Customizing mobile banking in IndiaCustomizing mobile banking in India: : Issues & ChallengesIssues & Challenges

FIBAC 2012September 5, 2012

Mumbai

Harun R KhanHarun R KhanReserve Bank of IndiaReserve Bank of India

Evolution of mobile banking – Evolution of mobile banking – Small steps and a giant leapSmall steps and a giant leapJourney of Indian banks from brick and mortar branch banking to anywhere banking • Core Banking System, ATMs & internet banking

– instrumental for 24 x 7 x 365 ‘anytime’ banking• Mobile Banking

– leveraging technology to promote » anytime and ‘anywhere’ banking » deeper and sustainable financial inclusion

First set of mobile banking guidelines by RBI in October, 2008 provided• definition: undertaking banking transactions using mobile phones by bank

customers that would involve credit/debits to their accounts– larger canvas to mobile payments which in a narrow sense involved only

payment mode for a product or service using the mobile phone• technology and security standards

– pertaining to security, confidentiality, integrity, authenticity and non-repudiability

• regulatory framework 2

Potential of mobile banking in IndiaPotential of mobile banking in India

Potential•to provide the banking facilities to people truly ‘anywhere’

– banked, under-banked and unbanked

•to lower associated costs– as per a study, mobile banking based transaction cost is about

• two per cent of the branch banking cost • 10 per cent of the ATM based transaction cost and • 50 per cent of the internet banking cost

•to address the issues of economic viability of brick & mortar branches and issues related to the BC model

•to usher convenience for consumers in terms of – using the product anytime anywhere and – develop ease of using the product once they are made aware of the same

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Leveraging mobile for anywhere bankingLeveraging mobile for anywhere banking

A well-accepted and widely available technology at affordable costs and suitable for banking & payment services provides an immense opportunity to extend banking services to all areas and sections of society – banked and unbanked

•Of the 0.6 million villages, banking services available in approximately 0.14 million villages•Approximately 145 million households excluded from banking services•Total wireless subscriber base 936 million of which 316 million subscribers in rural areas•Less than 1 percent of existing bank customers covered under mobile banking services•Transactions in mobile banking growing impressively though not reached critical mass

– 3.34 million transactions for value `3,067 million in June 2012– Year-on-year growth of 143% in volume & 211% in value.

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Customizing mobile banking in IndiaCustomizing mobile banking in India

Customised mobile banking products in India:Customised mobile banking products in India:two major innovationstwo major innovationsInter-bank Mobile Payment Systems(owned and operated by NPCI)

• Launched in November 2010 • provides real time transfer of funds between the customers of different banks on 24 X 7

basis • 36.32 million mobile money identifiers (MMID) issued • 50 banks have become members so far • processed 75,236 transactions in July 2012• pilots underway to enable transfer of funds using account number or Aadhaar number

at beneficiary end in place of MMID

Mobile linked Kisan Credit Card• Launched by NABARD in a Regional Rural Bank in October 02, 2011 in Tamil Nadu• m-KCC enables farmers to purchase agricultural inputs in cashless manner• Transactions done through mobile phones of farmers and vendors registered with bank

and TSP6

Issues & challenges in customizing mobile Issues & challenges in customizing mobile banking in Indiabanking in India

Issues & challenges - IIssues & challenges - IWhy a bank-led model ?• Bank-led model suitable for

– providing banking services – providing all four services – deposit, credit, micro-insurance and remittances– adherence to KYC / AML requirements

• Model endorsed by Inter-Ministerial Group of Govt. Of India

• Non bank-led model– suitable only for remittances

• other three products identified under financial inclusion cannot be offered by a non-bank

– successful only in a few countries• due to presence of a monopoly operator, very poor banking infrastructure

and availability of a national identification number– Why the same success story has not been repeated by the same service

operator in a neighbouring country?

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Cross border remittance through mobile banking•Is there an uniform standard or dependent on country specific regulatory concerns and threat perception?

• delineation between home and host supervision blurred•Quality of inflows

– broader current and capital account issues– Anti Money Laundering and Counter Financing Terrorism issues– Requirement of forex flows through banking channels or authorized entities only

•Bank account to bank account cross-border remittance through mobile

•Mobile based remittance from a non-resident to an account of a resident– MTSS

• Transfer of funds to the beneficiary’s account on to a PPI (which could be m-wallet)– Banks need to comply with KYC norms, ensure quality of flows & report the flows

World Bank (2011) - With very few exceptions, supervision of m-money has not really been implemented. The level of acquaintance that supervisors have with these new topics is really uneven; until recently, they were not well versed on the implications of e-money concepts

Issues & challenges - IIIssues & challenges - II

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Issues & challenges-IIIIssues & challenges-III

Customer ownership and grievance redressal – Who owns the customer?– Whom shall the customer contact in case of service related grievance?

• with bank-led mobile banking model, the customers get full protection as in the case of any other banking transaction

• customers have recourse to the Banking Ombudsman’s mechanism

Role of MNOs– As Technology Service Provider

• collaborative and co-operative model– TSPs provide technology & banks provide banking services

• Headwinds - revenue sharing model– As Technical Service Provider and BCs

• win-win partnership for both – leveraging respective capabilities and reach

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Issues & challenges-IVIssues & challenges-IV

Tapping USSD to expand access • USSD offers ease of use for P2P and P2B

• Huge potential for exponential growth– IMPS becomes accessible even through low-end hand-sets– non-bank entities like the (PPI issuers permitted to join the IMPS network through a

sponsor bank

• What is holding up this product from taking off?– Revenue Sharing?

• MNOs, banks and NPCI need to put in collaborative efforts to make the system grow, growth in volumes to benefits all the stakeholders

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Issues & challenges-V Issues & challenges-V

Permitting cash out in mobile wallets– Mobile wallets are e-money products

• used for purchase of goods and services • fund transfers

– account is KYC compliant

– Cash out not permitted under the existing banking laws • Non-bank mobile wallet service provider should not be doing banking business

– Great potential to grow as it can be used for payments of goods & services without the customers having to carry any additional card.

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Issues & challenges-VI Issues & challenges-VI Security & acceptability issues• Security and privacy of banking transactions is a mandatory requirement• RBI prescribed mandatory security standards

– all mobile banking transactions permitted only by validation through a two factor authentication • one of the factors of authentication is the mPIN

– banks instructed to conduct regular information security audits on the mobile banking systems to ensure complete security.

– Transactions above `5,000 are to be compulsorily encrypted

• IDRBT has recently launched the Mobile Banking Security Lab – The Lab aims at exploring and providing solutions for

• safety, security, reliability and inter-operability for both on low end and high-end mobile sets

– The Lab will provide the benefit of • a common technical centre for all banks and financial institutions • testing platform for testing security applications in mobile banking • providing education services on security related matters

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Issues & challenges-VIIIssues & challenges-VII

Quality of service Quality of service (TRAI standards for MNOs for facilitating mobile banking)

Standards– Service providers shall facilitate banks to use SMS, USSD and IVR to provide banking

services;– The response time for delivery of message generated by the customer or the bank

shall be within the prescribed time frame;– If the SMS sent by the bank is not delivered to the customer due to network or

handset related problems, an USSD communication to the customer confirming the completion of the transaction should be sent;

– Service providers have to maintain complete and accurate record of transactions, using mobile banking services through mobile phones

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Issues & challenges -VIIIIssues & challenges -VIII

Engaged employees •Catalyst for service delivery

– Front-line human resources and front-end of technology

•Role of employees in driving any business is most important but least understood– over-reliance on technology

•Role of employees/BCs/agents - strive towards – customer transition from ‘assisted’ to ‘self-reliant’ – improving customer service – enhancing customer satisfaction – removing apprehensions regarding the safety and security of mobile banking

transactions

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Evaluating mobile banking technology and services Evaluating mobile banking technology and services on on

77A A frameworkframework

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Availability Availability •Choice of technology solutions and products for customers

Accessibility Accessibility •Expanding reach of the products to all sections of society irrespective of handset being used

AcceptabilityAcceptability•Making products easy to understand / operate for the customers; use of local langauge

AffordabilityAffordability•Customer to find value for money in products

Awareness Awareness • Making people aware of the products and services

AssuranceAssurance•Customer trust in the products/processes – security and authenticity of transactions

AppropriatenessAppropriateness•All above features will decide appropriateness of any product and its success too. Any product needs to score well on these parameters to succeed.

Mobile banking scores well on all these parametersMobile banking scores well on all these parameters

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Concluding thoughtsConcluding thoughts

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Concluding thoughts - I Concluding thoughts - I • Mobile banking on adoption curve

• Awareness is the key– all stakeholders to work collaboratively

• Whether technology used for interaction with customers is easy and friendly and not intimidating? – Interaction with customers

• easy and friendly and not intimidating– Interfaces

• simple, easy to comprehend and available in the local languages

• Whether our systems are equipped to handle additional transaction volumes? – Have we done any forward planning in this regard?

• Why only 52 banks have started mobile banking?– only a few have achieved sufficient traction

Banks need also have to be proactive in up-scaling their mobile banking products and services – to safeguard their traditional payment system terrain

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Concluding thoughts -IIConcluding thoughts -II

– Need for concerted and sustained efforts by all the stakeholders • in spreading awareness about the benefits of mobile banking

– Reserve Bank ready to collaborate with banks and the IBA as part of its e-BAT • electronic Banking Awareness and Training

Harness the potential of mobile banking in fulfilling the vision of (as envisaged in our draft Payment System Vision Document of 2012-15)

• reaching to the customer wherever s/he is; • deepening financial inclusion; and • moving towards a less-cash society.

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(Picture source: The Financial Times)22

Thank youThank you