Some 50 percent of Indians have no access to financial services, offering a significant market opportunity for mobile banking players to tap. But while the country's telcos, IT vendors and banking intermediaries are eager to address this segment, the critical market push will have to come from the banks.
Despite industry statistics pointing to its potential, mobile banking has yet to see mainstream adoption in India where it remains a fifth channel for banks. The first four are: bank branches, ATMs (auto teller machines), Internet banking and phone banking.
According to Celent, as of January, there were 512 million mobile subscribers--accounting for 66 percent of total mobile subscribers--in urban India, but only 35 million to 40 million were active users of banking services.
In rural India, 259 million users have mobile phones but a large section of the population still has no access to financial services. In fact, only 5 percent of the 600,000 Indian villages have bank branches. This indicates the potential for mobile phones to become the first channel for banking in rural India.
"Mobile phone is a low-cost alternative to reach out to the potential unbanked population in rural regions," Prathima Rajan, an analyst at Celent, told ZDNet Asia in an e-mail.
Vijay Pratap Singh Aditya, CEO of Ekgaon Technologies, noted that while mobile banking adoption is still lagging in rural India, over the last five years, "financial-excluded populations" in other developing countries in Africa, Latin America and Asia have benefited from such services. Ekgaon provides IT-enabled products for financial services, agricultural services and e-government in rural areas.
According to Rajan, the Indian government has adopted a guarded approach in managing the market, where the Reserve Bank of India (RBI) established tight regulations for mobile payments.
"RBI has been cautious with guidelines and wants to address mobile banking in a phased manner," she said, adding that several developing economies which adopted a liberal approach to mobile banking had yielded undesirable results.
Sandy Shen, research director at Gartner, said in a phone interview that while stringent regulations protect consumer interest, they also slow down market development.
Noting that mobile payments are just emerging in India, Shen said growth in this segment has also been tardy because RBI has identified banks as the main driver of mobile payments.
"Generally, mobile carriers across the world have been found to be more aggressive in implementing mobile payments. With the banks at the helm, the rollout becomes slower," she explained.
Obopay CEO Deepak Chandnani told ZDNet Asia that RBI implemented several rules that emphasize additional security features for mobile payment services. Obopay offers mobile banking and payment products which it says are platform-agnostic and can run on any handset, service provider or financial institution.
The company tied up with Yes Bank and Nokia in India to offer Mobile Money Services for the bank's customers in Pune, Chandigarh and Nashik. It recently also partnered Union Bank of India (UBI) to launch UBI Money, a mobile payment service, in New Delhi and its suburbs.
The government made several regulatory changes over the past few years to encourage mobile banking. In 2006, for instance, RBI announced a new policy to allow banks to conduct business using a "business correspondent" framework. Under this model, third parties conduct business in remote areas on behalf of banks.
In January 2010, the regulator also relaxed technology and security standards, permitting banks to undertake transactions valued up to US$22.4 (INR 1,000) without the need for end-to-end encryption. RBI also allowed the remittance of funds for disbursements in cash, which is targeted to enable rural users to send and receive money through their mobile phones.
Government regulations limit growth
However, there remains various regulations today that restrict the growth of mobile banking such as the KYC (Know Your Customer) policy which mandates banks must attain relevant information about customers before doing business with them, stringent criteria for business correspondents, restrictions on financial product offerings, and limitations on cash transactions.
Business correspondents also face several challenges, including lack of financial support for marketing, lack of local service support, restrictions in range of product offerings, extensive KYC requirements, and poor level of institutional partnership with banks.
Aditya said: "Banks have not been very trustworthy partners with business correspondents. Overall, I think policies are going in the right direction. The institutional reluctance among major [banks] is the major reason why the services are still to catch up."
The implementation of local level institutional partnerships and "cash points" would take mobile banking to a new zenith, he added.
He noted that banks have been conservative and rank retail banking lower on their business priorities. "The major problem emanates from the fact that banks lack intent to provide savings accounts to low-value customers," he said, adding that the cost of offering services in rural areas is high and there has been no institutional incentive for banks to offer mobile banking services.
However, things may change with some regulatory changes, one of which, for example, allows business correspondents to charge customers for conducting transactions. "This was earlier a big challenge for banks as the business model did not work well otherwise," Rajan said.
Telcos keen on mobile banking
According to the Celent analyst, India has the lowest tariffs globally and mobile banking offers an attractive revenue stream for telcos which are struggling churn more profits from their subscriber base.
Aditya added that mobile operators are eager to introduce mobile banking services and have been lobbying for the government to allow them to do so.
India's policy framework previously did not allow telcos to offer mobile banking, but was relaxed a year ago to enable private operators to introduce such services. However, the market still has not picked up. "There has been hardly any marketing, product or a local level support to encourage customers to adopt the service," Aditya said.
Swati Prasad is a freelance IT writer based in India.
Despite industry statistics pointing to its potential, mobile banking has yet to see mainstream adoption in India where it remains a fifth channel for banks. The first four are: bank branches, ATMs (auto teller machines), Internet banking and phone banking.
According to Celent, as of January, there were 512 million mobile subscribers--accounting for 66 percent of total mobile subscribers--in urban India, but only 35 million to 40 million were active users of banking services.
In rural India, 259 million users have mobile phones but a large section of the population still has no access to financial services. In fact, only 5 percent of the 600,000 Indian villages have bank branches. This indicates the potential for mobile phones to become the first channel for banking in rural India.
"Mobile phone is a low-cost alternative to reach out to the potential unbanked population in rural regions," Prathima Rajan, an analyst at Celent, told ZDNet Asia in an e-mail.
Vijay Pratap Singh Aditya, CEO of Ekgaon Technologies, noted that while mobile banking adoption is still lagging in rural India, over the last five years, "financial-excluded populations" in other developing countries in Africa, Latin America and Asia have benefited from such services. Ekgaon provides IT-enabled products for financial services, agricultural services and e-government in rural areas.
According to Rajan, the Indian government has adopted a guarded approach in managing the market, where the Reserve Bank of India (RBI) established tight regulations for mobile payments.
"RBI has been cautious with guidelines and wants to address mobile banking in a phased manner," she said, adding that several developing economies which adopted a liberal approach to mobile banking had yielded undesirable results.
Sandy Shen, research director at Gartner, said in a phone interview that while stringent regulations protect consumer interest, they also slow down market development.
Noting that mobile payments are just emerging in India, Shen said growth in this segment has also been tardy because RBI has identified banks as the main driver of mobile payments.
"Generally, mobile carriers across the world have been found to be more aggressive in implementing mobile payments. With the banks at the helm, the rollout becomes slower," she explained.
Obopay CEO Deepak Chandnani told ZDNet Asia that RBI implemented several rules that emphasize additional security features for mobile payment services. Obopay offers mobile banking and payment products which it says are platform-agnostic and can run on any handset, service provider or financial institution.
The company tied up with Yes Bank and Nokia in India to offer Mobile Money Services for the bank's customers in Pune, Chandigarh and Nashik. It recently also partnered Union Bank of India (UBI) to launch UBI Money, a mobile payment service, in New Delhi and its suburbs.
The government made several regulatory changes over the past few years to encourage mobile banking. In 2006, for instance, RBI announced a new policy to allow banks to conduct business using a "business correspondent" framework. Under this model, third parties conduct business in remote areas on behalf of banks.
In January 2010, the regulator also relaxed technology and security standards, permitting banks to undertake transactions valued up to US$22.4 (INR 1,000) without the need for end-to-end encryption. RBI also allowed the remittance of funds for disbursements in cash, which is targeted to enable rural users to send and receive money through their mobile phones.
Government regulations limit growth
However, there remains various regulations today that restrict the growth of mobile banking such as the KYC (Know Your Customer) policy which mandates banks must attain relevant information about customers before doing business with them, stringent criteria for business correspondents, restrictions on financial product offerings, and limitations on cash transactions.
Business correspondents also face several challenges, including lack of financial support for marketing, lack of local service support, restrictions in range of product offerings, extensive KYC requirements, and poor level of institutional partnership with banks.
Aditya said: "Banks have not been very trustworthy partners with business correspondents. Overall, I think policies are going in the right direction. The institutional reluctance among major [banks] is the major reason why the services are still to catch up."
The implementation of local level institutional partnerships and "cash points" would take mobile banking to a new zenith, he added.
He noted that banks have been conservative and rank retail banking lower on their business priorities. "The major problem emanates from the fact that banks lack intent to provide savings accounts to low-value customers," he said, adding that the cost of offering services in rural areas is high and there has been no institutional incentive for banks to offer mobile banking services.
However, things may change with some regulatory changes, one of which, for example, allows business correspondents to charge customers for conducting transactions. "This was earlier a big challenge for banks as the business model did not work well otherwise," Rajan said.
Telcos keen on mobile banking
According to the Celent analyst, India has the lowest tariffs globally and mobile banking offers an attractive revenue stream for telcos which are struggling churn more profits from their subscriber base.
Aditya added that mobile operators are eager to introduce mobile banking services and have been lobbying for the government to allow them to do so.
India's policy framework previously did not allow telcos to offer mobile banking, but was relaxed a year ago to enable private operators to introduce such services. However, the market still has not picked up. "There has been hardly any marketing, product or a local level support to encourage customers to adopt the service," Aditya said.
Swati Prasad is a freelance IT writer based in India.
| Service | Description | Technology availability |
| Eko | Person-to-person payment via no-frills accounts with State Bank of India. | Mobile phones, and retail outlets which act as agents. |
| FINO | Services include no-frills accounts, Mahatma Gandhi National Rural Employment Guarantee Act, Social Security Pension, remittance, micro loans and insurance. Available through 25 projects. | Various offerings include mobile, biometrics and smartcards. |
| ALW | No-frills savings account with payout of government-to-person benefits. Available through 25 banks. | Fingerprint biometrics and smartcard-enabled mobile phones. GPRS is used to transmit data between mobile phone and fingerprint scanner. |
| OboPay | Person-to-person and mobile payments via YES Bank and Nokia Mobile. | Mobile payments are linked to YES Bank's customer accounts. |
| Green Mobile | Money transfer through partnership between Tata Indicom, Corporation Bank and PayMate. | Mobile phones |