices may be used to administer the access to an account' e.g. to change the individual %)> or to re=uest new T0>s. 1. "dminister order boo&4 Crders to sell or purchase stocks' which are not yet carried out' can be modified via mobile devices that are allowed to access the customer order book. 0dditionally' new standing orders may be placed to sell purchase a particular stock on reaching a predefined threshold value. Mobile !inancial $nformation Mobile $inancial )nformation refers to non-transaction based banking- and financial services of informational nature. This sub-application may be divided into two categories* 1. 0ccount information 1. Market information )nformation services are an integral part of Mobile 0ccounting and Mobile &rokerage but can also be offered as an independent module' i.e. Mobile $inancial )nformation can be 11

offered without providing Mobile 0ccounting or Mobile &rokerage but vice versa is not feasible. Mobile $inancial )nformation services are generally provided by credit institutions and financial services institutions. Eowever' there are other enterprises too that do not belong to either of this category but still provide market information via mobile devices. Mobile $inancial )nformation services include subsets from both banking and financial services and are meant to provide the customer with anytime' anywhere access to information. The information may either concern the bank and securities accounts of the customer or it may be regarding market developments with relevance for that individual customer. The information is customi.ed on the basis of preferences given by the customer and sent with a fre=uency decided by him. The information should be provided' ideally' on both' pull and push basis.

ccount $nformation in Mobile !inancial $nformation The term 0ccount )nformation' as used here' refers to information that is specific to a customer and his bank' even though it does not necessarily involve a monetary transaction. Mobile services that belong to this category are* 1. %alance in3uiries4 Mobile devices may be employed to check the current financial status of own bank or securities accounts.

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1. +ist of latest transactions4 Mobile devices may be used to re=uest a list of latest transactions performed on an account. This service works with a standard' pre-specified number of latest transactions that are reported' as and when demanded. Most of the banks provide a list of up to five latest transactions. <. Statement re3uests4 0 statement re=uest P unlike the re=uest for a list of latest transactions P generates a list of all transactions in a given period' for instance in a week or in a month. #tatements may be re=uested either manually' as and when needed. 0lternatively the bank may be asked to automatically send statements regularly in prespecified intervals' e.g. weekly. )n Mobile &anking the account statements can be re=uested via and or delivered on mobile devices. :. Transaction t)res)olds4 The bank may be instructed to automatically alert the customer via #M# whenever transactions (credits as well as debits! e/ceeding a certain amount are performed on the account. 8. %alance t)res)olds4 0 similar threshold alert may be activated for the balance status of the account. The customer may be informed via #M# whenever the balance falls below a certain predefined level. This service may be useful to help the customer avoid unpleasant situations of not being able to honor his commitments. 6. T)res)old alerts for stoc& #rices4 The bank may be instructed to send an alert on mobile devices' via #M#' when prices of some particular stocks fall or (ump to a predefined threshold value and ask for further instructions. F. ,eturned c)ouse9c)e3ue status4 The customer may be informed without time-delay if one of his deposited chouse has not been honored and corrective steps are re=uired. D. Credit cards information4 The customer may check anytime and anywhere the current status of his credit cards and the amount that he may utili.e at that given point of time. 9. %ranc) and "TM locations4 Mobile devices may help finding the nearest branch or 0TM affiliated to a bank. The current location of the customer may be determined by positioning the mobile device. This service may be particularly useful while traveling. 15. :el#line and emergency contact4 Mobile devices may be provided with content that is re=uired in emergency situations' for instance to block a lost credit card. The information may be either embedded in the telephone menu' e.g. in cooperation with a network carrier or the information may be provided on a 70% page analogue to a web page. 11. Information on t)e com#letion status of an order4 The bank may use IpushJ services to inform the customer via his mobile device regarding whether or not his orders

1:

could be carried out. This ensures that urgent information can be provided to the customer while on the move. 11. 0roduct information and offers4 The bank can provide information about its products and new offers to a customer on the move. 0 customer can IpullJ the information that he wishes to access. Cn the other hand the bank can IpushJ the information offers that the customer has identified as interesting and is willing to receive.

Market )nformation in Mobile financial services The term Market )nformation P as opposed to 0ccount )nformation P refers to information with a macro-scope. This information is not directly related to the customer account. )t is generated either e/ternally' e.g. e/change rates or central banks interest rates' or internally by the individual bank' e.g. bank-specific interest rates. The individual bank-customer does not play a direct role in this process. The information may be later sorted out to cater to the individual needs and preferences of a particular customer' if so desired by him'6< and subse=uently delivered on a mobile device of his choice' e.g. a mobile phone or a %;0. )nformation in this category generally concerns* 1. $oreign e/change rates 1. )nterest rates <. #tock market news and reports :. Commodity prices (e.g. gold and raw materials!

18

Models 1or Mobile %an&ing %usiness

0 wide spectrum of Mobile branchless banking models is evolving. These models differ primarily on the =uestion that who will establish the relationship (account opening' deposit taking' lending etc.! to the end customer' the &ank or the >on&ank Telecommunication Company (Telco!. 0nother difference lies in the nature of agency agreement between bank and the >on-&ank. Models of branchless banking can be classified into three broad categories - &ank $ocused' &ank-?ed and >onbank-?ed

T)e ban&6focused Model The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its e/isting customers. +/amples range from use of automatic teller machines (0TMs! to internet banking or mobile phone banking to provide certain limited banking services to banks customers. This model is additive in nature and may be seen as a modest e/tension of conventional branch-based banking

T)e ban&6led model The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone! instead of at bank branches or through bank employees. This model 16

promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers mobile phones!' a different trade partner (telco chain store! having e/perience and target market distinct from traditional banks' and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a 2H between &ank and Telco non-bank. )n this model customer account relationship rests with the bank T)e non6ban&6led model The non-bank-led model is where a bank does not come into the picture (e/cept possibly as a safe-keeper of surplus funds! and the non-bank (e.g. telco! performs all the functions is where a bank does not come into the picture (e/cept possibly as a safe-keeper of surplus funds! and the non-bank (e.g. telco! performs all the functions ,is&s "ttac)ed To %usiness Models 0gents -elated -isks arise from substantial outsourcing of customer contact to retail agents. $rom a typical banking regulators perspective' entrusting retail customer contact to the types of retail agents used in both the bank-led and nonbank-led models would seem riskier than these same functions in the hands of bank tellers in a conventional bank branch. These retail agents may operate in hard-to reach or dangerous areas , they lack physical security systems and specially trained personnel. The lack of e/pert training may seem a particular problem if retail agents functions range beyond the cash-in cash-out transactions of typical bank tellers to include a role in credit decisions. &anking regulation typically recogni.es multiple categories of risk that bank regulators and supervisors seek to mitigate. $ive of these risk categoriesQcredit risk' operational risk' legal risk' li=uidity risk' and reputation riskQtake on special importance when customers use retail agents rather than bank branches to access banking services. The use of retail agents also potentially raises special concerns regarding consumer protection and compliance with rules for combating money laundering and financing of terrorism.

+-Money -isks relates to acceptance of repayable funds from retail customers by >on&ank entities that are not sub(ected to prudential regulation and supervision. -isk is that an unlicensed' unsupervised >on-&ank will collect repayable funds from the public in e/change for e-money and will either steal these funds or will use them imprudently' resulting in insolvency and the inability to honor customers claims

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(i! The pioneer phase when a few early entrants launch and test out their products and start to find successG (ii! The breakout phase when the success of the pioneers is noticed' leading to rapid entry of new firms and e/pansion of the marketG (iii! 0 consolidation phase when a shakeout of firms occurs due to increased competition or e/ternal factors such as regulation' although the number of customers continues to grow but at a diminishing rateG (iv! 0 final maturity phase when the number of firms in the industry and its norms and rules have been settled' and the market grows at a steady' natural rate

1D

19

Mobile %an&ing (uidelines in India

)ndia has about 15F MM (#eptember 155F T-0) ;ata! mobile phone subscribers' a number that is larger than the number of bank accounts or )nternet users. @iven the mobile tele-density of about 15A and development of secure mobile technology solutions' banks are well-positioned bridge the digital divide and introduce the unbanked sector to the financial mainstream Oou may be aware that -eserve &ank of )ndia had set up the Mobile %ayments $orum Cf )ndia (M%$)!' a R7orking @roup on Mobile &anking to e/amine different aspects of Mobile &anking (M-banking!. The @roup had focused on three ma(or areas of Mbanking' i.e.' (i! technology and security issues' (ii! business issues and (iii! regulatory and supervisory issues. 0 copy of the @roups report is enclosed. -&) has accepted the recommendations of the @roup to be implemented in a phased manner. 0ccordingly' the following guidelines are issued for implementation by banks. &anks are also advised that they may be guided by the original report' for a detailed guidance on different issues. Eowever to start with ' we must understand who the various stakeholders are and what there e/pectation are* #takeholders are as follows * 1. 1. <. :. 8. 6. F. Consumers Merchants Mobile >etwork operators Mobile device manufacturers $inancial institutions and banks #oftware and technology providers @overnment

+ach stakeholder group has the following e/pectations*

a! To meet the following Consumer e/pectations* %ersonali.ed service Minimal learning curve Trust' privacy and security "bi=uitous P anywhere' anytime and any currency ?ow or .ero cost of usage )nteroperability between different network operators' banks and devices 0nonymity of payments like cash %erson to person transfers

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b! To meet the following Merchant e/pectations* $aster transaction time ?ow or .ero cost in using the system )ntegration with e/isting payment systems Eigh security &eing able to customi.e the service -eal time status of the mobile payment service Minimum settlement and %ayment time c! To meet the following Telecom >etwork %roviders e/pectations* @enerating new income by increase in traffic )ncreased 0verage -evenue %er "ser (0-%"! and reduced churn (increased loyalty! &ecome an attractive partner to content providers d! To meet the following Mobile ;evice Manufacturers e/pectations* ?arge market adoption with embedded mobile payment application ?ow time to market )ncrease in 0verage -evenue %er "ser (0-%"! e! To meet the following &anks e/pectations* >etwork operator independent solutions %ayment applications designed by the bank +/ceptional branding opportunities for banks &etter volumes in banking P more card payments and less cash transactions Customer loyalty f! To meet the following #oftware and Technology %roviders e/pectations* ?arge markets

g!To meet the following @overnment e/pectations -evenue through ta/ation of m-payments #tandard

Technolog% and "ecurit% "tandards

SSMa(or inputs to be provided by the Technology #ub CommitteeTT SS-ecommendation on Technology #tandards by -egulatory #ub CommitteeTT The technology used must be secure and at the same time convenient to deploy and cost effective. The following technology basis provides a summary of the available models. &anks must deploy only secure channels that provide a non-repudiable platform to transact.

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Telecom #tandard @#M

;ata &earer

"ser )nterface

%lain #M#

Te/t #tructured Te/t

Method )nvoking )nitiating Transactions #M# 21M+

of #ecurity

Eardware -e=uirements

#etup

7eak +ncrypti on #ecure Channel

@#M

"##; 0pplication #M#

@#M

@%-# 70%

@") (@raphic "ser )nterface! #tructured Te/t @")

#M# 21M+

7orks on any phone. 7orkarounds like )Hcall backs for sensitive information are possible 21M+ client re=uires 2ava enabled phone.

21M+ &rowser

#ecure Channel

C;M0

0pplication #M# @%-# 70%

@")

&rew &rowser

#ecure Channel

2ava enabled phone with @%-#. 7ithout @%-# this can work within the Telecom providers walled garden. Cperator centric usage

The overall security framework should ensure. +ncrypted messaging session between consumers phone and third party service provider telecom company. Minimum encryption standards to be specified to make the transaction banking grade (+.g. Min 11D bit ##?! 0ll subse=uent routing of messages to the banks servers must be with the highest level of security with dedicated connectivity like leased lines H%>s. )f any sensitive information is stored in third party systems' banks must ensure that access to this information is restricted with appropriate encryption and hardware security standards. 0ll transactions that affect an account (those that result in to an account being debited or credited' including scheduling of such activity! should be allowed only after authentication of the mobile number and the m%)> associated with it. Transactions only for information such as balance en=uiry' mini statements' registered payee details' etc may be allowed with either mobile number or %)>.

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"nless fool proof security is used in compiling and deploying the mobile banking applications' the %)> number should not be allowed to be stored in the mobile banking application on the phone. 0s' generally the application installed on the phone would be developed in 2ava' it may be possible to decompile it e/tract the m%)>. 0lternatively' the application should be so compiled that it should not be feasible to e/tract the %)> on decompilation. 0ll accounts' credit or debit cards allowed to be transacted through the mobile phones should have the mobile phone number linked to the account' credit or debit card. This mobile number should be used as the second factor authentication for mobile transactions. ;uring the transaction' the %)> should not travel in plain te/t. ;oing this' there is risk of the %)> being snooped out of the phone from sent items and also it being e/posed at the #M#C level. 0lso' it may be able to snoop out the %)> during transmission' although' this is very difficult in cellular communications. %roper level of encryption should be implemented for communicating from the mobile handset to the mobile payments service providers server. )t has been assumed that proper security checks would be made by the banks to ascertain the security levels of the service providers. This may include %C) ;## certification in addition to banks own audits. %roper system of verification of the phone number should be implemented' wherever possible. This is so as to guard against spoofing of the phone numbers as mobile phones would be used as the second factor authentication. )t is also recommended that )nternet &anking login ids and passwords may not be allowed to be used through the mobile phones. 0s fraudsters get more sophisticated' the chances of phishing attacks on mobile phones would become more probable. 0llowing )nternet banking login id and password usage on the mobile phone may compromise their usage on the )nternet banking channel. This restriction may be communicated to the customers through an industry wide effort so as to ensure that )nternet banking passwords are not compromised through mobile phones. The payment authorisation message from the users mobile phone should be securely encrypted and checked for tampering by the service provider or the bank. )t should not be possible for any interceptor to change the contents of the message. %rovided the above security recommendations are reviewed' the mobile payment service could use any of the preferred mode of communication vi..' #M#' )H-#' 70% @%-#' "##; and >$C. There are couple of security issues in some of these modes of communications' which are listed below* #M# is the simplest form of communication' but is vulnerable to tampering. 0s long as there is a second level of check on the details of the transaction so as to guard against

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data tampering and the m%)> does not travel in plain te/t' this mode of communication can be used. )H-# is also a simple mode of communication and therefore does not have any inbuilt security measures. The system should be capable of encrypting the ;TM$ tone entries' if re=uired to be stored or transmitted. "##; communication uses its inbuilt encryption technology to talk between the cell phone and the operators server. Eowever' the decryption of the information happens at the cell phone operators server. Hulnerability of data may e/ists at this point. This information should be re-encrypted and transmitted to the service provider. 0ny of the following modes of user interface may be used' provided the above listed security measures are taken into consideration* #M# Menu driven application Menu driven "##; application 70% @%-# website $ormats need to be specified for e/change of information between banks. Cn the debit credit card front' the e/iting )#C D8D< message format may be used for communication between bank switches. Eowever' for account number based mobile transfers' a message format may need to be fro.en. &anks should designate a network and database administrator with clearly defined roles as indicated in the technology @roups report &anks should have a security policy duly approved by the &oard of ;irectors. There should be a segregation of duty of #ecurity Cfficer @roup dealing e/clusively with information systems security and )nformation Technology ;ivision which actually implements the computer systems. $urther' )nformation #ystems 0uditor will audit the information systems. &anks should introduce logical access controls to data' systems' application software' utilities' telecommunication lines' libraries' system software' etc. ?ogical access control techni=ues may include user-ids' passwords' smart cards or other biometric technologies 0t the minimum' banks should use the pro/y server type of firewall so that there is no direct connection between the )nternet and the banks system. )t facilitates a high level of control and in-depth monitoring using logging and auditing tools. $or sensitive systems' a stateful inspection firewall is recommended which thoroughly inspects all packets of information' and past and present transactions are compared. These generally include a real time security alert.

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0ll the systems supporting dial up services through modem on the same ?0> as the application server should be isolated to prevent intrusions into the network as this may bypass the pro/y server. The information security officer and the information system auditor should undertake periodic penetration tests of the system' which should include* 0ttempting to guess passwords using password-cracking tools. #earch for back door traps in the programs. 0ttempt to overload the system using ;;o# (;istributed ;enial of #ervice! , ;o# (;enial of #ervice! attacks. Check if commonly known holes in the software' especially the browser and the e-mail software e/ist. The penetration testing may also be carried out by engaging outside e/perts (often called R+thical Eackers! %hysical access controls should be strictly enforced. %hysical security should cover all the information systems and sites where they are housed' both against internal and e/ternal threats. &anks should have proper infrastructure and schedules for backing up data. The backedup data should be periodically tested to ensure recovery without loss of transactions in a time frame as given out in the banks security policy. &usiness continuity should be ensured by setting up disaster recovery sites. These facilities should also be tested periodically

Business & 'egal $ssues

SSMa(or inputs to be provided by the &usiness #ub CommitteeTT The following kinds of business applications are envisaged under the purview of this circular. &anks may permit the following transactions to its e/isting customers. They will encompass three key areas* Mobile banking (basic saving account P balance en=uiry' bill payment' credit card payment' ;raft issuance' ;eposit booking' #top payment re=uest' funds transfer to another bank account including <rd party transfers' change f personal %)> M Commerce (using mobile as a payment instrument either linked to a bank account or through stored value! -emittance* 0llowing funds transfer between bank accounts' bank to cash(where the beneficiary does not have a bank account! and cash to cash

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&anks may additionally facilitate transactions for their customers customers (+.g. &ill %ayments for their corporate clients and other transactions that facilitate transactional convenience and also the inclusion of the financially e/cluded into the banking mainstream. Thus banks may also permit following transactions for non-customers nonaccount holders. i. #mall value person-to-person remittances (not e/ceeding -s 18'555! including the use of bank branches' 0TMs and other <rd party outlets approved by &anks or Telcos for facilitating cash in cash out. )n such cases' banks may rely on 3OC processes performed by other intermediaries (such as Telcos! as detailed in section ))) 0 of this circular. ii. )nternational remittances - i.e. >on resident )ndians sending money back home to their families (To be read in con(unction with the MT## guidelines! Considering the legal position prevalent' there is an obligation on the part of banks not only to establish the identity but also to make en=uiries about integrity and reputation of the prospective customer. Therefore' even though re=uest for opening a savings current account can be accepted over Mobile Telecommunication' these should be opened only after proper introduction and physical verification of the identity of the customer. $rom a legal perspective' security procedure adopted by banks for authenticating users needs to be recogni.ed by law as a substitute for signature. )n )ndia' the )nformation Technology 0ct' 1555' in #ection <(1! provides for a particular technology (vi..' the asymmetric crypto system and hash function! as a means of authenticating electronic record. 0ny other method used by banks for authentication should be recogni.ed as a source of legal risk. Customers must be made aware of the channel risk prior to sign up. "nder the present regime there is an obligation on banks to maintain secrecy and confidentiality of customersR accounts. )n the Mobile-banking scenario' the risk of banks not meeting the above obligation is high on account of several factors. ;espite all reasonable precautions' banks may be e/posed to enhanced risk of liability to customers on account of breach of secrecy' denial of service etc.' because of hacking other technological failures. The banks should' therefore' institute ade=uate risk control measures to manage such risks. )n Mobile banking scenario there is very little scope for the banks to act on stop-payment instructions from the customers. Eence' banks should clearly notify to the customers the timeframe and the circumstances in which any stop-payment instructions could be accepted. The Consumer %rotection 0ct' 19D6 defines the rights of consumers in )ndia and is applicable to banking services as well. Currently' the rights and liabilities of customers availing of )nternet banking services are being determined by bilateral agreements between the banks and customers. Considering the banking practice and rights en(oyed by customers in traditional banking' banks liability to the customers on account of unauthori.ed transfer through hacking' denial of service on account of technological

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failure etc. needs to be assessed and banks providing Mobile banking should consider insuring themselves against such risks' as is the case with )nternet &anking. &anks may determine their own pricing for the use of these services. &anks should get the scheme for facilitating Mobile banking approved by their respective boards ?CMC before offering it to their customers. The ?CMC approval must document the e/tent of Cperational and $raud risk assumed by the bank and the banks processes , policies designed to mitigate such risk. ()C Process &anks are permitted to rely on $inancial )ntermediaries as recommended by the rela/ed 3OC guidelines issued vide -&) circular ;&C;.>C.0M?.&C.1D 1:.51.551 1558-56 dated 0ugust 1<' 1558 0 &ank can sponsor the small value remittance service by entering into arrangements with intermediaries in order to manage distribution' technology and scale. )n the same spirit' &anks may partner with Telecom companies' Technology companies etc to facilitate such small value transfers. &anks may rely on introductions from any person on whom 3OC has been done and certificates of identification issued by the intermediary. Thus the intermediary can be a Telecom company' another bank or financial institution or a stand alone Trust Company dedicated to the purpose of facilitating such transactions. )t is proposed that in cases where the remitter is the owner of the mobile phone' the &ank relies on the telecom companys 3OC and obtains a copy of the registration documents from the telecom company. )n cases where the remitter is not the owner of the mobile phone' a letter of introduction is taken from the owner and the remitter registers with a limited 3OC comprising of photograph and address proof. 7herever address proof is not available' the introducer can certify the genuineness of the remitters address.

*egulator% & "upervisor% $ssues

0s recommended by the @roup' the e/isting regulatory framework over banks will be e/tended to Mobile banking also. )n this regard' it is advised that* Cnly such banks which are licensed and supervised in )ndia and have a physical presence in )ndia will be permitted to offer Mobile banking products to residents of )ndia. Thus' both banks and virtual banks incorporated outside the country and having no physical presence in )ndia will not' for the present' be permitted to offer mobile banking services to )ndian residents.

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The products should be restricted to account holders only and should not be offered in other (urisdictions. The services should only include local currency products. The Rin-out scenario where customers in cross border (urisdictions are offered banking services by )ndian banks (or branches of foreign banks in )ndia! and the Rout-in scenario where )ndian residents are offered banking services by banks operating in cross-border (urisdictions are generally not permitted and this approach will apply to )nternet banking also. The e/isting e/ceptions for limited purposes under $+M0 i.e. where resident )ndians have been permitted to continue to maintain their accounts with overseas banks etc.' will' however' be permitted. Cverseas branches of )ndian banks will be permitted to offer )nternet banking services to their overseas customers sub(ect to their satisfying' in addition to the host supervisor' the home supervisor. @iven the regulatory approach as above' banks are advised to follow the following instructions* 0ll banks' who propose to offer transactional services on the Mobile services should obtain prior approval from -&). &anks application for such permission should indicate its business plan' analysis of cost and benefit' operational arrangements like technology adopted' business partners' third party service providers and systems and control procedures the bank proposes to adopt for managing risks. The bank should also submit security policy covering recommendations made in this circular and a certificate from an independent auditor that the minimum re=uirements prescribed have been met. 0fter the initial approval the banks will be obliged to inform -&) any material changes in the services products offered by them. The guidelines issued by -&) on R-isks and Controls in Computers and Telecommunications vide circular ;&#.CC.)TC.&C. 15 <1.59.551 9F-9D dated :th $ebruary 199D will e=ually apply to Mobile banking. The -&) as supervisor will cover the entire risks associated with electronic banking as a part of its regular inspections of banks. &anks should develop outsourcing guidelines to manage risks arising out of third party service providers' such as' disruption in service' defective services and personnel of service providers gaining intimate knowledge of banks systems and misutili.ing the same' etc.' effectively. )t will become important to set up R)nter-bank %ayment @ateways for settlement of such transactions. The protocol for transactions between the customer' the bank and the portal and the framework for setting up of payment gateways as recommended by the @roup should be adopted fro Mobile &anking Cnly institutions who are members of the che=ue clearing system in the country will be permitted to participate in )nter-bank payment gateways for )nternet payment. +ach gateway must nominate a bank as the clearing bank to settle all transactions. %ayments

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effected using credit cards' payments arising out of cross border e-commerce transactions and all intra-bank payments (i.e.' transactions involving only one bank! should be e/cluded for settlement through an inter-bank payment gateway. )nter-bank payment gateways must have capabilities for both net and gross settlement. 0ll settlement should be intra-day and as far as possible' in real time. &ilateral contracts between the payee and payees bank' the participating banks and service provider and the banks themselves will form the legal basis for such transactions. The rights and obligations of each party must be clearly defined and should be valid in a court of law. &anks must make mandatory disclosures of risks' responsibilities and liabilities of the customers in doing business through Mobile' through a disclosure template. The banks should also provide their latest published financial results over the net.M

*egulator% *oles and *esponsibilities of "takeholders

,ole of %an&s 0ny money e/change i.e. %ayments' %1%' remittance' etc P should be e/ecuted through &anking instruments , )nfrastructure. This is to ensure compliance with all financial controls and regulation. %ayments can be made by the following #avings &ank 0ccount ;ebit Card Credit Card 0ccount %re-paid Cards Hirtual Cards (Credit , ;ebit Cards! &anks role should be of providing normal transactional services to customers using the full range of services including Cash' #avings account' Credit Card' ;ebit Card and %repaid Cards services. Transactions should be maintained within the banking network and all the stakeholders in transaction processing and should be sub(ect to e=ual level of scrutiny and regulation as are other bank accounts. Transaction settlement should ride on the e/isting infrastructure for efficient settlement and payment systems. )ntra &ank - Transactions involving &ank 0 c to &ank 0 c funds Transfer should be real time or near real time transactions )nter &ank - Transactions involving &ank 0 c to &ank 0 c funds Transfer should ride on the >$# or other e/isting switches available for inter-&ank transactions. )ntra &ank P Transactions involving Card 0 c ( including Credit , ;ebit Cards! to Merchant recipient account should ride on the e/isting settlement , payment systems available with &anks.

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)nter &ank P Transactions involving Card 0 c ( including Credit , ;ebit Cards! to Merchant recipient account should ride on either on )ndia #witch ' H)#0' MasterCard or any other available switching infrastructure. The bank should take responsibility for audit' fraud management' account security etc. under its normal banking license. &anks should ensure that the service operates entirely within the -&) framework. &anks should be responsible for ensuring the identity of the sender and the receiver of funds. &anks can design the process of verification of sender and receiver as per the e/isting guidelines. )n case where the e/isting process of 3OC compliance cannot be met' new methods of verification such as mobile based %)> verification and transaction limit fi/ation can be considered )n case of m-wallet propositions the pooled funds should be held with a bank so that systemic risk of defaults is minimi.ed.

&anks may end up playing a limited role in %1% and cash to cash payments other than settler of funds via the pooled account. This should be permissible sub(ect to transaction limits etc. ,ole of Telco Telcos should provide the 3OC and customer history for &anks to offer the services to the customer and full responsibility for fraud management at their outlet as per T-0) guidelines. )n order to ensure Mobile %ayments reaches the critical customer mass' 3OC documents re=uired to offer financial products should be made similar to Telcos 3OC guidelines. ;istribution network of Telcos should be used to provide the services of Mobile %ayments to ma/imum possible locations across the country. +/ternal low-cost hosting at Telco should be e/plored P &anks will not have to reinvent the technology platform , billing systems for such an offering. %olicies enabling audit and governance of such a model to be framed. #etting up of infrastructure for undertaking ;omestic Money -emittances along with &anks. ;omestic Money -emittances using both Telcos dealer network and &anks $inancial infrastructure should piloted along with controls on transaction limit and fre=uency. %ilot should test the feasibility running such a model for domestic money remittances.

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,ole of T)ird #arty #ayment #rocessors +/ternal low-cost hosting at Third party payment processors should be encouraged to have a truly cross-bank ' cross-carrier payment system . %olicies enabling audit and governance of such a model to be framed including a centrali.ed settlement mechanism Third party processors should have the responsibility of $raud management and should have systems and process in place to check and control frauds.

*egulator% !ramework suggested for Mobile Pa%ments

%ayment 0ccount to be used for Mobile %ayments e.g. Credit card account' #avings &ank 0ccount' virtual account' %re-paid account should be similar e/isting Credit card ' ;ebit Card bank account issuance framework. 7hile we can use innovative mechanisms to enable payments through mobile phones' following should be taken into considerations -&)s @uidelines and policies on 3OC -&)s @uidelines and policies on 0M? $inancial settlement between the various entities should be undertaken as per the e/isting @uidelines and processes. The messaging system between 0pplication and &ank needs to be regulated and standardi.ed to ensure standard transaction processes and settlement systems. @uidelines need to be evolved to ensure complete interoperability of between all the stakeholders of mobile payments. This will lead to the growth of ecosystem and will benefit all the stakeholders. @uidelines need to be evolved for allowing domestic money remittances by Cash )n and Cash Cut at Telco Cutlets including usage of Telcos 3OC and adherence of 0M? guidelines. Telcos role should include providing platform to initiate transactions and carry the messages to the banks systems

*egulator% policies and standards

#ervice providers' Telcos should have the independence to develop and launch customi.ed applications targeted towards their customer base however messaging system

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between application and &anks needs to be regulated. This will lead to standardi.ation of the transaction processes and settlement systems. These should include )nstruction formats for all mobile initiated payments' remittances and banking )nstruction formats for all mobile initiated payments' remittances and banking #ecurity standards for instructions' interfaces' data storage and transactions Technology standards and guidelines for various modes of data transfer like #M#' @%-# etc. 0nti Money ?aundering control for Telcos especially for proposed services like deposits being accepted and held by Telcos for $unds Transfer and remittances. 7hile Telcos provide an opportunity to reach out to the unbanked and underbanked population of the country' proper regulatory control should be established to ensure conformation to 3OC and 0M? guidelines. The Telcos offering these services should follow bank-approved processes that fulfill the regulatory re=uirements while performing such transactions. The &ank may appoint payout agents such as the %ost Cffice' other $)s' selective merchants etc #ign up for service* +/isting or new customer* &ank controlled through regulated 3OC Transaction* %)> based transactions in terms of domestic transfers. 0nti Money ?aundering* monitoring carried out by the &ank Transactions monitoring controlled at the banking end 0gent appointment responsibility with the bank

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Sco#e 2f Mobile %an&ing

Capgemini Analysis Of Activeness Of Retail Banking Products & Services

The world bank report on retail banking sported a research by Cap @emini of various banks which were asked to rate the most active retail banking services and it was found that 0TM' Cnline &anking , ;irect debit were most active of them all indicating the e/citing trend of customers willingness to use new age banking services.

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!at Consumes "!ink# 0tom Technologies' a leading company speciali.ing in mobile commerce in )ndia carried out a research on consumer patterns vis-U-vis payments , willingness towards use of mobile phones involving over F85 respondents. #ome Cf the #tatistics 0re 0s $ollows* 1* %referred Mode Cf %ayment

PREFERED MODE OF PAYMENT

400 350 People (N !"ers# 300 250 200 150 100 50 0 "as# de$it "ard on%ine transa"tion "redit "ard &re&aid "ards 24 2!4 200 15! 35!

::

1* Consumers "se of )nternet , Mobile &anking #ervices

INTERNET $ MOBI%E BAN&IN' (SERS

700 !00 People (N !"ers# 500 400 300 200 100 0 Internet Bankin' (o$i%e Bankin' 200 !!1

<* %referred mode of spending given a chance to use mobile phones for the same.

PREFEREN)E OF SPENDIN' (SIN' MOBI%E P*ONE

People (N !"ers# 500 400 300 200 100 0
Bi %%s

441 323 210 232 5! 74 231 127 222

ta ,r an ts Ss #o && in' -i "k et s

ifts

Pla+es to Spend

:* 7illingness to Carry out Transactions using Mobile %hones

F% o/ Ho er 0 s e De %i1 ( er o$ * i%e -o &, &

+e s

)t i%it *

t# er s

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PREFEREN)E OF MA&IN' ATM TRANSA)TION T*RO('* MOBI%E

300 700 People (N !"ers# !00 500 400 300 200 100 0 4es 5o 305 !25

Some Ma;or 1indings 2f ,esearc) ,e#ort <ere4 a! Most of the respondents who are fascinated by this new technology and are ready to use it are )C)C) bank customers. b! F11 respondents keep plastic cards irrespective of whether it is debit card or credit card and irrespective of whether they use it or no. This shows that we have huge market of Card holders' so our service will be definitely used by these respondents. c! 0 common observation among those who use @%-#'MM# enabled handsets has been that they would like to spend using mobile phones for purposes such as eating out , entertainment. d! +ven though ma/imum numbers of people keep plastic cards' they still would prefer to go for cash che=ue transactions. This shows that' people carry Credit ;ebit card but they are still not welcomed fully by )ndian %eople. Eence people still have not come out of the age of cash transaction because they find it is a secure method wherein they know that there is no loss of data or such. e! )nternet &anking is becoming a common factor' but still mobile banking is not touched upon' people are not aware of mobile banking. f! Ma(ority of the plastic card users who are seen to be conservative in the sense that they prefer spending using the plastic cards on a monthly basis' prefer spending using cash che=ue as the preferred option g! >ecessity influences most of the plastic card users to make transactions i.e. ma(ority of the plastic card users use their cards only in case of emergency.

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h! 0 huge number of respondents who seem to be fascinated with I %ayments by MobileJ are in the age group of 1D-<8

Adapting to Re$uirements of Core "arget %roups &anks' today' are increasingly confronted with technology-savvy customers who are often on the move. ITodays customers want to organi.e banking transactions while on the move' irrespective of opening hoursJ L%ostbank' 155:' p. 1M. &anks are responding to this change by introducing mobile services. Core target groups of Mobile &anking can be divided in three categories 1. T)e =oungsters4 The segment of 1:P1D years old youth has ac=uired an important role in the growth of mobile telecommunications and related services. This group is reported to be technologysavvy and willing to e/periment with innovative products and services. The youngsters' often on the move' demand ubi=uitous' anytime service. Though the youngsters as a group are hardly relevant for banks from a financial perspective' they represent the prospective clientele of tomorrow and need to be cultivated in the middle to long-term marketing strategy of the banks. 0n e/ample for tapping into the potentials of this customer group was set by ;e/ia &ank of &elgium. ;e/ia decided to concentrate on very young segments in the field of Mobile &anking and introduced in cooperation with the &elgian network carrier Mobistar a new brand called I0/ionJ. This brand was sold as ITempo 0fter #choolJ package to school-going children' who received favorable conditions for their mobile phone connections along with a bank account to manage their pocket money. This offer seems to have played a key-role in increasing the number of Mobile &anking customers of ;e/ia to well over one million. 1. T)e =oung "dults4 This segment is thought to be technology- and innovation friendly. Though this group is financially not very strong either' many members of this group are known to be involved in stock market activities and are increasingly attractive for banks. $urther' this group can be e/pected to enter in short to middle-run a professional carrier so that it needs to be cultivated in order to retain customers of this age-group once they enter professional lives.

3. T)e %usiness 0eo#le4

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This group of customers' generally in the age group of 18P<6 years' is thought to be the most important one for Mobile &anking. Members of this group are generally well educated and economically well-off. They need to be often on the move for professional reasons. Therefore' they carry mobile devices to ensure accessibility. $or this reason they are ideal candidates to use services offered via mobile devices. $rom the banks perspective this group is particularly attractive on account of its relative economic prosperity and the need for financial services' e.g. home loans for young families. #uch a group of customers is generally looking forward to do business with known and trusted brands that simultaneously offer individual advisory services )n order to cater to re=uirements of these above-mentioned customer groups banks tend to look at Mobile &anking as a promising option. Eowever' these services apart from being an add-on feature for the targeted customer groups also have their own utility for the banks.

Mobile Banking as &istribution C!annel Mobile &anking enhances the number of e/isting channels of distribution that a bank employs to offer its services. The term Rdistribution channel hereby signifies a medium of delivery that a vendor employs to deliver his products or services to customers. Cther distribution channels in the banking sector include branch offices' )nternet &anking and Telephone &anking. #ome authors' e.g. ?uber L155:M' refer to Mobile &anking as a Rsales channel. This study however works with the term Rdistribution channelG for a distribution channel is used to deliver products or services irrespective of whether the products are bought by the customer against monetary payment or provided free-ofcharge by the vendor. The efficiency of a distribution channel can be measured by its fulfillment of three ma(or ob(ectives' which are closely related to each other. 'ncreasing Sales (olume Cne of the primary tasks of a distribution channel is to increase the volume of demand for products at profitable prices. This ob(ective is achieved by increasing operational efficiency so that those losses in the sales are minimised that are caused by delays in catering to customer orders. $urther' a favorable reputation of the firms logistical capacities may help generate additional orders. Mobile &anking can contribute to achieve this goal by following means 1. 0nytime' anywhere access to banking servicesG 1. 0vailability of push services to suggest transactions on an urgent basis' e.g. to sell certain stocks when a crisis eruptsG <. $ace-to-face talks with the personal consultant via video telephony.

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0s e/ample' )>@ %ostbank of >etherlands launched an innovative scheme in the year 1551 to boost its sales volume. +very new customer who deposited V:85 in a savings account was provided with a mobile telephone worth V185 and capable of accessing Mobile &anking services of the )>@ %ostbank. 7ithin si/ weeks more than 855'555 new customers and over V118 millions in deposits could be ac=uired. More importantly' 9FA of these new customers became regular users of Mobile &anking Reducing costs of distribution )n times of increased competition' a distribution channel must organi.e business processes efficiently so as to reduce distribution costs. The pressure to optimi.e business processes and reduce costs can be coped by rationali.ing organi.ational structures and increasing productivity. Mobile &anking can contribute to achieve this goal by following means 1. The manual collection' processing' transmission and archiving of data by bank employees in branch offices is substituted' as in the )nternet based banking' by automated processes. 1. 0s against )nternet &anking' Mobile &anking makes it possible to offer ubi=uitous' semi-personal consulting services in real time. These services can be centrali.ed to e/ploit economies of scale and scope as well as regional cost differences. <. ;iversification of distribution channels helps reduce the business costs that arise in the form of sales lost due to sudden collapse of a channel and to minimi.e customer dissatisfaction. 'ncreasing customer satisfaction Mobile &anking may help a bank increase the customer satisfaction ratio by adopting the following means 1. #treamlining of business processes to increase efficiencyG 1. More attention and better consulting for individual customers due to automation of routine processesG <. )nnovative Ianywhere' anytimeJ services customi.ed for individual preferences and the current geographic location of the customer provide value-added to the customerG :. The collected data can be utili.ed to create customer profiles. )ncreased customer satisfaction can help reduce the customer attrition rate.

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Mobile Banking as Source of Revenue 0part from functioning as an additional distribution channel Mobile &anking can also serve as a source of revenue. Mobile services can be offered on a premium basis. The price' in this case' should be reasonable enough so that customers are willing to pay them but at the same time they should be P from a financial point of view P higher than the costs incurred by the bank. 0dditional revenues can be generated in two ways* 1. Cffering innovative' premium services to e/isting customersG 1. 0ttracting new customers by offering innovative services. >ew customers contribute to revenue generation not only by utili.ing mobile services but also by using other conventional distribution channels. Mobile Banking as 'mage Product $inally' Mobile &anking can be also used as an image product to gain strategic advantages. The bank may hope to win or retain a positive image amongst technologysavvy sections of the society and strengthen the brand reputation of being innovative and visionary L@eorgi %inkl' 1558' p. 65M. The image of being a technology leader can help the bank win customers who are looking for modern products and services and at the same time help it retain its own e/isting base of technology-savvy customers' some of whom otherwise might have switched to other banks while looking for such a product. $urther' the bank can profit from an early-mover advantage by actively shaping technological standards that are based on ones own strengths. >egative fallout of following already-set standards may be thus avoided. This is' of course' fraught with a substantial risk of incurring financial and image losses if the propagated technology fails to establish. These are the benefits that banks might e/pect by offering Mobile &anking services. )n the following we describe relevant issues that need to be clarified and or verified in later sections of this study.

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C2>C+USI2>

)n the coming few years the )ndian banking sector is e/pected to grow at a rate over 15A while the telephony sector is e/pected to grow by over <5A. Cver F5A of the retail banking business comes from urban , semi urban areas in )ndia. These statistics portray a very bright future for mobile financial services as ma(ority of the bread earning population would lie in the 18-:5yrs age group. @oing forward the ma(or challenge for mobile banking service would be to educate the end user to make use of the service in day to day life and this factor will be prominently governed by the ease of use of the service. )n )ndia the toughest part will be to e/tend this service to the rural masses. 68A of fee based income of banks in )ndia comes from retail banking ' given this scenario mobile financial services will go a long way forward in cutting operating cost for banks fuelling rapid growth and competition. The banks will have to take an aggressive marketing stance to ensure the success of mobile banking services. &ank will be able to beat off the competition by carrying out proper customer segmentation and ensuring the convergence of various services that the bank has to offer for different customer segments. -&) needs to play the role of an aggressive proactive catalyst to ensure that the regulatory framework is in place to provide clarity and openness in terms of overlapping regulations for the banking and telephony industry so as to ensure an enabling environment for mobile banking services to grow. Certain guiding principles for the same would be * 1. There should be sufficient certainty around electronic contracting 1. Customers should be ade=uately protected against fraud and abuse <. )nteroperability should be encouraged' through ensuring that providers have access payment platforms and that consumers are able to switch financial providers

:. 0ccount opening C;; procedures should be risk-based' and not unduly remote account openings by small customers

pre(udice

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8. 0de=uate provision should be made for the issuance of e-money by appropriately capitali.ed and supervised entities which are not necessarily banks )f mobile banking is to reali.e the potential of massively e/tending access to safe' convenient and affordable financial services to those who today lack it' then a suitable environment is re=uired. )n its absence' mobile banking may simply amount to adding another convenient channel for already banked customers. $or millions P perhaps billions P of lower-income people around the world' a mobile phone represents more than (ust a tool for communication. )t can also become a means of e/tending financial services to people without bank accounts' setting off a Ivirtuous circleJ of benefits to individuals' families' communities and nations. Cnly active collaboration between financial and telecom regulators' financial institutions' mobile operators and handset manufacturers will make this possible.

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%I%+I2(,"0:=

0tom Technologies -esearch on M-Commerce (155F! $inMark $orum' 0pril' available via http* www.finmarktrust.org..a forums %resentations presentations.htm Eamburg "niversity ' -eport Cn Mobile &anking (155:-58! 3ruger' @ I+/tending the payments franchise to the mobile phoneJ' presentation (1558! 3rueger' M IThe $uture of M-%aymentsQ&usiness Cptions and %olicy )ssuesJ (1551!' ?yman' T' @ )vatury and # #taschen IThe "se of 0gents in &ranchless ;istribution for the %oorJ' C@0% Cccasional %aper' (1556! Millard' # , H. #aporta ICentral &ank and payment systems* %ast' present' futureJ' (1558! >okia Eori.ons (155D! -&) (Circular on Mobile &anking guidelines )n )ndiaG (1556! http* www.rbi.gov.in #chapp' # , - Cornelius +,commerce- leading the new world of pa%ments' H)#0' (1551! http* www.corporate.visa.com md dl documents downloads uWwhitepaper.pdf H)#0 Pa%ment "olutions for Moderni.ing Economies' 7hite %aper http* www.corporate.visa.com md dl documents downloads me-whiteWpaper.pdf(155:! ">T0; -eport (155:! 7orld -etail &anking -eportG Capgemini (155F!

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