Experts point out that setting up the merchant ecosystem and ensuring a foolproof retail and distribution network is the crucial part.

  

Thomas K Thomas

Subodh Mandal manages to make about Rs 200 a day, working hard as a rickshaw puller on Delhi roads. Today he doesn't have too many options to quickly reach the hard-earned money to his family of six back home in Jharkhand. But soon, Mandal will be able to use his cheap mobile phone for sending money to his family within minutes. This will be made possible because mobile operators and handset makers are now beginning to roll out mobile banking services in a big way.

 People like Mandal slogging away in urban areas and the millions of consumers in the rural village will be able to walk into a mobile operator's retail outlet and open a bank account. And once you get an account, things like sending money to your relatives and buying vegetables from your local merchant will be just an SMS away.

Financial inclusion

 “Mobile payments will be the next step for delivering financial services to hundreds of millions of “underbanked” people or those who are under-served currently, both urban and rural customers, especially in emerging economies. Our vision is to make mobile money part of our phones just like we have made camera an integral part of the handset,” says Gerhard Romen, Director, Mobile Financial Services, Nokia. The Finnish handset maker was among the first to start mobile payment services with a pilot project in Pune in partnership with Yes Bank last year. Since then, Nokia has started pilot services in Chandigarh and Nasik and is now all set to go commercial.

 Recently, mobile banking got a huge boost with Bharti Airtel and Vodafone announcing separate partnerships with State Bank of India and ICICI Bank, respectively. While Bharti Airtel and SBI have formed an exclusive joint venture, Vodafone has agreed to become a Business Correspondent for ICICI Bank.

 The joint venture between Airtel and SBI will invest about Rs 100 crore to set up the system for becoming the Business Correspondent of SBI. The JV will engage Airtel's retailers as Customer Service Points (CSP) all over India in a phased manner. With this, existing and new Airtel mobile customers will be able to visit these outlets and open new SBI bank accounts and avail of other banking products and services available at the CSPs. Additionally, existing SBI customers will also get serviced at these outlets. Under the ICICI Bank and Vodafone Essar Ltd tie-up, both entities will offer a bouquet of financial products, such as savings accounts, pre-paid instruments and credit products through a mobile phone-based platform.

 These two initiatives take mobile banking services to a whole new level. While Vodafone manages over 1.5 million retail points for acquiring customers and servicing them, Airtel is present across 5,101 towns and more than 5,00,000 villages.  

That's a big deal considering that The National Sample Survey data reveal that 51.4 per cent of nearly 89.3 million farmer households do not have access to any credit from institutional or non-institutional sources. Only 27 per cent of farm households are indebted to formal sources. Only 13 per cent are availing loans from the banks in the income bracket of less than Rs 50,000.

 With mobile phones reaching over 650 million people (compared with only 90,000 bank branches and 45,000 ATMs), it will enable the population to get access to financial services on the mobile device. “India thus provides an ideal case for leveraging low-cost mobile services to provide financial inclusion to the un-banked population in the country. SBI is interested in inclusion and Airtel is a microcosm of India and increasingly rural, so both will leverage the expertise of the parent organisations to provide low-cost, secure, easy-to-use banking services,” says Sriram Jagannathan, CEO, mCommerce, Bharti Airtel. 

 The World Bank estimates that by 2012, 1.7 billion people across emerging markets will have mobile phones and one in five of them will be picking up mobile money to create a $5 billion market by 2012. As per Arthur D Little's 2009 M-payments report, mobile payments will grow globally at 68 per cent, reaching a transaction volume of $250 billion by 2012 and as per Gartner estimates the global number of mobile payment users will reach more than 190 million by 2012. In India, the value of mobile payment transactions will reach up to $1.28 billion by 2013 as per research firm Palo Wireless Market Research.

How you sign-up

 Signing up for the service is simple. For example, for availing Vodafone's ‘m-Paisa' mobile banking service, consumers can walk into its selected outlets and fill up a form to open an account with ICICI Bank. This is vetted by the bank and in a few days it is verified and activated. Once the account is activated, the consumer can put in money with the Vodafone outlet. He gets an SMS informing the credit available with which he can buy stuff from merchants registered within the system or send money to another Vodafone user.

“Since more than 90 per cent of the mobile subscriber base is pre-paid, consumers are used to paying upfront at a mobile retail shop. The comfort factor is very important, especially when we are dealing with money,” says Samaresh Parida, Director (Strategy), Vodafone Essar. Vodafone is hoping to replicate its success in Kenya and other countries where it has 20 million customers for financial services.

But experts point out that setting up the merchant ecosystem and ensuring a fool-proof retail and distribution network is the crucial part. Nokia, for instance, has tied up with over 300 small and medium merchants in Pune and Chandigarh to create a merchant ecosystem. “Technology is not an issue but getting the ecosystem in place is the important part. We have partnered with utility companies, telecom firms, gas companies to enable mobile payment,” says Romen.

 While regulation has done a lot to facilitate mobile banking services, there are some more hurdles. Over the past few months, the Reserve Bank of India has increased the  amount of money that can be deposited with the mobile operator. The RBI has also allowed banks to appoint for-profit banking correspondents (BC), including telecom operators and limits relating to having the BC within a fixed distance of the bank have also been relaxed.

“The  regulation on mobile banking is moving in the right direction but the RBI should look at lowering the entry cost. For example, the KYC norms applicable to telecom companies should be enough for opening an account instead of the banking KYC. This will reduce costs,” says Parida.   

 “A few more enabling regulations largely centred on unifying account opening and controls between operators and bank will lower cost and increase viability. Increased viability will ensure faster scale-up and proliferation of this service,” says Jagannathan

 But operators are not losing sleep over it yet. “Regulations always evolve over time. We will work with the RBI,” says Nokia's Romer.

tkt@thehindu.co.in

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(This article was published in the Business Line print edition dated January 24, 2011)
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