With 840 million phones potentially competing against less than 85,000 bank branches, there is no doubt over mobile banking?s potential to accelerate financial inclusion. With more than 70 banks now offering m-banking services, in tie-ups with telcos, there are signs of a spurt in mobile banking transactions in 2013.
Yet, the penetration is abysmal compared against the base of 840 million mobile subscribers and a $100 billion dollar payments market composed of equal parts of Direct Benefits Transfers and migrant remittances. The slow uptake has been partly due to an impasse between banks and telcos on mutual accountability to customers, sharing of costs and liabilities, and the pricing of m-banking transactions.
Trai?s recent consultation paper on Unstructured Supplementary Service Data (USSD) based mobile banking for financial inclusion, signals an intent to settle two contentious issues; namely, whose service is it and who pays whom. Referring particularly to the inter-ministerial group for ?Delivering Basic Financial Services on Mobile Phones?, the note argues that USSD is the most feasible and cost effective mode for financial service transactions on mobile phones. It also indicates that USSD access should be a telco?s service to phone users, and should come with appropriate Quality of Service standards and a regulated tariff.
What does the development mean for different stakeholders? For banks, m-banking is an add-on service, an incentive to initiate transactions in the largely dormant basic accounts opened under the recent financial inclusion drive. While conceding the advantage of distant access over mobile phones, banks see the telco?s role as providing the pipes to transmit data to and from users and banks, and hold these to be value-agnostic. Thus, banks would like telcos to charge customers only for access and data transfer costs, in line with other VAS such as SMS.
For telcos, the principal issue has been the absence of clarity on the dividing lines between banks and telcos toward liabilities for failed transactions and fraud; absence of a solid business case for USSD caused by: lack of clarity over the eventual investment implications of building additional capacity and billing infrastructure; lack of assurance on traffic and users; and high risk of obsolescence with the rapid penetration of smart phones that can support apps.
For customers, especially the targets for financial inclusion, the issues are somewhat different. The key challenges here are customer education and awareness. The financially excluded customer is highly unlikely to be tech savvy, and the concepts of electronic money, dealing with a non-bank, and signing off on a mobile phone, compared to hard cash in hand is a major mindset issue. Banks or telcos, who must bear the onus and cost of customer education to use the USSD, remains a moot point.
The Trai consultation note addresses some key aspects. First, it proposes to absolve telcos of any financial risks for transaction failures. Second, it proposes a tariff ceiling of R1.50 per session, which is considerably higher than the earlier proposed value of R 0.25 per session, with a 2-second session completion time. Third, it stipulates a quality standard?a session response time of 2-seconds. However, other important bottlenecks like consumer protection and fraud monitoring, of equal importance, have not been addressed adequately. This is understandable, for the term mobile banking melds two domains?telecom and banking, both governed by independent statutory regulators. RBI has the key role in ensuring a risk-immune framework for mobile banking that enjoins telcos into the same levels of security and control that exist in the banking system. Perhaps this is where the impasse lies.
The first challenge is the lack of sufficiently robust KYC processes of telcos, which do not match the rigour of banks? KYC processes. With some recent frauds traced to poor KYC processes of telcos in issuing SIM cards, a unified electronically verifiable KYC for banks and non-banks seems the answer. Second, while RBI maintains a real-time vigil of the banking system to detect and immediately intervene in suspicious transactions, there are challenges in extending the same levels of control over non-banks, especially over the much larger agent networks, which also double up as banking correspondents.
Banking can succeed only on the foundation of a vibrant and customer-protected micro payments infrastructure that extends beyond the brick-and-mortar branch network. Here telcos can leverage technology to make the user experience simple and affordable, while supporting banks in risk mitigation through RBI-compliant processes. The protocols between non-banks governed by Trai and banks under RBI would need to be addressed in the realm of m-banking.
Meanwhile, frustrated with the slow progress on USSD, NPCI and banks have begun working on an alternative?encrypted SMS?for financial sessions using cellphones. Promising steps these, but the goal of inclusion remains distant.
The author is with Indicus Centre for Financial Inclusion