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mobile banking :

Mobile banking: A boon for unbanked- II

THE ADVENT of Internet has revolutionised the financial services industry,

empowering organisations with new business models and alternatives to offer 24x7
accessibility to their customers. Online financial transactions have also created new
players in the financial services industry, such as online banks, online brokers and wealth
managers who offer personalised services. People are mobile-savvy and are always ready
to try out advanced handsets and services. Mobile banking also saves time and effort.

According to a business standard survey, one out of every three persons was ready to
change his/her banks to avail free mobile banking services. Around 50 per cent of the
people who were surveyed used cell phones to check their bank balance. Awareness of
mobile banking is also high in India. Although such players still account for a tiny
percentage of the industry, it is the latest in customer convenience in banking - to access
and operate your bank account from anywhere from your cell phone. This is available on
advance technology phones. One can access bank account through SMS or scripting
languages like XML, HTML, SOAP and WAP. Mobile banking and ATMs use the same

In the recent past, banks across the globe have invested billions of dollars to build
sophisticated Internet banking capabilities. As the trend is shifting to mobile banking,
there is a challenge for chief information officers (CIOs) and chief technical officers
(CTOs) of these banks to decide on how to leverage their investment in Internet banking
and offer mobile banking, in the shortest possible time. According to financial
consultancy Celent study, 35 per cent of online banking households will be using mobile
banking by 2010, up from less than one per cent today. Upwards of 70 per cent of bank
center call volume is projected to come from mobile phones. Mobile banking will
eventually allow users to make payments at the physical point of sale. "Mobile
contactless payments" will make up 10 per cent of the contactless market by 2010.

Mobile banking or M-banking, mbanking, SMS banking etc are terms used for
performing balance checks, account transactions, payments etc via a mobile device such
as a mobile phone. Mobile banking today is most often performed via SMS or the mobile
Internet but can also use special programmes called clients downloaded to the mobile
device. The mobile acts as a branch of the bank by storing a database of customers. It
also has a smartcard, which biometrically stores the identity of the customer such as
name, address, photograph, fingerprint templates and relevant details of the savings or
loan accounts held by the issuing bank. Acadamically, mobile banking is defined as: "A
provision and availment of banking and financial services with the help of mobile
telecommunication devices. The scope of offered services may include facilities to
conduct bank and stock market transactions, to administer accounts and to access
customised information."

Apparantly, mobile banking can be said to consist of three inter-related concepts: mobile
accounting; mobile brokerage and mobile financial information services. Most services in
the categories designated accounting and brokerage are transaction-based. The non-
transaction-based services of an informal nature are however essential for conducting
transactions - for instance, balance enquiries might be needed before committing a money
remittance. The accounting and brokerage services are therefore offered invariably in
combination with information services. Information services, on the other hand, may be
offered as an independent module.

Over the last few years, the mobile and wireless market has been one of the fastest
growing markets in the world and it is still growing at a rapid pace. According to the
GSM Association and Ovum, the number of mobile subscribers exceeds 2.5 billion, of
which more than two billion are GSM. This part of the mobile commerce is very popular
in countries where most of their population is unbanked. Countries like Sudan, Ghana
and South Africa received this new commerce quite well. In Latin American countries
like Uruguay, Paraguay, Argentina, Brazil, Venezuela, Colombia, Guatemala and
recently, Mexico it started with a huge success. In Colombia it was released with
Redeban. Guatemala has the support of Banco industrial. Mexico released mobile
commerce with Omnilife, Bancomer and a private company (MPower Ventures).

The mobile phone culture is growing and has penetrated the urban and semi-urban
population in India. The number of mobile users is estimated to have far surpassed the
number of Internet users. Recently, in India there has been a phenominal growth in the
use of mobile banking applications with leading banks adopting mobile transaction
platform and the Central Bank (RBI ) publishing guidelines for mobile banking

Two important yet quite unrelated events in the evolution of mobile payments in India
occurred in 2008. Firstly, the new credit policy of the RBI came along with guidelines for
facilitating mobile payments. Secondly, according to Dr Raghu Raghuraman's CSFR
report mobile banking is the most promising front end technology for broadening the
access of finance in the country. Taken together are defining moments in the recognition
of mobile now as an accepted channel for banking and commerce and clearing the way
for its rapid and mass deployment across the country by the financial sector. Technology
related regulation can never keep pace with the fast paced nature of technological
innovations and progress, nor fully define it. Regulation here has to have a light touch, so
as not to throttle innovation, yet which serves public interest.

In the same order, mobile banking is getting wider acceptance, but the convenience it
offers has its own share of risk. It is therefore even more important to be aware of the
safeguards for the secure usage of this medium for financial transactions. Thousands of
people from rural areas across Indian states are likely to get their social security pension
and wages paid under the National Rural Employment Guarantee Act (NREGA) scheme
with the help of mobiles in the near future.

Mobile banking pilots and full-scale operations are being conducted across different
states of Indian Union and the entire ecosystem is being managed by the government with
the help of the Reserve Bank of India, banks, leading telecom operators and technology
implementation partners. The ecosystem is important since banking regulations in India
currently do not allow cash for exchange of another 'unit' such as 'airtime' in the case of
mobiles. Only banks and the indian post (through money orders) are currently allowed
such transfers.

The country's financial regulatory body, Reserve Bank of India has relaxed the norms for
mobile banking by raising the caps on fund transfers as well as mobile-based payments.
Continuing with its earlier announced draft guidelines for mobile banking services in
India, RBI has increased fund-transfer limit from Rs 2,500 a day to Rs 5,000 a day. The
regulator has also provided a cap of Rs 10,000 for purchases through mobile. The move
was made after requests from banks to raise the limits for mobile banking transactions.
According to RBI, banks should ensure mobile banking services to customers of all
network operators. Long term goal of mobile banking is to enable funds transfer from
account in one bank to any other account in the same or other bank in real time. The
Central Bank is also planning to relax the registration procedure for mobile banking on a
case-to-case basis, when banks apply for their licenses. Presently, banks are required to
get a form signed by all their customers.

These guidelines definitely provide the vision of our regulator in terms of ensuring a
secure payments environment. The specific focus on security is very welcome and the
changes made to the transaction limits moving towards only daily limits will allow more
flexibility to the customers for their payments as well as the banks for defining their risk
parameters. An Rs 10000 limit for purchase of goods/services covers most of the basic
transactions except purchase of electronic/ high end luxury goods, or air ticketing.
However, it is hoped that this would be relaxed to a certain degree at some later stage
once the confidence is gathered in the system to bring in all commerce into the mobile
payments net.

Mobile-payment firms are expecting a further relaxation of norms after the successful
roll-out of mbanking products. Industry players have been positive about the changes and
expect mobile banking to become more practical and broader in its scope. The increase in
limits is a significant change, which shows RBI's intention of making the medium a
universally acceptable payment tool. Further, the relaxation in the registration process is a
positive step since one needs to keep the customers' convenience in mind for new
initiatives like these.

Mobile banking, which is catching up fast in the cities and hinterland, is not only helping
the government to take a step forward towards fulfilling its aim of having one bank
account for every household, but also saving crores of rupees by way of reduced
transaction costs. The government incurs a transaction cost of Rs 12 to 13 for every Rs
100 it shells out, mobile banking helps to reduce the cost to a mere Rs 2. RBI estimates
that around 40 per cent of Indians lack access to formal financial services and is largely