We could be overwhelmed with the increasing number of mobile users in India, which has reached 600 million today. But, contemplating the percentage growth of mobile banking users?it is stagnant. Over the past two years, there have been only 5 % registered users of mobile banking and only .05 % of the total are active users, according to global consultancy Deloitte. Customers even in urban cities prefer to engage in informational and not transactional activities through their mobile.
Lack of integration between telecom operators and banks, along with an unattractive and in-scalable revenue model for banks remains the main reason for no take off of mobile banking in India. Sanjeev Patel, head and executive vice-president, direct banking channels, HDFC Bank says, ?The transactions in mobile banking are relatively miniscule as compared to other established channels such as internet and ATM. Thus standalone costs for the mobile banking transactions are fairly high.?
A mobile banking set up involving a business correspondent model would cost only Rs 25,000 to Rs 30,000 initial cost and Rs 2,000 to Rs 3,000 maintenance cost per month, as compared to setting up a traditional branch which requires Rs 7,00,000 to Rs 8,00,000 initial costs. Even though mobile banking could be very cheap for banks in the long run, Sachin Sondhi, senior director, Deloitte says, ?Acquisition of customers remains a major issue for banks so that they can scale up their model and make money out of mobile banking.?
However, the modified business correspondent model and UID enabled bank accounts are expected to be a game changer for mobile banking. Business correspondents are persons who, besides helping rural people to open bank accounts, would facilitate in banking transactions. Their key role is to accept deposits and remit money. The regulator prescribes outsourcing guidelines that ensure that there is no conflict of interest when certain banking activities are outsourced.
The government has been trying to encourage the business correspondent model for a while now. In January, Indian Bank Association chief K Ramakrishnan declared that 1.3 million vendors of the telecom operators would be recruited as banking correspondents and will carry devices that would operate as micro ATMs. Last month, RBI announced to include operators of common service centres (CSC) such as individual kirana/medical/fair price shop owners as business correspondents. Also, the UID project would be a boon for banks and the business correspondent model as it aims at reducing the transaction cost. The UID authority has proposed a UID-enabled bank account (UEBA) which will give customers access to their account through business correspondent operating a handheld microATM device. Transactions on the UID-enabled bank account function essentially as a prepaid system, similar to that used by mobile operators.
Sondhi from Deloitte explains that banks provide mobile banking services for free and restrict to no frill services and accounts. ?Its time they provided attractive loan services at some cost, at least in the tier I cities and get more customers into mobile banking. Only when customers engage in transfer funds and loan payments through mobiles, banks would be in a position to scale up their services and profit from mobile banking?. Thus a different model for tier I cities and rural cities is what the system needs.
Apart from reducing high transaction cost, India needs to resolve another issue in mobile banking. Our ecosystem requires collaboration among different constituencies?banking institutions, mobile operators and regulators. Patel from HDFC adds that the regulatory framework allowing the banks and operators to leverage the available infrastructure will go a long way in ensuring the success of using mobile banking services for inclusive growth of financial services.
On the bank-telco integration, Rajesh Dongre, COO, mobile commerce, Vodafone Essar feels that telecom service points are much larger in number and easily accessible when compared to bank branches. ?In mobile banking, partners should be allowed to play to their strengths. That is, the bank performs the banking activities and the telco takes on the other related activities. The best way to popularise mobile banking is for the banks and regulators to bank on the mobile operator.? he adds.
It is a reality that the business correspondent model is at a nascent stage in India and guidance from the regulator is what most banks are awaiting. The big question still remains whether banks and operators can come together? And if this does not happen, most of the banks would depend wholly on the business correspondent model, concludes Sondhi from Delloite.