H R Khan: Customising mobile banking in India - issues and challenges
Address by Shri H R Khan, Deputy Governor of the Reserve Bank of India, at the FIBAC
2012 on "Sustainable excellence through customer engagement, employee engagement and
right use of technology", organized by the Federation of Indian Chambers of Commerce and
Industry (FICCI) and the Indian Banks' Association (IBA), Mumbai, 5 September 2012.
* * *
The speaker acknowledges the contributions of Shri G Srinivas, Shri Subhas Chand and Shri. Surajit Bose of
Reserve Bank of India.
1. Distinguished delegates to the FIBAC 2012, ladies and gentlemen. As I was reading
the theme of the conference "Sustainable Excellence through engaged customers,
employees and right use of technology" three words (sustainable, engaged and right use)
helped me to decide how I can use this opportunity to relate with all the stakeholders of the
payment system industry to introspect the issues and challenges confronting customization
of mobile banking in India.
2. I am sure you would all recollect how cumbersome it used to be get a draft for
outstation payment, clearing used to take a lot of time, outstation cheques would take all the
more time, reconciliation and maintaining books by the bank branches would require
additional manpower and customers were never satisfied. During the last one decade, things
have changed and changed at a rapid pace and all because of technology. The initial steps
of tapping technology came in the form of adoption of the core banking systems (CBS) which
led to near collapse of geographical location of parent branch. How many of us really need to
visit our branches to transact business? Not many I am sure as most of us would be tapping
the technology led internet banking and interconnected ATM network. Our desktop PCs
became our anytime bank branches. Then came the next revolution - mobile banking which
added anywhere to the truly anytime banking. Weaning the customer from physical banking
and building customer awareness and confidence in these non face-to-face modes of
banking has been a herculean task for the banking industry. In this exciting and challenging
journey, the Reserve Bank, as a pro-active regulator, has defined enabling policies and, at
times, has goaded the industry in achieving the desired results. The Governments, both at
the central and the state levels, have also been taking measures in encouraging electronic
payments and receipts, such as, electronic benefit transfers and e-mode of transactions for
their receipts and payments.
Small steps and a giant leap
3. As I have briefly indicated above, technology adoption has changed the face of
banking in India. What started as a mere automation of some routine work processes in
banks in the mid 80's has moved on and resulted in business process re-engineering
culminating in making banking services branchless, anytime and anywhere, facilitated new
product development and enabled near real time service delivery. Technology helped banks
to reach the doorsteps of the customer by overcoming the limitations on geographical/
physical reach in branch banking and easing the resource and volume constraints posed by
the brick and mortar model. For the banks the question is no longer limited to whether mobile
banking will be an important part of their business but how best to approach a rapidly
evolving channel to deliver better customer service, expand product range, retain
marketshare, enhance revenue, drastically reduce operating expenses and above all remain
socially relevant without sacrificing sustainability in ICT based financial inclusion plans.
4. We all now recognize that mobile banking has come to occupy an important place in
banking in a very short time and is expected to provide much needed platform for taking
banking to the unbanked masses. Mobile banking certainly seems to be one of the biggest
innovations along with CBS and ATMs in the field of banking and this will have a long lasting
effect on how banking business is conducted. CBS and ATMs provided banks the much
needed technological fillip to break the shackles of branch banking architecture. CBS and
ATMs have enabled banks to provide banking services 24x7x365 but have not really helped
in expanding their reach to the unbanked or reach to the customer wherever s/he is. One
tends to concur with the view of many academicians and practioners that this limitation can
be overcome to a large extent by leveraging the mobile phone enabled banking or mobile
banking. We must see it as the giant leap of the banking industry - leveraging technology to
promote anytime and anywhere banking and more deeper and sustainable financial
inclusion.
Origin and potential of mobile banking in India
5. Recognizing the potential of mobile banking, Reserve Bank of India issued the first
set of guidelines in October 2008. The guidelines defined mobile banking as undertaking
banking transactions using mobile phones by bank customers that would involve credit/debits
to their accounts. This definition in a sense provided larger canvas to mobile payments which
in a narrow sense involved only payment made for a product or service using the mobile
phone either remotely or at the point of sale (PoS). These guidelines, which were very
broadbased, laid down the technology and security standards pertaining to safety, confidentiality,
integrity, authenticity and non-repudiability. As this was a nascent technology and, to build up
customer confidence in terms of minimizing frauds, the Reserve Bank mandated that all
transactions should be encrypted irrespective of the value. The Reserve Bank also made
inter-operability a cornerstone of its policy. After the initial set of guidelines, several policy
relaxations have been made to further encourage the use of mobile banking taking into
account changing economic environment and feedback of the industry and customers.
(Box1)
October 8, 2008
Mobile banking transactions defined as undertaking banking transactions using mobile
phones by bank customers that involve credit/debit to their account.
Some of the significant norms were as under:
•
Technology & security standards were laid down.
- All transactions to be encrypted irrespective of value limit
•
Inter-operability was ensured.
•
Customer complaints and grievance mechanism were laid down.
•
Daily cap of 5,000 per customer for funds transfer and 10,000 per customer for
transactions involving purchase of goods & services were prescribed.
•
Banks to seek one-time prior approval of the Reserve Bank of India after obtaining
their respective Board's approval.
•
Such services could also be offered through the BCs.
December 24, 2009
•
Raise in the daily cap transaction limits for funds transfer and for purchase of goods
& services to 50,000
•
Transactions upto 1,000 can be facilitated without end to end encryption of
messages.
•
Permitted to provide cash-outs to the recipients through ATMs or BCs subject to a
cap of 5,000 per transaction and a maximum of 25,000 per month per customer.
May 4, 2011
•
Transaction upto 5,000 can be facilitated without end to end encryption of
messages.
December 22, 2011
•
Transaction cap limits for funds transfer and for purchase of goods & services of
50,000 per customer per day removed.
•
Banks may place their own limits based on their risk perception with the approval of
their Board.
• Ceiling on cash-outs to the recipients through ATMs or BCs raised to 10,000 per
transaction subject to the existing cap of 25,000 per month.
6. The growth in mobile banking that has taken place in the country till date, though
has been rapid, is yet to reach the critical mass that will enable it to deliver on its promise of
reaching banking including payment services at a cheaper, secure and seamless manner to
the existing and potential customers. It has the potential to be the next wave of financial and
technological innovation in banking by universalizing access to banking service without
jeopardizing prudential and regulatory framework of the financial sector.
Leveraging the mobility of mobile phones for anywhere banking
7. Any technology that is well-accepted and widely available at affordable costs and
suitable for banking and payment services provides an immense opportunity to extend these
services to all areas and all sections of the society - banked and unbanked. Mobile
technology scores on all these parameters and can act as a catalyst to usher in the universal
goal of financial inclusion shared by all the stakeholders. In a large country like ours where a
majority of population still lives in rural areas that do not have presence of formal banking
providing banking facility has been a major challenge. Of the 0.6 million villages in India, the
total number of villages with banking services through brick and mortar branches and
alternate banking channels stands at approximately 0.14 million villages as at end March
2012. India has the highest number of households (approximately 145 million) who are
excluded from banking. However, with the growing reach of the mobile in hinterland, it has
now become possible to provide the banking facilities to people who were not able not able
to enjoy this facility so far. At the end of January 2012, the total wireless subscriber base was
936 million out of which, 313 million subscribers were from rural areas. Use of mobile
banking services among this huge base of subscribers is, however, very low. Even amongst
the existing bank customers less than one percent of them are covered under the mobile
banking services. Notwithstanding the existing low base of customers, the growth in mobile
banking transactions has shown increasing trend. For example, in the month of June 2012,
3.43 million transactions amounting to 3067.10 million were processed as compared to
1.41 million transactions amounting to 984.66 million processed in June 2011 - an increase
of about 143 per cent in volume and approximately 211 per cent in value terms. It is,
however, evident that the potential of mobile banking technology is yet to be fully exploited.
8. Another potential factor that has attracted all the stakeholders including
policymakers to this innovative technology is the lower cost associated with this model in providing
banking services both amongst existing customers and in taking banking to the hinterland as
well. According to a study, mobile banking based transaction costs about two per cent of the
branch banking cost, 10 per cent of the ATM based transaction cost and 50 per cent of the
internet banking cost. The main reason for non-availability of banking to a large part of our
population is the limited economic viability of the brick and mortar model of branch banking.
The Business Correspondent (BC) model is also facing problems on account of lack of
proper ICT-based business models and, amongst other things, due to issues related to
remuneration of the BCs, their training and orientation, product mix and volume of
transactions handled by them, management of cash and the risks associated with
outsourced models. Even ATMs and internet banking have their limitations when it comes to
penetration in rural areas. I need to mention here that our recent guidelines on deployment of
White Label ATMs (WLAs) has a very distinct slant towards the deployment of ATMs in the
smaller tier 3 to 6 centres. Notwithstanding this, the Reserve Bank, given its constant
endeavour to link every citizen of the country with the formal financial system, is keen to
expand mobile banking penetration. With the availability of the mobile with almost every
household, it has now become possible to make the giant leap to a reality by providing
everybody with banking services including payment services. The potential of mobile banking
is also underscored by the fact that the consumers are conveniently placed in terms of using
the product anytime anywhere and could develop ease of using the product once they are
made aware of the same.
Customized mobile banking products in India
9. The generic definition of mobile banking involving credit/debit to the account of the
customer using mobile has been customized in India to provide two rather unique services.
These are the Inter-bank Mobile Payment System (IMPS) and the Mobile linked Kisan Credit
Card (m-KCC).
IMPS - mobile based remittance system
10. The IMPS is a mobile based remittance system which is inter-bank in nature and is
owned and operated by the National Payment Corporation of India (NPCI). The IMPS
facilitates access to banks accounts and transfer of funds through mobile phones. The
system, launched in November 2010, provides real time transfer of funds between the
customers of different banks on 24x7 basis. In other words, funds can be transferred any
time to the beneficiary who receives the funds instantaneously and both the sender and
receiver get the confirmation of debit and credit. 50 banks have started providing IMPS
services to their customers so far1 and as at the end of July 2012, banks have issued 36.32
million Mobile Money Identifiers (MMIDs) to their customers.
Mobile linked Kisan Credit Card (m-KCC)
11. Let me also share some details on the mobile linked Kisan Credit Card (m-KCC)
launched by NABARD on a pilot basis on October 2, 2011 in Villupuram district of Tamil
Nadu for the farmers having KCC accounts with the Pallavan Grama Bank (an RRB
sponsored by the Indian Bank). The m-KCC using mobile technology enables farmers to
carry out purchase of agricultural inputs in a cash-less manner. All transactions are carried
out through mobile phones of farmers and vendors registered with the bank and the technical
service provider (TSP). The transaction is performed through a combination of a secured
SIM card and a PIN using an interactive voice recording/SMS system. This enables the
farmers to buy agriculture inputs by putting through the transactions through a mobile phone
enabled system linked to the banks CBS. NABARD is now encouraging banks, in particular
the RRBs, to use this pilot for extending mobile based KCCs to the farmers.
Current issues in the mobile banking landscape
Why a bank led model?
12. Mobile as a technology, which is low-cost, ubiquitous and efficient with a potential to
enable achievement the goal of deeper financial inclusion, has been recognized across the
world. Different countries are following different mobile banking models depending upon their
requirements and availability of infrastructure. In our larger vision of financial inclusion,
provision of payment services is one amongst the four services that we have clubbed under
financial inclusion viz., a deposit product, a credit product, a micro-insurance product and a
remittance product. Given this orientation, you would all agree that only banks can provide
these services while adhering to the KYC/AML requirements. Accordingly, the Reserve Bank
of India has consciously adopted the bank-led mobile banking model. The bank led model
has also been endorsed by the Inter-Ministerial Group of the Government of India constituted
in November, 2009.
13. There are, however, counter-views within the country and internationally as well
suggesting that the non-bank led mobile banking model that have been found to be very
successful elsewhere should be tried out here. It is often not appreciated when citing these
success stories that only one service, i.e., a remittance product, is being offered and not the
complete bouquet of financial services envisaged by us. The other three products identified
under financial inclusion can obviously not be offered by a non-bank. Moreover, particular
environments in a few countries enabled the non-bank led model to be successful viz.
presence of a monopoly operator, very poor banking infrastructure and availability of a
national identification number. Is it not surprising that the same success story has not been
repeated by the same service operator in a neighbouring country?
Cross border remittance through mobile banking
14. An issue that has been often raised is that if mobile banking has the potential of
reaching anywhere, why cross-border remittance through mobile banking is not permitted
liberally or why it is not taking off? One of the regulatory challenges in encouraging inward
remittance from abroad is to maintain a balance between regulatory-compliant flow of funds
(for example, whether they are bona-fide current/capital account flows) and ease of transfer
of funds to the beneficiary. Given the higher level of anonymity in cross-border transactions,
concerns on the associated AML/CFT related risks and the fact, as has been acknowledged
in a World Bank report, that with a very few exceptions, supervision of m-money has really
not been implemented effectively, Reserve Bank has allowed only banks and authorized
entities to undertake such cross-border transactions. To obviate any operational difficulty in
remitting and receiving funds, bank account-to-bank account cross-border remittance has
been permitted under the money transfer service scheme (MTSS). Realizing the need for
facilitating hassle-free withdrawal of funds at the beneficiary end, Reserve Bank has also
permitted transfer of funds to the beneficiary's account or to a pre-paid instrument (PPI)
issued by banks which could be m-wallet also. The underlying rationale is to ensure flow of
cross border funds through the banking channel only irrespective of the media, (which could
also be mobile sets) opted for undertaking the transactions.
Customer ownership and grievance redressal
15. The most often faced problem in mobile banking is as to who owns the customer -
the mobile network operator (MNO) or the bank? Whom shall the customer contact in case of
any service related grievance? Who is required to resolve the issue? Since India has
accepted the bank-led mobile banking model, the customers of the banks get full protection
for effecting transactions through this delivery channel as in the case of any other banking
transaction. Reserve Bank lays particular emphasis on its continuing pursuit of customer
satisfaction and protection and timely resolution of complaints. Accordingly, the customers
using mobile banking have recourse to the Banking Ombudsman's customer complaint
redressal machinery.
Role of MNOs as Technology Service Provider (TSP)
16. The Reserve Bank recognises the role of another important stakeholder - the
mobile network operator (MNO) in the process of encouraging mobile banking in India.
Reserve Bank has advocated a collaborative and co-operative model between the banks and
the MNOs. The MNOs are expected to play the role of a technology service provider while
banks are expected to provide banking services. With these clear role definitions, both the
stakeholders should work together to take banking through the medium of the mobile to the
masses. The customer vetting including compliance with KYC norms, customer protection,
etc. should remain within the domain of the banking sector. It is heartening to note that this
unique approach is taking roots with a couple of successful collaborations between banks
and MNOs. While there may be some headwinds in taking this experiment forward, it should
be recognised that these are not serious in nature and can be overcome. Issues related to
customer ownership, revenue sharing and other such related matters which, I am sure, can
be resolved through meaningful dialogue in the mutual interest of banks and the MNOs,
particularly when both of them need to explore additional source of revenue as they face
severe margin pressures.
Role of MNOs as TSP-cum-BC
17. You may all be aware that "for-profit" companies can now be engaged as BCs by
banks. This provides another avenue to the MNOs for tapping their reach in taking banking to
the masses. MNOs are particularly well placed to make use of this opportunity to become the
BCs of banks keeping in view the fact that mobile phones have become ubiquitous. I am glad
to note that a few MNOs have indeed become BCs of some banks. I am sure that the
nascent strides being taken in this regard are likely to fructify into major achievements soon.
Such collaborations between the banks and the MNOs enables each of them to exclusively
perform their respective designated roles - as bankers and service providers. Reserve Bank
expects that these experiments get upscaled and across the spectrum and result in a win-win
partnership for both the parties, leveraging their respective capabilities and reach.
Tapping USSD to expand access to mobile banking services
18. The Unstructured Supplementary Service Data (USSD) platform offers a common
gateway to customers of all banks to easily access and use mobile banking services. The
major advantage of USSD is that the IMPS could become accessible even through low-end
hand-sets. If USSD enabled mobile remittance system offers such a potential what is holding
up this unique product from taking-off? This is of particular relevance for the IMPS system of
NPCI. I am given to understand, that MNOs have expressed concerns on revenue sharing
and are keen on negotiating the rates with individual banks rather than provide the same
through NPCI. While these concerns may be justified, the payments play in India is a volume
game and all stakeholders including the MNOs need to dovetail the same in their business
plans. If the common USSD platform is offered by all MNOs, the same is expected to lead to
an exponential growth of transactions in the IMPS. Simultaneously, the IMPS platform for
person-to-business (P2B) transactions (i.e. in the merchant transactions) has now been
enabled. Along with it, person-to-person (P2P) remittances can now be made to beneficiaries
Aadhaar
based on their bank account number or number which is mapped to the mobile
number of the beneficiary. The requirement of MMID at the beneficiary end, therefore,
becomes optional. Further, the non-bank entities like the Pre-Paid Instruments (PPI) issuers
have been permitted to join the IMPS network through a sponsor bank for facilitating
domestic money transfers. All these measures should lead to an increase in transactions and
should significantly contribute to the revenue streams of the MNOs also. With this enabling
technology within reach of the stakeholders, they need to work together in a co-operative and
collaborative manner to promote and popularize this unique product.
Permitting cash-out in mobile wallets
19. The mobile wallet is a pre-paid instrument (PPI) issued in electronic form which
resides on the mobile phone. Seeing the potential of PPIs including mobile wallets, Reserve
Bank of India has laid down an enabling regulatory framework for such instruments. Simply
put, the mobile wallets being issued in India are e-money products and can be used for
purchase of goods & services. Mobile wallets can also be used for funds transfers where the
holder has been subjected to a fully compliant KYC. The only difference in mobile wallets
issued by non-banks in India and other countries is that cash-out is not permitted in India as
it is akin to acceptance of demand deposit. The rationale behind the decision is based on the
fact that non-banks are not permitted to accept deposits for maturity less than one year.
While this being so, the mobile wallet has a great potential to grow as it can be used for
payments of goods & services without the customers having to carry any additional card. Ten
entities have been authorized to issue mobile wallets; of them, one is a subsidiary of a
leading telecom player. Several others are in the pipeline with three to four of them being
leading telecom players.
Security and acceptability issues
20. Any system has to have certain minimum features to attract customers and keep
them engaged in the long run; such features are: ease of use, safety and security,
accessibility and affordability. Mobile banking meets all these requirements but still the usage
is nowhere near its potential. In the case of mobile banking, which is a novel product, the
customer needs to be assured that it would provide her with the same kind of comfort levels
that any other payment mechanism currently makes available. Comfort can be derived by the
customers when they are able to put through transactions with ease with a zero-fail rate and
not have any concerns regarding security issues. Customers should also be made aware as
to whom they should approach in case of a failed transaction and how speedily their
grievances are redressed. This is where a lot of work needs to be done to make the public
aware of customer friendly as also safety features of mobile banking and engage the
customers for a long term relationship. I would also like to inform you that recently, the
Institute for Development & Research in Banking Technology (IDRBT), established by the
Reserve Bank of India launched the Mobile Banking Security Lab (MBSL). The Lab aims at
exploring and providing solutions to the much needed safety, security, reliability and
interoperability, for both on low end and high-end mobile sets. The Lab will also provide the
benefit of a common technical centre for all banks and financial institutions. The testing
platform of the Lab would help the banks to test their security applications in mobile banking.
The Lab will also help in providing education services on security related matters in all Indian
language enabling awareness creation amongst the users.
Quality of service - issue of sustainable excellence
21. TRAI has come out with the "Mobile Banking (Quality of Service) Regulations 2012"
specifying the standards for MNOs while facilitating mobile banking which will go a
(Box 2)
long way in further improving the mobile banking services in the country. The MNOs should
strive towards meeting these service standards to the banks to enable the customers to
enjoy customer friendly banking services.
The Telecom Regulatory Authority of India (TRAI) has issued Mobile Banking (Quality of
Service) Regulations 2012 prescribing quality of service standards for mobile banking to
ensure faster and reliable communication for enabling banking through the mobile phones.
The salient features of the Regulations are as under:
•
Access service providers shall facilitate banks to use SMS, USSD and IVR to
provide banking services.
•
The response time for delivery of message for mobile banking services generated
by the customer or the bank shall be within the prescribed time frame.
•
If the SMS sent by the bank is not delivered to the customer due to network or
handset related problems, an USSD communication to the customer confirming the
completion of the transaction should be sent.
•
Service providers have to maintain complete and accurate record of transactions,
using mobile banking services through mobile phones.
Engaged employees
22. Role of employees in driving any business to reach a critical mass is the most
important but the least understood issue. The role of BCs or agents, who are being deployed
by banks to expand their reach is, equally important as they represent the banks to the
common man and are going to lay down the foundation of bank-customer relationship. It is
being assumed that technology will take care of every aspect of banking as most of the
processes are being automated. While this is true to a certain extent, it is the combination of
frontline human-resources and front-end of technology which acts as the catalyst for service
delivery in a nation like India. Employees are expected to help customers to move from being
"assisted" initially to becoming "self-reliant" in use of banking related technologies including
mobile banking. For the employees to hand-hold the customers, they themselves should be
fully conversant with the product. Thus, for mobile banking to grow, the employees would
have to strive towards improving customer service, enhancing customer satisfaction and
removing any apprehensions regarding the safety and security of mobile banking
transactions.
Customer focused 7 A framework
23. Having briefly touched upon the various issues related to mobile banking, keeping in
view the focus on customers/end-users, I intend to provide a 7A framework for its evaluation
using a framework comprising seven parameters - Availability, Accessibility, Acceptability,
Affordability, Awareness, Assurance and Appropriateness. Of the seven, I had spoken about
the first five As in my last year's address at the same forum though in a slightly different
context.
• implies the availability of technology solutions and wide range of
Availability
products offering mobile banking services to the customers.
• of technology is its spread across both rural and urban India
Accessibility
irrespective of the mobile handset being used.
• of the product is dependent on making it available in the local
Acceptability
language with easy-to-use operational menu.
•
Affordability is another benchmark which should guide the product offering as
being value for money in providing cost effective and quality services.
•
Creating Awareness about the availability of the product through financial literacy
campaigns to increase the volumes in mobile banking business and generate
necessary network effects.
•
Assurance is an aspect which is related to trust in the products and processes and
the security and authenticity relating to the transactions.
•
Appropriateness is combined effect of all the above features. The mobile banking
as a product and as a process scores well on all the above parameters and is,
therefore, very appropriate for providing cost effective, easy to use product by both
existing and prospective customers.
24. Accordingly, an appropriate business model taking into account all the above
aspects should form part of the corporate plan of the banks as well as the MNOs. Thus,
using the 7A framework, the stakeholders can provide mobile banking services which, as we
have discussed, suits the needs of the customers leading to its widespread adoption and
usage.
Concluding remarks
25. In conclusion, let me list out some of the issues that we need to focus and deliberate
on as we move ahead. That the mobile banking is moving up on the adoption curve is
evident in the number of implementations both on a pilot and real-time basis and also from
the level of interest evinced in the discussions held among the various stakeholders at
different fora including the one that we are participating today. It is also evident in the number
of TSPs emerging in the mobile banking space. Once awareness is created among the
general public on its benefits and more banks offer this service to their customers there
would be a further growth in transactions with both existing and new customers using the
service. We, therefore, need to ask ourselves: Whether our systems are equipped to handle
additional transaction volumes? Have we done any forward planning in this regard? Whether
technology used for interaction with customers is easy and friendly and not intimidating?
Answers to these questions assume importance when our target is the aam aadmi. It maybe
noted that so far only 52 banks have started mobile banking for their customers and, of them,
only a few have achieved sufficient traction in mobile banking transactions. This needs to be
reviewed by each individual bank at the corporate level and strategy should be worked out to
operationalise mobile banking to reap all its benefits. Banks need also have to be proactive
in upscaling their mobile banking products and services if they have to safeguard their
traditional advantage in the payment system terrain and leverage it to expand their customer
base including the tech-savvy GenNext.
26. Educating users and potential users, particularly through engaged employees,
remains a challenge in the sphere of mobile banking which is true for any new technology
based service offering. All the stakeholders need to put in concerted and sustained efforts in
spreading awareness about the benefits of mobile banking. Reserve Bank would be happy to
collaborate with banks and the Indian Banks' Association (IBA) as part of its e-BAT
(electronic Banking Awareness and Training) initiatives to spread retail e-payment
awareness. The IBA has the wherewithal to do a lot in the area of awareness creation by
conducting mass-media campaigns, simulation/training camps, town-hall events and
reaching out to schools and colleges across the nation to "catch them young." It is expected
that these initiatives will bring awareness of the various technology payment products
including the mobile banking and the ease with which they can be used to encourage the use
of non-cash payment products.
27. Let me conclude by saying that mobi