The Hindu Business Line : This one is no easy call

Imagine using your mobile phone to pay for your groceries at the supermarket using your credit card facility, transfer funds from your bank account to your parents’ account in their village, buy travel and movie tickets and, perhaps, even pay your taxi or autorickshaw driver, your phone allowing you to transfer the smallest sums of money from your account to the driver’s.

All this is in theory possible, and even being worked upon, now that the Reserve Bank of India has issued its final operating guidelines, effective this month, for adoption of mobile transaction services by banks.

Mobile banking activity is not very new in India, and SMS-based services have been around for four or five years now. Even as the regulations were being put in place, telecom players and banks were beating the guidelines and touting mobile banking services, says the head of a third party payments solutions provider. This was also because while there were no guidelines yet in place, there was no regulation either explicitly saying they could not offer mobile banking services.

There was, therefore, always a question mark over the legitimacy of mobile banking services, however limited they were. In fact, the RBI had, in July this year, asked banks to dissociate themselves from payment-related mobile services pending issue of the final guidelines. Several banks and mobile operators had put on hold their services or stopped signing on new customers.

Information services such as bank balance enquiry, and even some rudimentary ‘bill pay’ facilities were available even before the final guidelines. Acceptance of instructions for transfer of funds (funds transfer is the most sensitive issue in mobile banking from the security point of view) to credit to beneficiaries of the same or other bank had also commenced in a few banks, but these beneficiaries had to be pre-registered. Pre-registration is tedious, for one cannot possibly register every friend, relative, establishment and autorickshaw driver and entity that one is likely to pay in future. True mobile banking does away with all these requirements.

Some dampeners

The RBI guidelines, by implication, say that only banks can offer mobile transaction services; it is clearly a banking domain activity, and that is the way they want to keep it, says M.N. Srinivasu, Co-founder and Director at BillDesk, an electronic bill payments and remittance services provider.

The guidelines say this service can be offered only to customers of banks and/or holders of debit/credit cards. Document-based registration is called for, with the mandatory physical presence of the customer, before mobile services are offered. The banks are responsible for ensuring Know Your Customer norms, and must have core banking systems in place. This means customers cannot be signed up by mobile operators for this service, say industry experts. This can be a bit of a dampener to mobile banking as telecom companies are typically more aggressive in pushing services than banks.

Some other things would also change for some telecom operators who have been offering various kinds of payment services. One or two operators offer ‘bill pay’ facilities through independent payment gateways; their customers could pay their mobile phone bills using any credit card. This does not look like it will be possible under the current regulations, says Aditya Menon, Executive Director at Obopay Payment Services Pvt Ltd, the Indian operations of US-based Obopay Inc, which offers mobile-based transaction services.

The customer will now have to be registered for mobile banking for each of the cards that he owns.

Two-factor authentication

The stringent security that the guidelines call for would also call for changes in the way some services are being offered. There are some third party payment providers or vendors who are offering transactions entirely based on SMS, involving one-time issue of a password, says Menon. SMS itself as a mode of transmission of PIN is not permitted.

Such services may have to be discontinued. The RBI’s guidelines call for a two-factor authentication for validation of a customer.

In fact, most secure ways of using a mobile for payments need the customer to have GPRS access, says Srinivasu. GPRS allows wireless remote access to a data centre.

Not many phone users in India subscribe to GPRS and even fewer have phones that can support GPRS. According to Menon, only 20 per cent of the phones used in India can support some form of data services, the rest little else but voice and SMS. That would be an impediment to mobile banking.

However, for CDMA services, which account for 70-80 million users of the 300 million-plus mobile subscribers in India, the story is slightly different. The major CDMA operators have the ability to give data services on demand (unlike GSM customers who would have to subscribe to the services, a costly affair for the average phone user). The CDMA subscriber can use the phone for five minutes to make a payment and be charged only for that.

At Reliance Communications, most of whose customers are on the CDMA network, almost all the phones can support mobile banking applications, says Anil Pande, Head of Products, Mobile Data & Content Services Group, at the company.

For the GSM operations of the company this is not so, he says, although the company is working out access-related issues.

RCom had tied up with a large private bank where the mobile number of the customer acts as a proxy for the credit card of the company. The launch of this product had been delayed pending the RBI’s finalisation of guidelines for mobile banking. In fact, a key feature in mobile banking is the use of one’s mobile number itself in the transaction process. What would happen if one’s mobile is stolen? This is a very real fear, especially when it involves a debit or credit card. Some companies encrypt the numbers or code required in the handset itself which Obopay does not do, says Menon. It is not difficult to hack a phone, and thereon to use one’s bank account, he points out. Of course, one needs a PIN number in addition to the details on the phone, but then users must not store their PIN numbers in their phones.

The RBI has capped daily mobile transaction limits at Rs 5,000 for transfer of funds and Rs 10,000 for purchase of goods or services. This falls between two stools for banks, payment systems providers, and telecom companies — who stand to earn from these services. This might be too low for them to earn from the high net worth, low volumes mobile user; on the other hand, how many of India’s jumbo mobile subscriber base will transact anything at all, wonder industry experts. Eighty to ninety per cent of this base consists of prepaid subscribers; their average recharge value is Rs 30-40 a month. What ticket size payment will such a customer do, wonders Srinivasu. Customer literacy would also have to be reckoned with.

Standard infrastructure

Interoperability of payment systems and platforms used by banks and widespread availability of mobile banking services would also be necessary. It would not do to have just the private sector banks and some public sector banks implementing mobile banking if this service is to be across cities towns and villages. A clearing and settlement infrastructure would be required to allow funds transfer from any bank to any other bank anywhere. Currently banks have to enter into separate bilateral or multilateral arrangements for clearing and settlement.

If all this does happen, money transfers across the country could become more common through mobiles than through postal orders, because of the sheer convenience it allows, says Srinivasulu.

One hope for mobile banking lies in the failure of Internet commerce to take off in India. The country has roughly 4 million broadband users and 25-30 million Internet users; they are far outnumbered by the 300 million mobile users, he says.

Those who actually transact on the Internet constitute an even smaller population, especially so in small towns and villages where electricity supply and broadband reach are poor. There is currently little competition for mobile banking services, and the time for their launch is now, say experts.

In the US and many developed countries, where broadband penetration and usage are very high, mobile banking and payment services have been a complete failure, says Menon. On the other hand, Kenya, a small economy, is reporting mobile transactions of $100 million monthly.

‘Leapfrog to hand-helds’

Although the mobile cannot offer the richer experience of the Internet, India could just leapfrog the Internet stage and move to the hand-held device stage, says Ajay Adiseshann, Founder and Managing Director of PayMate India, a payment services provider. According to him, India does not even have to wait for GPRS usage to grow, since GPRS is not the only secure way to offer mobile banking.

“We have hybrid solutions using a combination of SMS and Interactive Voice Response Systems for authentication of mobile transactions.”

To start with, mobile transaction would be a complementary service, an additional channel for payments. Later on, it could become the more popular channel for small ticket transactions. “To start a PC is not as convenient as using the mobile,” says Dewang Neralla, Director, Atom Technologies, a company that provides mobile solutions.

There is a lot of investment going into mobile banking. And if there is money backing a bet, then at some time it will come true, says Srinivasu.

kripram@thehindu.co.in

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