Mobile network as banking channel

Written by SP Ketkar | Updated: Sep 9 2010, 04:07am hrs
Radio station, television or microwave towers were the only infrastructure landmarks in many Indian cities till the mid-90s, and shopkeepers played a peripheral role in telecom, by lending their phones for public use. That is hardly the situation now. Wireless has brought about a telecom revolution and changed many things, over the past 15 years.

There have been at least two, highly visible changes. First; telcos have redefined the urban and rural skylines across the country, raising towers for their network infrastructure. Nearly 350,000 telecom towers have taken up strategic positions in the cities, towns and along the trunk-routes and highways. And another 2,00,000 would be added by 2015, to meet the demand of 850 million-plus mobile users by then. Second, telcos have roped in a large part of the countrys shopping establishment as their sales infrastructure. Over a million retailers have joined the telecom sales network.

Technically, a telecom tower services up to a few thousand users (average 2,000 per tower) falling within its range. This is very similar to a bank branch or an ATM catering for customers in a locality. In contrast, telecom retailers are consumer-facing flanks of telcos sales infrastructure. They play a vital role for telcos---very much like the agents/BCs (business correspondents) do in bankingto extend the distribution reach. Besides these two parallels in telecom and banking, similarities are seen in their industry structure, like the low-margin-high-volume nature of their consumer business and Know Your Customer norms of respective regulators. But the overall consumer reach of the two sectors has been vastly vastly different.

Despite the existence of all types of banks----PSU (27), private (15 old and 7 new) and foreign (31)---for several years, the scheduled commercial banks could create only an urban-skewed network of 83,614 service points (64,608 branches and 19,006 off-site ATMs), by March 2009. On the contrary, though each tower requires an investment of about Rs 2 crore, telcos have been far more aggressive with their network expansion and have reached many remote areas in a little over 15 years. This has led to a situation of a vast segment of the population---specially in rural/remote areas---gaining access to mobile phones but not to formal banking.

Taking note of the need for geographical expansion of banking to achieve inclusive growth, RBI has brought out, in August 2010, a discussion paper on the Entry of new banks in the private sector. The paper lists f cive main issues: (a) minimum capital requirements and promoter contribution; (b) cap on promoter and other shareholding; (c) cap on foreign shareholding; (d) eligibility of industrial houses and NBFCs; and (e) business model. It then reviews international and Indian practices on these aspects and discusses possible approaches. Much of the discussion, however, revolves around the regulatory aspects and the paper does not evaluate the idea of Telcos as banks for reaching the un-banked.

Though RBI issued the first operating guidelines for mobile banking in October 2008 and relaxed those in December 2009-to facilitate payment and money transfer transactions up to Rs 50,000 per day---m-banking/payments have not really picked up. This is mainly because the guidelines offer mobiles as an additional channel for consumers already covered by banking, and it does not really help in reaching the un-banked. To realise the full potential of mobiles in banking, regulation has to enable what is termed as transformational banking and allow m-transactions without the necessity of owning a bank account. Countries like the Philippines (Smart Money and G-Cash), Kenya (M-Pesa) and South Africa (MTN and Wizzit) have deployed such telcom-driven banking models and found them useful for expanding financial inclusion.

Even in India, 600 million prepaid users collectively spend an average Rs 6,000 crore a month (the average revenue per user is Rs 100.) A major part of those talk-time recharges are delivered via mobile-to-mobile messaging along the chain of telco-distributor-retailer-consumer. Thus, the telecom sector already handles a fairly large volume of money-transfer transactions. Further, against the dominance of high-value transactions in e-payments through banking channels, the telecom sector has been efficiently handling recharges as small as Rs 10 through an array of retailers, even in remote locations. Therefore, as part of the attempt to improve financial inclusion by bringing in new banks, it would be worthwhile to license a few telcos and start banking on the telecom infrastructure.

The a uthor is an alumnus of IIM-B and is chairman, CMAI Focus Group on Mobile Commerce . These are his personal views