It was August 2002. The Indian mobile market was yet to show its true potential despite the early promise. We were miles away from the revolution we are experiencing today.
Though everyone was more or less convinced about the impending communications revolution, the debate over the relative growth potential of ‘fixed line’ and ‘mobile’ still raged. During one such informal debate, I got into a $50 bet with then Intel chief Craig Barrett, who happened to be in Delhi during one of his visits to India. The issue at hand was ‘when would mobile connections in India overtake fixed lines’. I was a little conservative, maintaining that 2008 could be the all-important year. Craig had a different take on it. He expected 2007 to be the ‘dividing line’. I fancied my chances given the fact that fixed lines outnumbered mobiles 4:1 in the country in 2002.
As it turned out, I lost the bet. In fact, we both lost! Mobile connections overtook fixed line connections in 2006. This was one bet I was more than happy to lose.
Mobile connections have galloped away since, surprising everyone.
At more than 20 times their fixed line counterparts, they have ushered in an era of ubiquitous communication in the country. With an effective coverage of close to 95 per cent of the population, the revolution has virtually meant a wireless connectivity infrastructure 24x7x365. The potential is huge, and we have just about scratched the surface.
At close to 75 per cent mobile penetration today (could be close to 60 per cent if you discount multiple SIMs), and growing steadily, it won’t be long before we reach a near 100 per cent coverage of our adult population. So, while we will have no problem with reach, the crucial issue is how we leverage this reach.
One of the biggest beneficiaries of this exponential increase in mobile connectivity could be banking, which has seen spurts of technology revolutions in the past. Mobile money can leverage the near universal reach created by the telecommunications infrastructure and complement it by adding existing and new financial services.
Indian Banking and Technology
Indian banking had its first brush with information technology when computers came to India during the 1980s, leading to the gradual eclipse of the manual ledger and data entry. Customer experience underwent a dramatic change as manual processes gave way to automated ones. Services for which customers had to spend half an hour at the branch were over in a few minutes.
Notwithstanding these technological changes, a big challenge stares us in the face. We have not been able to reach a large majority of the population through the traditional brick and mortar banking model. India has the highest number of households in the world (approximately 145 million) excluded from banking services. In spite of an extensive network of bank branches and ATMs (80,000+), accessing banking services still remains a distant dream for many.
Mobile Communications and Banking: Natural Allies
• Connecting people, anywhere, anytime: Mobile telephony connects more than 95 per cent of the country. A mobile customer is almost always connected through her mobile device, and can receive and make calls and receive and send text messages. If the customer has a smartphone with 3G/4G connectivity, she is even connected to data services (internet).
This connectivity can be leveraged to provide mobile money and banking services.
• Large distribution network: Today, mobile connections, along with various value-added services, are available across an extensive sales and distribution network across the country. Airtel services are available at more than a million retail outlets across the country. These outlets are serviced by a number of distributors, urban and rural. If we add all telecom retail outlets across the country, this number could well exceed 3 million!
Mobile Network Operators (MNOs) in partnership with banks are best suited to leverage this channel to extend the reach of banking and electronic money. MNOs are constantly connected with their end customers.
For example, while pre-paid mobile recharges are bought by the customers at a retail point, they are delivered through the network directly. In case of any incident, call centres service the customer. This model is akin to banking where the service is delivered directly by the banks to the customers.
• Service customers on a large scale: The phenomenal growth of the Indian telecom sector has created service capacity of enormous proportions. Collectively, MNOs serve more than 900 million customers, either through self-care or through call centres. The scale of such service centres will also ensure a significantly lower unit cost of service per customer.
• Micro transaction processing capability: Telecom companies process billions of electronic transactions every day. A robust technological capability has been built over the past two decades to process high volume micro-transactions with a high degree of precision. Such capabilities can be extended (with a certain degree of co-creation and customisation) to banking and financial transactions as well.
An Instrument of Financial Inclusion
Given that the costs of banking the ‘unbanked’ have been cited as a major stumbling block to financial inclusion, mobile banking can potentially provide a viable alternative. In fact, mobile banking can possibly be the cheapest way to reach rural customers:
• Some recent estimates peg the cost of setting up a microbanking outlet in the range of US$500 to US$800. This cost can be brought down significantly if such outlets are supplanted by mobile banking technologies.
• Government disbursals constitute a large part of monetary transactions in rural India. The Reserve Bank of India (RBI) estimates that while the government typically incurs a transaction cost of 12–13 per cent on government disbursals, mobile banking could potentially bring the cost down to a mere 2 per cent.
Transferring government payments electronically to the poor will not only pay for itself but will also connect households to a formal and secure financial grid.
Digitisation of Cash
The pre-paid mobile revenue in India exceeds US$30 billion, more than that of the entire cards industry in India. Thus, the pre-paid mobile industry is already the largest pre-paid system in the country.
The opportunity for mobile banking lies in its potential to supplant cash transactions, which dominate our daily lives. Recent amendments to RBI guidelines have allowed nonbanks to issue mobile-based semi-closed instruments, while also extending their usage to bill payments and ticketing. The industry definitely needs further liberalisation to increase the penetration of these instruments.
Changing Regulatory Environment
Operating guidelines for mobile banking were issued in October 2008, which were later relaxed in December 2009 and further in October 2011. Today, mobile money transactions up to Rs 50,000 are allowed across a range of use cases. Through this channel, banks have also been permitted to provide money transfer facilities from bank accounts to beneficiaries not having bank accounts, with cash payout facilities at an ATM or with a business correspondent.
The Inter-bank Mobile Payment System (IMPS), operated by the National Payments Corporation of India (NPCI), provides an instant, 24x7, inter-bank electronic funds transfer service through mobile phones, provided the customer has an MMID (mobile money identifier).
Enabling legislations have gradually been falling into place. The Department of Payment Settlements & Systems at the RBI has been strengthened to promote the development of the digital payments ecosystem which will be key to transforming India from a cash-driven to a cashless economy. Some of the other enablers include strengthening the security framework, laying down common standards for completing transactions, and so on.
Design and Delivery of the Ecosystem
Three necessary enablers hold the key to mobile banking quickly becoming a truly mass phenomenon in India.
• In its current state, the mobile payments system is complicated and hence has remained limited to a small segment of customers with high-end mobile phones. The key lies in ushering in easy-to-use technology which can be configured in low-end handsets. IMPS could be a phenomenal success if citizens do not have to remember an additional identifier, that is, MMID. Can we simplify the customer experience further?
• Educating customers about the security of mobile transactions and customising them through vernacular interfaces will be important. Training customers and channel partners is equally important. Since this is a new field, constant training is important to ensure compliant behaviour.
• The third enabler relates to the partnerships that are building up in the ecosystem among different stakeholders — banks, systems providers, MNOs. Such partnerships need to be encouraged. Once established, partners would construct the customer-friendly delivery architecture, overcoming their deep-seated biases.
The writer is Chairman and Group CEO, Bharti Enterprises.
Excerpted from Contemporary Banking In India, Edited by Naina Lal Kidwai (Publisher: Businessworld; Price: 595)