Mobile banking in India

ATM and Internet banking have been around in India for a while. While both modes have had some success, penetration and use levels have been moderate.

While ATMs offer convenience, they pose a perceived security threat in India given instances of mugging around them. Senior citizens and women appear reluctant to use ATMs if they have a choice to go to a branch and withdraw money in safety. The security situation in India shows little sign of improvement and therefore a large scale proliferation of ATMs will remain a challenge. Internet banking, on the other hand, relies on PC and Internet penetration. Estimates suggest that there are approx 40 million Internet users which is expected to rise to 100 million soon – despite this growth, penetration and use levels remain low, especially in non-metro areas. Research also suggests that Internet banking is picking up amongst the target user group.

While Internet penetration and use in India is relatively low, mobile phone penetration is much higher and growing rapidly. There are over 200 million mobile phone subscribers in India and the number continues to explode. Financial services companies are now working with mobile payment players like mChek to offer innovative mobile phone solutions to urban and rural Indian population. Reserve Bank of India has restrictions on non-bank involvement in money transfer. Therefore, development of mobile financial services applications is being sponsored primarily by banks in India.

Economic Times reports that Citigroup has tested a proposition which allows brokerage to respond to margin calls or enhance credit limits, by authorising transactions over the mobile phone. Once the customer and broker sign up for the application, the process is carried out by PIN validations. A one-time PIN is generated for each transaction, which is verified by the customer, after which the bank validates the transaction and sends it to the broker. Once the transaction is completed, the customer is intimated on his mobile phone again. Citi and mChek are also exploring the possibility of a similar offer for mutual funds. They have also launched a mobile application which enables farmers to receive money for sale of produce through their mobile phones. These payments take the form of ‘intent to pay’ information that can be cashed at partner banks.

The paper also reports that Visa recently announced the launch of its Visa Money Transfer on Mobile service, which will enable money transfer via the mobile phone. Initially, this service will be a pilot program available to Visa cardholders of Corporation Bank, HDFC Bank and ICICI Bank. The recipient can be a Visa cardholder of any bank in India and the money can be transferred to his/her mobile phone or Visa card.

Mobile banking has the potential to bring a whole host of people that have no/little access to land lines/Internet connections onto the electronic platform – an innovative way to generate financial inclusion. To do so successfully will require customer training, technology stabilization and managing carefully the ‘know your customer’ issues.