In about a week from now the Reserve Bank will issue guidelines for mobile banking services. Mobile phone companies have worked hard to convince the regulator that mobile banking and micro payments are safe and the technology is ripe for applications to be rolled out.
The draft guidelines for mobile banking earlier this year wanted services to be accessible through the simplest of phones. Security is a key concern and banks and mobile companies will have to pass muster before the service is offered to customers.
RBI’s financial sector technology vision document also recognizes the potential of the emerging mobile platform. “The large-scale spread of mobile telephony has opened up new vistas for banking in the form of mobile banking and the potential in this new sphere is enormous,” it says.
Most of the commerce on the mobile phone in the last few years has been ABC (astrology, bollywood and cricket) driven. Banks have been offering plain vanilla services like checking your balance, cheque clearing information and account update on the mobile phone. But with new offerings, government-run banks like State Bank of India and Union Bank are now looking to compete with their more nimble competitors as they prepare to give their customers a taste of paying for products and services anytime, anywhere.
Globally, the success stories are being keenly watched by the telecom industry. Mobile banking solutions from Globe Telecom and Smart Communciations in Philippines, MTN in South Africa, Vodafone is Kenya and Japan's NTT DoCoMo are being touted as some examples of success. But the scale at which these services take off in India could make operators around the world sit up and take notice.
With mobile subscribers in India on the verge of kissing the 300 million mark, banks now have a critical mass to which they can offer the services. Delhi and Mumbai, the obvious market for such services, already have over 20 million mobile phone subscribers. Companies like Airtel, Idea, Reliance Communication and Vodafone have geared up to provide the infrastructure for these services.
Banks have also joined the fray and see this as an opportunity to offer another convenience to customers. Merchants are only too happy to join the bandwagon since mobile payments help customers with ready liquidity, which pushes their sales.
So, if you are a customer with regular, salaried income, giving you the convenience of a debit card on the mobile may not be difficult for banks. In the early days, this is the segment where large number of customers could come from.
But that is only the brighter side of the picture.
Without a valid banking account, mobile banking services cannot be offered, the RBI says. But most parts of rural India still has to rely on hard cash for everyday transactions. The size of India's GDP has crossed $1 trillion last year and the cash economy is estimated to be 40% of the GDP, or $400 billion. Transactions done in cash do not have to be accounted for and hence no tax is paid on the amount. (Imagine, a 5% tax on that amount could fetch the Finance Minister a cool $20 billion in taxes, worth a third of India's oil import bill in 2008). Clearly, if cash is king for you, mobile banking is not the service to look forward to.
With the “cash rich” customer out, banks will need to roll out low-cost services that can be offered to even what is sometimes referred to as the ABCD segment (ayah, bai, chaprasi and driver—as the mobile companies call it, or the entry level users of phones). That will take a while to acquire critical mass and become profitable. And don’t expect this segment of the population to go shopping with their mobile phone either.
There is yet another reason why the service will not spread like wild fire—the credit environment. RBI has been tightening the banks, which have been offering unsecured and secured loans with minimal or no customer verification. With RBI tightening liquidity, Crisil estimates that 17% of the Rs 26,000 crore that is outstanding on credit cards could now result in default. Personal loan defaults have reached 9% and Crisil says that it could soon reach 13%, a jump of almost 50% from current levels. In a situation like this, banks will be very wary of giving you a credit card on the mobile.
Despite these hurdles, what has got the mobile phone companies so excited about mobile banking?
There are no concrete figures for it. But, last year Indians are estimated to have received nearly $30 billion in remittances, mostly from the Gulf and US. If companies can get their customers to pay a fraction of the amount that is remitted, it will be well worth their while. Within India, if the Mumbai taxi driver sends money to his family in Uttar Pradesh, that could be a huge business, too. It is instantaneous and comes with a guarantee, something that the traditional India Post money order has never been able to ensure.
Payments for utilities like electricity, telephone, piped gas and other services is another opportunity that companies are looking to tap. A survey by industry body Internet and Mobile Association of India (IAMAI) has found that nearly 87% of the households in select cities make an average of four utilities bill payments every month. That is a market waiting to be exploited by the companies which want you to click and pay cash. Initial estimates peg this market around Rs 9,000 crore annually by 2010. Mobile banking could easily target this segment, given the convenience it brings to customers.
I certainly am looking forward to the convenience of banking on my mobile. But, now that banks will have our mobile numbers (it was optional to give it to banks earlier), could it mean more unwanted calls and SMS from banks?
RBI, are you listening?