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SYMBIOSIS INTERNATIONAL UNIVERSITY

Faculty of Management

RESEARCH PROPOSAL: Ph.D THESIS

Designing Mobile Money Order: Integrating India post to banking systems through mobile banking

Ashok Bahadur Singh

Guidance

Dr. Madhvi Sethi

Abstract The rapid transition and rollover of banks’ branches towards core banking

solution is yielding the transformation, evolution and integration of different entities to

collaborate and integrate the business strategy on the various fronts such as micro finance

institutions, postal services, insurance, telecom service providers etc. The proposed study

will illustrate mobile money order evolution, present status of India Post money order,

analyse the trend and suggest the approaches for increasing the efficiency of India Post

money order by using mobile banking as medium to integrate banking sectors with India

Post. The proposed mobile money order for India post would enhance the efficiency of

present postal money order in terms of number of factors such as business growth,

convenience, reduced transaction costs, social and economic developments and many

more.

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Table of Contents Page No

1. Introduction……………………………………………………………..3

2. Rationale and Significance of Study……………………………….5

3. Aims and Objectives of the Study………………………………......7 3.1 Research Questions…………………………………………………..8

3.2 Research Objectives…………………………………………............8

4. Literature review and motivation for the study………………….9 4.1 Mobile Money Order: Adoption……………………………………...11

4.2 Mobile Money Order: Business Model……………………………...12

4.3 Mobile Money Order: Recent Development on Mobile Money…..15

4.4 Mobile money development and motivations in India…………….16

4.5 Comprehensive analysis of Mobile Money Order for India Post...18

4.6 Postal money order growth statistics (in value)……………………21

4.7 Research Gaps……………………………………………………….21

5. Research Methodologies……………………………………………23 5.1 Sampling Unit…………………………………………………………23

5.2 Sample Size & Sampling procedure……………………………….23

5.3 Data Analysis………………………………………………………..24

5.4 Proposed mobile money order model development and testing...24

5.5 Expected outcome and benefits of proposed mobile money

Order model………………………………………………………….25

6. Scope of the study…………………………………………………...27

7. Estimate of Duration of the Research…………………………….28

8. Risk Analysis………………………………………………………….29 8.1 Expected Risks………………………………………………………29

8.2 Risk Mitigation strategies and contingency plans………………...30

9. Limitations……………………………………………………………..32

10. Conclusion…………………………………………………………….32 References……………………………………………………………………..33

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1. Introduction

Out of 1.5 billion users of postal financial services in the world, only 400 millions

are holders of a postal (bank) account, 300 millions of which located in developing or

emerging countries [Anson and Toledano 2010]. As the world moves towards a global

economy, fast and prompt money remittances would be needed for creating efficient

markets and sustainable economic relationships. Dealing with expanded realms of

opportunity, the most successful financial activities will be those that find ways to best

leverage cost effective technologies to harness the banking and postal networks to make

a seamless network of financial products and services. As the economy interlinks and

networks expand, it will be those entities that most efficiently transform, integrate and

adopt the business models in such a way that economy and majority of people gets

benefited [Kaul 2002]. Unlike traditional banks, whose high operational costs exclude

non-profitable customers from the lower strata of society, agents had a pre-existing

relationship with local communities, allowing them to reach out to the poorer population.

Posts could be especially attractive partners for banks, as they offered a trustworthy and

extensive network that was directly accessible to scattered rural communities [Ernesto

2009].1

Over the years, several studies have been imparted by researchers and

academicians to understand the significance of money remittances through different

means of technology products. The regressive motivation has been to lower the

transaction costs, increased efficiency, transparency and customer flexibility and

usability. The wide spread of mobile phone amongst the masses and thrust for seamless

money transfers by integrating the banking sectors to India post through mobile banking

would provide value enhancements or otherwise for both the organisations. The

Government of India and RBI have been, over the years, working for the better synergy

between postal and banking industry for FI (Financial inclusion) program which has been

visible in the National Postal Policy statement of India Post such that “Post will provide

banking and financial transaction services to cater to the needs of the rural population

1 Workshop report: Universal Postal Union (UPU)- Alliance for Financial Inclusion (AFI) workshop on financial inclusion and postal banking held at Berne, 9th -10th November 2009

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and help realise the policy of financial inclusion for the “un-banked” rural masses. For

deepening and broadening its financial services, suitable agreements with public/private

sector banks will be forged, so that India Post can offer its unique “last mile”

connectivity to the customers. This will permit it to receive fees for the service rendered

to the banks and other financial entities. Before this, however, adequate infrastructure

and connectivity coupled with application of appropriate software needs to be in place

[National Postal Policy India Post 2009].”

Providing these services to developing world is a difficult task. Traditional postal

money orders are overwhelmingly inconvenient with no flexibility to customers. The

remittance of money order at present requires the person to visit the branch and fill

money order form and then it is sent to the destination address either through physical

delivery of money order forms or in the electronic form like e-MO (electronic money

order or i-MO (Instant money order) buy utilizing the email and internet or other

electronic media. Realizing this challenge much research work is going to induce mobile

banking as medium for integrating with different enterprises and need of the hour is to

consider a holistic approach for rethinking business synergy and models delivering

financial services through mobile banking to the remotest and needy people by using cost

effective means of technology products. The intention of the study is to analyse the

different aspects in mobile money order and identify the research gaps and motivation for

its usability and adoption. Mobile banking based transactions is one of the most current

researched fields in management, especially in banking and financial sectors covering the

studies aimed to Indian contexts such as banking, financial, insurance, postal services,

microfinance etc.

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2. Rationale and Significance of Study:- The spread of mobile phones across the

developing world is one of the most remarkable technology stories of the past decade.

Mobile usage has seen an explosive growth in most of the Asian economies like India,

China and Korea. According to the Cellular Operators' Association of India (COAI),1 the

mobile subscriber base in India crossed 806 million in January 2011 and still adding

approx.12 millions subscribers every month. Mobile banking is the evolutionary step

after internet banking where the banks can collaborate with other entities to offer the

latest in banking services in variety of business domains. It is expected that mobile

phones will be the most preferred and convenient device for conducting banking

transactions and emerging as one of the major payment channels in India.

Indian postal system is one of the best distribution channels in the world with

roughly one and a half lakh post offices, most of them in the six lakh villages of India has

immense potential for the distribution of all kinds of products, including financial and

money remittances. For over 150 years post offices have been the most visible and

popular face of the Indian population throughout the country when the postman was the

only person delivering mail and money orders personally at the doorstep of the people.

Now India Post is gearing up to play more comprehensive role by reorienting itself to

meet the expectations of future generations. The Economic Survey 2010,2 which was

presented in the Parliament a day before the general budget was announced, proposed a

number of initiatives such as Out of 25,531 departmental post offices, 12,604 have been

computerized and 1,304 post offices have been networked through leased line with the

National Data Centre and 5,170 post offices have been networked through broadband.

This has enabled the India Post to offer services like electronic Money Order (e-MO),

1COAI Press Release: Upsurge in rural subscribers - as per the subscriber data released by TRAI (Telecom Regulatory

Authority of India), the wireless industry has more than 95% of the telephone subscribers in the country i.e. of the

806.13 Million subs as of 31st January 2011; the industry has contributed more than 771.18 million. Wireless

subscription in urban areas increased from 501.30 million in Dec 2010 to 512.26 million at the end of Jan 2011, rural

subscription increased from 250.89 million to 258.93 million, showing a significantly higher growth trend in rural

subscription of 3.20% compared to the urban subscription 2.19%. 2 The Economic Survey Report: Plan for modernization and growth of India Postal Services

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e-payment and instant Money Order (iMO) and has plans to computerize and network all

its post offices in the next two years.

The rapid transition and rollover of banks branches towards core banking solution

is yielding the transformation, evolution and integration of different entities to collaborate

and integrate the business strategy on the various fronts such as micro finance

institutions, postal services, insurance and business agents etc. The India post had been

the oldest and prime source of money transfer for the migrant people and serving

personnel employed away from their homes such as migrant workers, defence personnel,

and other central/state government employees. As per the reforms initiated by

Government of India towards computerization and networking of all the post officers

spread across the country, it gives the opportunities for banks, financial institutions to

utilize the existing setup and resources of post offices spread across the country to

integrate the money remittance through cost effective means of technology.3

The widespread reach and expansion of mobile phones is spearheading as the

effective media to reap the benefits for transferring the money from mobile handsets

without visiting the post offices and branch premises. At present, mobile banking enable

the customers to carry out different types of financial and non financial transactions

between intra or interbank. However these financial transactions require the existence of

bank accounts between the transferor and transferee. However if the mobile banking is

integrated with Indian postal system, this integration model, can be used to transfer the

money from the customers’ account to destination individual and the delivery of the

money would be carried out by the post offices through their internal disbursement

systems. Post Office records show that money orders to the tune of approx 8000 crores

are facilitated by the post offices networks spread across the different states. The use of

digital methods of transactions to remit this money will not only be faster but less

expensive and operationally more flexible.

3 An expert committee report (2009) on “Harnessing the India Post Network for Financial Inclusion”. The

committee was chaired by Ajay Shah, Senior Fellow, National Institute of Public Finance and Policy. The major

recommendation of the committee was a) A savings account hosted on a lightweight banking platform, b) A broad

based payments network, C) A competitive mechanism to deliver micro loans to the poor.

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4The Indian postal systems has been planning aggressively to utilize the existing

infrastructure for integrating with various financial and insurance entities to explore the

business strategy for financial and remittance services. This study intends to look mobile

money order as feasible option for accomplishing the business growth for banking and

postal services. In this context, the study will explore the mobile banking as medium to

integrate the banks with India post and provide the impetus for business growth to India

post and finanancial institutions in long term. If mobile banking is integrated with Indian

postal services then no one can deny that mobile money order innovations would be a key

strategy for development of E-banking services and postal money orders, which will

change the business models, range of services and methodologies that are the central to

financial institutions and India post’s money remittances. Realizing this challenge much

research work is going to induce mobile banking as medium for integrating with different

enterprises and the need of the hour is to consider a holistic approach for rethinking

business synergy and models delivering financial services through mobile banking to the

remotest and needy people by using cost effective means of technology products.

3. AIMS AND OBJECTIVES OF THE STUDY: The aim of the study is to find

growth potential in business by development of mobile banking based money orders for

Indian postal systems and banking sectors. The study will also reveal the issues and

challenges involved in the money transfer systems presently prevailing in banking

systems and postal systems visa-vis Mobile banking based Money order system.

The overall study will reveal the comprehensive mobile money order remittance

systems for Indian banking systems and India post developing a commercial and

technical framework. Banks and postal services can use to deploy services that enable

consumers to send and receive low-denomination, high-frequency money orders using

their mobile phones. The framework forms a key element of both bank’s mobile strategy

and the India post’s mobile money order program which aims to use the reach and ease of

mobile money transfer services to expand the mobile financial services market and

stimulate social and economic development. Mobile money transfer services will make it

4 India Post Vision Document 2014.

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simple, quick and affordable for more people to send small amounts of money and there

is an opportunity to create and grow a large new market for low-denomination transfers.

3.1 Research Questions:

Presently India is in a zenith stage for technological revolution showing

technological and economic growth & success. Mobile banking based transactions in

payment and remittances are considered a major tool to increase the business growth and

reach to masses. This is a high time to leverage ICT (Information & Communication

Technology) platform for increasing outreach and financial sustainability of India Post

and Banking Sectors.

This thesis will explore the answers of the following questions.

What is scope for business growth in terms of transaction volume and revenue for

India post and banking sectors by using mobile banking based Money Orders?

What is the market size for mobile money order?

What is economic value and developments?

What are issues and challenges for using mobile banking based money order for

migrant workers in industrial areas in India?

3.2 Research Objectives:

To design business models for mobile banking based money order system for

Indian postal services, important issues for its development and

commercialization in India.

To design money remittance and transaction flow model for delivering money

order using mobile banking as medium, based on the customers’ perception

and views on mobile money order.

To explore the opportunities which exist to banking sectors and India post for

improving efficiency of India post money order, increased market & business

growth, economic value addition, social and political motivations for

development of mobile banking based money orders so that the Government

of India supports building this kind of services.

To study the challenges and issues faced by different stakeholders involved in

mobile money order systems.

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4. LITERATURE REVIEW AND MOTIVATION FOR THE STUDY

As per Singh Sumanjeet 2009 the payment history starts in the year 1967 when

New York clearing house launched CHIPS (Clearing House Interbank Payment System)

which provides US Dollar funds for transfer and transactions settlements online and in

real time. In the late 1970s, Chemical Bank launched its Pronto system providing 3,000

computer terminals to customers’ home linked to its central computers by telephone. It

offers a range of facilities: balance inquiries, money transfer between Chemical Bank

accounts, and bill payments to selected local stores.. In the year 1985, EDI (Electronic

Data Interchange) extensively used in bank-to-bank payment systems. In 1994, digital

cash trails by DigiCash of Holland conducted online. And in the year 1995, Mondex

electronic currency trails begin in Sweden, England. A real revolution in the meaning of

electronic payment system came with the development of EFT (Electronic Fund

Transfer), a technology that allows the transfer of funds from the bank account of the one

person or organization to that another.

Since 1990s, E-Banking has developed from virtual insignificance to tens of

millions of users worldwide [Abdul, Mohammad and Uddin 2007]. However, E-

Banking is the product of different generations of electronic transactions. The primary

services provided by e-banks are transferring money among one’s own accounts, paying

bills, and checking account balances. Loans, brokering, share trading, service bundling,

and a host of other financial services are being added to these primary services [Dewan

and Seidmann, 2001]. As per study conducted by [Haikel 2006], digital payment

systems are one of the main components of e-commerce, economic and financial

infrastructure. As the technology development took place, the transformation of payment

and money remittances continued incorporating the barriers and challenges for economy

and social sectors. A more recent e-banking development is wireless internet applications

of banking, sometimes called m-banking (mobile banking) [Jiaqin, Mike and Katja

2007]. With the combination of two most recent technological advancement, internet

and mobile phone, a new service (mobile data service) is thus enabled and the first such

wireless internet commercial transaction was performed by the banking industry [Barnes

and Corbitt, 2003].

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The payment and money transfer landscape in banking industry is also moving

fast after the government of most of the Asian countries accelerated the financial reform

process. As per [Dag-Inge 2008], the payment and money remittance evolution is

challenging, most of them being stuck with legacy solutions and technology. New

entrants using the internet and innovative ways of creating services and value for clients

are gaining market share (such as PayPal, mcheck, billdesk etc). In retrospect, technology

has created new demands and opportunities that were not expected at the outset, one

example being the internet revolution, and another the explosion of SMS (short

messaging services) traffic on mobile phones. As per prevailing study and research, it has

been observed that the payment system is transforming from the initial stage of cheque

clearing in physical form to electronic forms, moving to electronic forms of payments

using different payment and clearing systems. The wide spread of mobile technology on

other hands has greatly transformed the medium and business models of payments

system. The study conducted by Mahadevan 2009, for improving payment system

efficiency in India has clearly mandated the need of bringing over 1, 55,000 post office

branches and over 169,000 branches of cooperative institutions into the electronic

payment landscape. As per Sorkin 2002, online payment systems can play a role in

reducing transactional and other risks compare to traditional commerce, but relatively

little attention has been paid to the effects of emerging online payment systems.

The study conducted by Boating 2004, that growing demand for person to person

money remittances is paving the way for new remittance options where the confluence of

existing banking infrastructure with new products and technologies such as the internet is

providing new options for more cost-effective and convenient fund transfers. Trends of

money remittances are gradually transferring to mobile based transactions which can be

categorized as m-banking. The study revealed by [Jenkins 2008] shows that importance

of money remittances in the form of ‘mobile money’ is to change the landscape of

payment industry where “mobile money” is the money which can be accessed and used

via mobile phones for transaction and services including domestic and international

remittances, bill payment, payroll deposits, purchase of goods and services etc. The

development and usage of mobile money is in its initial stage. The research survey by

Tobbin 2011, illustrates that the mobile money transfer (MMT) service is an aspect of a

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broader concept emerging in the electronic payment and banking industry referred to as

“mobile money”. Even though mobile money has not been well defined in literature it

can be said to include all the various initiatives (long-distance remittance, micro-

payments, and informal air-time battering schemes) aimed at bringing financial services

to the unbanked using mobile technology.

Mobile phone growth is significant step in the evolution in the payments industry

representing another growth opportunity for existing players and new entrants [Edgar

and Dunn 2009]. Technology is bringing nontraditional players into the financial

services markets as the nature of the services is being transformed to propel the rise of a

dynamic financial services industry [Bueno 2008].

4.1 Mobile Money Order: Adoption

As per qualitative study conducted by Mallat 2008, it is found that advantages of

mobile payments relate to the increased availability of the payment service enabled by

the mobile technology and are different from the traditionally highlighted performance

measures such as cost or efficiency [Davis 1989; Rogers, 1995]. From a managerial

perspective the findings suggest that more attention should be paid in particular to

usability and pricing of the service, and creation of critical mass. One viable strategy for

mass creation is to launch the new payment service initially in an area where there is a

large base of established users, such as public transportation, and then gradually develop

the market by including more services and application areas [Poon and Chau, 2001;

Szmigin and Bourne, 1999]. While some researcher, Dahlberg 2007, have concluded

the findings for benefit of mobile banking towards adoption is the ease of use and

security as key components. The study by Donner 2008, indicates that understanding the

role of mobile in developing societies must includes its role in mediating both social and

economic transactions sometimes simultaneously offering a way to lower the costs of

moving money from place to place and offering a way to bring more users into contact

with formal financial systems, m-banking/m-payments systems may prove to be an

important innovation for the developing world. The findings yielded by Ainin, Noor,

Jaafar and Mohezar 2007 on mobile banking adoption in the urban community

illustrates that younger consumers have a greater tendency to adopt innovations, such as

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internet banking, this study found that mobile banking is most commonly adopted by

consumers aged between 21 to 30 years. Some researchers have conducted the study on

barriers to mobile banking adoption such as Morna and Peters 2003, where costs,

service innovation, and perception of risks associated with service or products etc. As per

study conducted by Margaret, Craig and Standing 2009, on the social, economic and

cultural context for technology adoption has been found to be very important in

influencing adoption and sustained usage. Social and cultural factors are likely to be more

significant in decisions on personal technologies adopted by individuals compared with

technologies adopted at the organizational level.

Pousttchi and Martin 2007, reveals on assessment of today’s mobile banking

applications from the view of customer requirements, suggests that none of the

technologies can provide a mobile banking solution that works completely without

problems and satisfies the customer. The recommendation to the banks should be not to

focus on one technology only, but to use the advantages of different technologies with

identified target groups. The adoption on mobile banking clearly indicates that the

customer requirements, cost, security and perceived value of risks are the main key

factors which needs to be properly promulgated to enhance the mobile banking based

transactions in other allied services such as mobile money orders.

4.2 Mobile Money Order: Business Model

Although the concept of business model is widely used and seen as important,

there is no generally accepted definition of what a business model constitutes. There are a

lot of authors that give a definition of a business model and propose a brief list of

components that should be included to describe it as explained by Petrovic 2001; a

business model describes the logic of a "business system" for creating value that lies

behind the actual processes. As per Timmers 1998, a business model is architecture for

the product, service and information flows, including a description of the various

business actors and their roles [Giovanni and Pigneur 2003].

As per Pablo and Heijden 2002, the more mobile the actors are, the higher the

geographical barriers, and the less feasible the use of a traditional information system

becomes. This procedure can be summarized by the sentence: “complication of the

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location”. Aphrodite and Evaggelia 2001, in study of business models and transactions

in mobile electronic commerce advocated the inclusion of mobile user, mobile portal,

bank and content provider in mobile electronic commerce business model. Patricia,

Claudia, Michel and Cyril 2009, defined the adoptable mobile business model with

special emphasis on environment awareness by considering specific dimensions, e.g.

bandwidth rate, connection state, mobile host re-sources, etc. A major weakness in

current business and market-oriented m-payment research is lack of strictness and

comparability. This lack has been observed, not only by researchers, but also by

practitioners, which contributes considerably to the confusion in the m-payment market

[Key Pousttchi 2008]. One of the studies conducted by Karnouskos, Vilmos, Hoepner, Ramfos and

Venetakis 2003, for illustrating the architecture and business models for secure mobile

payment system (SEMOPS) has emphasized for developing a global mobile payment

system. Its innovative business model is based on two key concepts a) that of cooperation

of banks and MNOs (mobile network operators) and b) that of social trust relationships

since each actor transacts only with his trusted bank or MNO. However the greater need

of business model for mobile based transaction and payment services were attributed to

customer centric services and the business models have been evolving in the same line.

Further study conducted by Petrovic 2008, emphasizes to align, investigate and evaluate

m-Payment services within the framework of customer requirements. However the

progress can be extended to adopt both a quantitative approach to study the perceptions,

attitudes and needs of customers, and a qualitative approach to study the needs of mobile

banking service providers. Fernando, Oliveira and Cruz 2009, has justified the

innovation of business model through means of technology where it will have an

important role in the innovation process. Firstly, the business model innovation is often

dependent upon information technology, where a flexible and agile infrastructure is key

to a dynamic business model. As per the findings of research study and literature review

it is clear that the business models must innovate according to needs of different

stakeholders and must adjust for growth of business. In case of mobile banking and

mobile money order the model is still in the evolving phase but it must have the

following stakeholders in its actor’s role.

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1. Banks and financial institutions

2. Mobile network operators

3. Mobile banking service providers

4. Intermediate payment settlement agencies

5. India post

6. Customers and their requirements

Mobile banking in India: - The RBI has promulgated the guideline for mobile

banking in 2008 and there after the certain amendments were carried out in 2009. Some

amended components of RBI’s operative guidelines (2009) on mobile banking are given

as below.

Transaction limit: In amendment of provisions of paragraph 8.1, banks are now

permitted to offer this service to their customers subject to a daily cap of Rs 50,000/- per

customer for both funds transfer and transactions involving purchase of goods/services.

Earlier, such transactions were subject to separate caps of Rs 5000/- and Rs 10000/ -

respectively.

Technology and Security Standard: Transactions up to Rs 1000/- can be

facilitated by banks without end-to-end encryption. The risk aspects involved in such

transactions may be addressed by the banks through adequate security measures.

Remittance of funds for disbursement in cash: In order to facilitate the use of

mobile phones for remittance of cash, banks are permitted to provide fund transfer

services which facilitate transfer of funds from the accounts of their customers for

delivery in cash to the recipients. The disbursal of funds to recipients of such services can

be facilitated at ATMs or through any agent(s) appointed by the bank as business

correspondents. Such fund transfer service shall be provided by banks subject to the

following conditions:-

The maximum value of such transfers shall be Rs 5000/- per transaction.

Banks may place suitable cap on the velocity of such transactions, subject to a

maximum value of Rs 25,000/- per month, per customer.

The disbursal of funds at the agent/ATM shall be permitted only after identification

of the recipient. In this connection, attention of banks is drawn to the provisions of

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the Notification dated November 12, 2009, issued by Government of India, under

Prevention of Money Laundering Act, 2002, as amended from time to time.

Banks may carry out proper due diligence of the persons before appointing them as

authorized agents for such services.

Banks shall be responsible as principals for all the acts of omission or commission of

their agents.

As it can be seen from the mobile banking guidelines it provides, the case for mobile

money order where banks have an option to appoint an agent for disbursement of

remittance of money to the recipients. In this model India post would act as an agent for

distribution of mobile money order.

4.3 Mobile Money Order: Recent Development on Mobile Money

Study findings revealed by Merritt 2010, recommends the following actions to policy

planners and implementers for expansion of mobile money systems in USA are:.

The urgent need is required to have close dialogue and exchange of ideas within

the telecom, regulators, banking and finance sectors and government agency

involved in policy makings.

The required technology infrastructure should be established based on the

requirements either in partnership or with existing authorities.

Cross-border mobile remittances may require improved customer-data sharing on

an international basis by central banks, regulators, and law enforcement

organizations, as money transfer businesses are established in multiple geographic

and legal jurisdictions.

Converged regulatory authorities should examine consumer protection risks for

potential gaps in regulatory oversight. As domestic and international mobile

money transfer services grow more prevalent, discussions on risk management

and payment system integrity will be imperative. Dialogue with all industry

stakeholders, including regulators and policymakers, is essential to creating an

environment in which payments risk issues are clearly understood. In this way,

risk-based regulation that is proportionate with the need to encourage innovation

and efficiency in retail payments can be best achieved.

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Mobile payment service providers in the United States should be required to

establish programs to mitigate the risk of money laundering. In all the studies illustrated by researchers have more or less emphasized the need for

extending the mobile banking based transactions to other area of institutions engaged in

money remittances and payment systems.

4.4 Mobile money development and motivations in India

After RBI put forth the operative guidelines for mobile banking in India, the

growth in mobile money payments, transfers and remittances is increasing as banking

infrastructure is migrated to core banking solution. The overall growth and impact is still

to be assessed in the Indian contexts as the development is in the initial stage.

In the mean time the trends for mobile banking and mobile payments are

transforming to other spheres of institutions such as microfinance institutions, India post

and financial inclusion programme initiated by the RBI and Govt of India. As the need of

getting full benefits on the investment on technology, it is imperative that the mobile

banking based transactions are extended to other payment systems where it has the

synergy to grow and assist the social and economic developments.

As per the case study done by Ghate 2006, for remittance of money being used by

migrants for sending the money to their dependents. The study findings covered the

following entities involved in money remittance.

1. Banks

2. Post Office

3. Private agencies

4. Hand Carry agencies

5. Shramik Sahjog ( group formed to remit money)

Author evaluated on the following key parameters for each entity involved in money

transfer services to migrants in Surat industrial area in Gujarat.

1. Access

2. Convenience

3. Risk

4. Speed

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5. Cost of remitting ( Rs.3500)

It has been revealed in the study that the “Shramik Sahjog” an organization formed

by NGO-MFI for Orissa migrant workers to remit the money to their households from

Surat industrial area. It has been concluded in this study that the migrant workers prefer

Shramik Sahjog for remitting the money compare to postal money orders on the

following two reasons.

India Post Money Order services Shramik Sahajog Money

remittances services

Speed 15–20 days depending on residence

of Remittee. Post office has

introduced bulk electronic

transmission to intermediate centers

around the country but this usually

takes longer because of time taken

between the receiving center and

village post Office. Local post

office is often out of cash.

*2–3 days (procedure

described below)

Cost of

Remitting

Rs.3500

Rs175 plus time costs. At 5%, it is

the most expensive mode. In

practice, remittees have to go to the

local post office to inquire and

collect, which entails time costs

Rs80–100, at 2%

service charge (Rs70) plus

Rs10/20/30 for

doorstep delivery,

depending on whether the amount

is less that

Rs5,000; between

Rs5,000 and

Rs10,000; or greater

than Rs10,000

*To become a member of Shramik Sahajog, one should save Rs100 a month in a

recurring deposit account. Savings and remittance money received in cash is accepted by

the two Shramik Sahajog staff during office hours (morning and evening, 7 days a week

since both staff live on the premises) or during afternoon visits to the main residential

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neighborhoods, which are visited according to a fixed schedule. The money is deposited

on the same or, at the latest, next day, in Shramik Sahajog's bank, which allows

simultaneous (and free) crediting of amounts deposited to Shramik Sahajog’s account in

the Orissa branch of the same bank. A savings and money remittance statement is e-

mailed to main office in Orissa twice a week-on Monday and Thursday evenings. On the

following day, the main office withdraws the cash and sends it to the field office in

Tangi, 60 miles away by bus. The field office disburses most remittances within 24 hours

and all within 48 hours. Thus, if a member gives his remittance to the Shramik Sahjog

staff on a Monday or Thursday, the recipient receives it the following

Wednesday/Thursday or Saturday/Sunday (i.e., in 2– 3 days).

From the above it is quite clear that when it comes to transferring money through

postal money order, the migrants in India are substantially challenged. The speed of

delivery and transaction fee charged by India Post is becoming bottlenecks for money

orders growth and other players such as Shramik Sahjog use this opportunities to

undertake the money remittances services using the Information and Communication

technologies with local distribution channels. The remittance needs of the migrant

workers may have to be met by a multi-pronged strategy which uses the existing

infrastructure optimally and in addition, new products should be introduced which

leverage on technology for cost effective and speedy disbursements of remittances.

4.5 Comprehensive analysis of Mobile Money Order for India Post

The study finding for BRIC2 countries by Anson and Toledano 2010 reveals that

the integration of the offer of financial services at some stage appears to be decisive if a

Post is to play a leading role in access to finance in its country while simultaneously

securing its future economic viability. A vast untapped market of almost two billion un-

banked customers 1.1 billion of which already being users of non account-based postal

financial services seems available for the post if it is ready and determined to seize the

opportunities. These ambitions have much better prospects though if they are closely

linked to financial inclusion policies at the government, central bank or financial

regulatory authority level.

2 Brazil, Russia, India and China- Developing countries in current decade

- 19 -

The report of the ‘expert committee on harnessing the India post network for

financial inclusion’ on 16th June 2010, recommends that India post harnesses the rapid

IT and telecom capacity expansion to deliver three basic, integrated products to every

Indian citizen: a savings account hosted on a lightweight banking platform, a broad based

payments network, and a competitive mechanism to deliver microloans to the poor.

The concluding findings by Richard and Wang 2007, reveals that tremendous

change in the payments arena is embodied in many significant innovations introduced by

both nonbanks and banks. In most cases, innovations in payment services build on

existing, traditional payment types; while in some other cases, they provide novel

solutions. The study by Benoit and Seeley 2009 indicates that the trends in the payments

market are impacting the traditional role of the postal operator, and there is little doubt

that in many countries the long-term outlook is a decline in their core payments business.

However, postal operators can develop new growth areas to offset this decline and

reinforce their role within society. To do so, they need to be more proactive, and take a

strong approach to defending their business. There are real opportunities for postal

operators to supplement their existing payments business and step further out and develop

new ways to create value, both financially for the business and socially for their

countries.

As per World Bank & Universal Postal Union Case study and research report

2001, expanding the role of the postal sector to match the acceleration of the internet age

will depend on the ability of posts to manage and run their core business in an effective

manner. Reliable and cost effective postal services, including postal financial services,

must be the foundation for building the future business opportunities. For postal services

in many developing countries, the first step will be to establish this foundation of reliable

core services while simultaneously discovering opportunities to interact with emerging

digital technologies. Costa Rica, Indonesia, Tanzania, Trinidad and Tobago, and Central

and Eastern Europe have shown a positive result through carefully planned and

vigorously implemented postal reform by integration and expansion of their business

domains to other sectors in the society.

The India post have initiated some of the projects such as ‘PROJECT ARROW’

- 20 -

to lay the foundation for a comprehensive, long term transformation of India post. The

project ensures at providing a fast, reliable and efficient postal services to the customers.

The ultimate test of success of this scheme is to provide a better experience to the

customers, both in terms of the ambience of the post office and quality services to the

customers. 1000 post offices have already been covered and proposed to extend the

project to another 4500 post offices. Out of a total of 25531 departmental post offices,

12604 post offices including those in the rural areas have been computerized. 1304 Post

offices have been networked through leased lines so far with the National Data Centre.

Further 5170 post offices have been networked through broad band. The strong IT

base has made it possible to offer a range of e-enabled services to customers as shown

below:

iMO ( Instant Money Order)

An on line web based domestic money transmission service called iMO was

launched in January 2006. This enables the customer to receive money in minutes from

any of the post offices providing this service. Under this service, a person can send

amount from Rs.1000/- up to Rs.50, 000/- in one transaction instantly. The service is

functional in 2175 locations across the country.

eMoney Order (eMO)

The electronic money order, which has been launched in October 2008, facilitates

transmission of ordinary money orders through electronic media without any extra

charge. At present 8003 post offices are offering this service.

E-Payment

E-Payment is a ‘Many to One’ service through which bills (telephone, electricity,

municipal dues, taxes etc.) are paid by customers in Post offices which are then

electronically consolidated and paid to the service provider. The service is presently

available in about 8457 Post offices across the country and will soon be extended to all

12604 computerized Post offices. The Cabinet Committee on Economic affairs has

approved, a project management unit in the department to conceptualize, plan, implement

and monitor the plan schemes for computerization and networking of all the post

offices in the country.

- 21 -

4.6 Postal money order growth statistics (in value) The statistics for the money order for India Post is summarized below in tabular forms

and figures are appended below in Table II and at the same time we reproduce the

cellular subscriber growth in India for the period 2004 to 2010 as given in Table III

Table II - Money Order statistics for India Post since 190-91 to 2008-2009 Sl No Period Money Order value in Rs Crores % increase / decrease

1 1990-91 2937.2 2 2000-01 5851.8 99.23 ( increase) 3 2006-07 7756.7 32.55( increase) 4 2007-08 8363.1 7.81( increase) 5 2008-09 7954.7 -4.88( decrease)

Source: - Annual Reports- India Post

Table III - Cellular subscriber growth in India since Dec 2004 to Dec 2010

Source- COAI (Cellular Operators Association of India)

As can be seen from the above table and graph it is deduced that:-

1. The money order growth is declining and in 2008-09 it reached in negative zone.

2. Mobile subscriber base is increasing exponentially since 2004 and it reached

approx 542 million subscriber in December 2010.

4.7 Research Gaps

Presently India is in a zenith stage for technological revolution showing technological

and economic growth & success. Mobile Banking based transactions in payment and

- 22 -

remittances are considered a major tool to increase the business growth and reach to

masses. This is a high time to leverage ICT (Information & Communication Technology)

platform for increasing outreach and financial sustainability of India post and banking

sectors.

We find that most researchers have emphasized on different aspects in mobile banking

transactions such as adoption, business models, payment procedures, regulatory issues

and many more factors. Considering the limitations and boundary for each country to

streamline the operations of mobile banking based transactions it would not be

appropriate to depend on one factors. The other factors which have come out in the

review is that the mobile money order is in its initial stage and much research is needed

to analyse the usage, adoption and business models. However the major research

motivation emerging out of the review is given as below.

1. There is a immense scope for business growth for India post and banking sectors

by using mobile banking based money orders.

2. Various issues and challenges for migrant workers in industrial areas in India can

be overcome with mobile money order system.

3. The development of business models for mobile money order would be key factor

in mobile payments arena.

4. There would be several opportunities to Indian financial institutions and India

post for other types of money remittance which can be used as catalyst for

financial inclusion.

5. Mobile banking based money order would provide social and political

motivations for rural population in India.

The findings from literature review illustrates that the mobile banking usage is in the

initial stage in India. There is a lot of research still to be conducted on various issues and

platforms of mobile money and mobile banking system. The motivation for the mobile

money order study is in the early stage and its finding would provide an impetus to

different stakeholder in mobile money ecosystem.

- 23 -

5. Research Methodologies

5.1 Sampling Unit

Primary Research

Focused Group Survey

Techniques: - Research Survey

Respondents:- Focused groups

Mode: Questionnaire + interview

Focused group will consist of industry experts, practitioners, regulators, government

officials and mobile banking and money order customers, divided into two groups.

Group 1: This group consists of experts from commercial banks, Indian postal services

and mobile banking solution providers to get insight about using mobile banking for

delivering money order services. A considerable number of questions specific to

architecture, transaction and remittance flow model for use of mobile banking in money

remittance operations will be asked.

Group 2: This group consists of banking customers using mobile banking services for

fund transfers and utility payment systems and postal customers (migrant remittances)

using postal money order services for sending the money to their permanent residence for

discussing about their expectations, experience with current system and suggestions for

mobile banking based money order scheme. The study would be carried out at Pune

district comprising both banking and postal customers.

a) Secondary Research Sources

Extensive secondary research will be conducted about possible mobile banking based

money remittances models being used at different parts of the world and how it can be

best suited to Indian postal systems and financial institutions in India. In addition, money

remittance and transaction flow models for using mobile banking in commercial and

retail banking will be studied to streamline the issues and challenges for business growth

so that this business model is efficient in delivering the money remittance services to

India posts.

5.2 Sample Size & Sampling procedure

The sample size would be in the range of 300 to 400 respondents from mobile banking

customers and money orders users in the Indian post. The sampling would be taken in the

- 24 -

Pune district post officers spread in the industrial area namely Pimpri, Chinchwad, and

Hadapsar area. This area is taken because of manufacturing and construction industry

where the money remittance through post offices is more. The banking customers using

mobile banking would be selected from the banks situated in Pune district where the

sample population would be divided between urban and rural area.

5.3 Data Analysis;

Since it is not possible to make any rigid assumptions about the distribution of the

population from which samples are being drawn, Hence non-parametric tests would be

carried out the for the data collected during questionnaire. The following tests would be

carried out.

1. Descriptive statistical analysis test

2. Chi-square test of independence

3. Chi-square test of goodness of fit

5.4Proposed Mobile money order model development and testing Present mobile banking model

Figure 1

Source: National Payment Corporation of India (NPCI) & Mobile Payment Forum of

India (MPFI) 2010

Customer

MPP

BANK A

Customer Account CBS

SWITCH/ SETTLEMENT

AGENCY

Customer

MPP

BANK B

Customer Account CBS

Each mobile number will be linked to bank account with MMID

Bank A

Bank B

Bank N

Beneficiary mobile number &

amount

- 25 -

Proposed mobile money order model for India Post --

Figure 2

MMID- Mobile Money ID ( 7 digits)

MPP- Mobile payment service provider

Testing and development of the proposed model:-The proposed model would be

developed on prototype framework with rapid development tools for simulation and

testing based on the expert opinions and customers field survey.

5.5 Expected outcome and benefits from the proposed mobile money order model

Business growth: - The ability to move money from the sender to the receiver is the

stumbling block and ability to move it from A to B is called “velocity of money” and

has been a fundamental cornerstone of economic activity. But the issue is exactly how

money transfer is made to happen in an emerging market where the infrastructure is

poorly developed and where very few people have or even want bank accounts.

Mobile money order would be instrumental in capturing more number of customers in

Customer

MPP

BANK A

Customer Account CBS

SWITCH/ SETTLEMENT

AGENCY

Customer

Postal internal MO Delivery system

India Post Payment Gateway

Each mobile number will be linked to bank account with MMID

Bank A

Bank B

Bank N

Beneficiary Name, postal address with Pin code & amount, Mob no as optional

MO delivered through postal internal delivery system and payment

receipt updated back with India Post payment

Gateway as ACK confirmation to sender

- 26 -

due to easy access and prompt services. The number of mobile phone customers if

added would provide the business growth avenue to India post and banking sectors

too.

Convenience: - Many people in emerging economies have to travel far from home to

find work and need to be able to send money back to their families so they can pay

bills or remit the money. The sender has to approach nearest post office with cash to

transfer the money in present money order system where as mobile money order

service is accessible on 24X7 and money can be sent at anytime and anywhere.

Reduced Transaction costs:- As on date the mobile banking provides the lowest

transaction costs amongst all the delivery channels as this removes the physical POP (

point of presence ) for banking and India Post and also ensures a timely and secure

method of transaction.

Social and economic developments:- The World Bank estimates that reducing

remittance commission charges by 2-5% could increase the flow of formal

remittances by 50-70%, boosting local economies. Reducing the cost of each

individual remittance would enable the delivery of lower value remittances than

today’s average transfer value and would result in higher remittance and hence higher

economic activity leading to faster growth. CGAP in its survey has found that the

incomes of rural recipients increased by 5- 30% since when they started using M-

PESA for mobile money transfer system in Kenya. Thus Mobile money order can by

catalyst for social and economic development to India.

Transparency in money transactions:- In the absence of formal banking system,

most of the transactions are cash based giving no audit trail to the regulators. Mobile

money order can bring the transparency in the money transactions by reducing the

cash economy and digitizing the transactions. There would be more visibility on the

money flows as the remittances move from informal channels to formal channels.

Marketing of products:- Mobile money order through cell phone would be

advantageous to the banks as well as India post since it serves as a guide to help and

improve their customer care services. Banks and India post can be in touch with their

clients with mobile banking and also promote and sell their products and services like

- 27 -

credit cards, loans, postal insurance and other financial products etc. to a specific

group of customers.

Reduces risk of Fraud:- a Money remittance through mobile reduces the risk of

fraud. The updation of all the transactions can be communicated through SMS

whenever there is an activity in account. The remittances status would be tracked and

notice is given as soon as the amount is delivered to beneficiary.

Can be catalyst for leveraging Financial Inclusion and Government social

remittance scheme: The India Post integration to banking sectors can boost the

formal savings among the unbanked people and provide the avenues of formal saving.

The different money remittance schemes launched by Government such as old age

pension, NREGA etc can use the mobile money order for remittance to beneficiaries.

6. SCOPE OF THE STUDY

Here is a detailed schedule for key activities to be completed during this research

thesis.

1. Thesis detailed Project Plan

2. Review and analysis of different mobile banking business models and financial

products offered in this domain. Outreach, gaps and challenges.

3. Study of models of mobile banking based money order in the different part of worlds.

4. Focused group field survey.

5. Issues and Motivations for Mobile Banking based Money Order as Business

development tool for India Post and Banking Sector.

6. Issues and Challenges for Mobile Banking based money order in India.

7. Development and testing of mobile money order model based on the expert opinions

Customer surveys.

8. Initial draft of report.

9. Final Draft of report.

10. Presentation.

- 28 -

7. Estimate of Duration of the Research

Proposal

Stage

Literature

review stage

Field

Study/Survey

Model

development ,

testing &

Documentation

Stage

Present

ation

Stage

Total

Time

3 months 3 months 4 months 9 months 3

months

22

months

8. Risk Analysis

This thesis is related to find the real world problem so definitely certain risks are

involved due to uncertainty. Here is a detailed analysis of risk events, probability that is

denoted by ‘P’, effects that is denoted by ‘E’ and their mutual risk index is the

multiplication of probability and Effect of any risk.

8.1. Expected Risk

Sl No Risk Event Probability

(P)

Event (E) Risk Index

(P x E)

1 Precise and accurate

information about mobile

banking based business

models and products are

not available.

2 4 8

2 Customers reluctance to

provide information

related to use mobile

banking and money order

Products in banking and

India post.

3 4 12

3 Delay in response from

Indian banking

organization, India Post

and other companies are

3 4 12

- 29 -

Sl No Risk Event Probability

(P)

Event (E) Risk Index

(P x E)

not willing to provide

outreach statistics.

4 Communication problem

with stakeholders and

delay in getting

appointment time for

focused group

Interview and surveys.

4 4 16

5 Lack of cooperation from

mobile banking

Operators in India.

4 2 8

6 Communication

problems in survey

and unwillingness of

customers to provide

accurate Information.

3 4 12

7 Due to cost and time for

extensive traveling, this

may not be a

homogenous survey for

field works

3 3 9

8 If due to any uncertain

reason one milestone

takes longer time than

Expected.

2 3 6

9 Unanticipated work load 2 3 6

- 30 -

8.2. Risk Mitigation strategies and contingency plans

Sl No Risk Event Mitigations Strategy Contingency Plan

1 Precise and accurate

information about mobile

banking based business

models and products are

not available.

Getting help from Indian

Banking sectors and India

Post.

Redefining Project

Plan & Scope

2 Customers reluctance to

provide information

related to use mobile

banking and money order

Products in banking and

India post.

Using organizational

references to approach

customers.

search for

alternatives not

those who are

originally included

in sample.

3 Delay in response

from Indian banking

organization, India Post

and other companies are

not willing to provide

outreach statistics.

Fixing the problem by

negotiation and using

facilitators to get

information.

Redefining project

plan to change

the area of

working.

4 Communication problem

with

stakeholders and delay in

getting

appointment time for

focused group

Interview and surveys.

Setup meetings well before

time.

Using references to

get time and

plan out telephonic

and e-mail

Conversation.

5 Lack of cooperation

from mobile banking

Operators in India.

Attempt to get publicly

available reports for

Indian statistics

Exploring

alternatives if

possible.

6 Communication

problems in survey

Creating awareness among

poor communities by personal

Changes in

sampling

- 31 -

Sl No Risk Event Mitigations Strategy Contingency Plan

and unwillingness of

customers to provide

accurate Information.

counseling. technique

and using

accidental and

Judgmental

sampling

techniques.

7 Due to cost and time for

extensive

traveling, this may not be

a homogenous survey for

field works

Relying on existing

information collected from

member organizations of

Indian Banking and India Post

For Focused group

discussion

telephonic

interview

technique and

Questionnaire

will be used. For

field survey

area in Pune

industrial sectors,

Banking sectors,

India Post,

Customers in Pune

would be

approached.

8 If due to any uncertain

reason one milestone

takes longer time than

Expected.

Putting extra efforts to keep

delay off.

Make changes and

specify project

plan accordingly.

9 Unanticipated work load Putting extra efforts to keep

delay off.

Make changes and

specify project

plan accordingly.

- 32 -

9. Limitations.

1. The study would be based on random sampling method instead of census method.

2. It may be difficult to obtain necessary information from the customers, mobile and

telecom service providers, industry experts, banking professionals, India post officials

and other stakeholders if they become reluctant to disclose all the information available

with them.

3. Most of the findings on customer’s perception on the usage of mobile banking and

mobile money order would be arrived at Pune; the findings may not give overall view of

customer perceptions and preferences.

4. The proposed model for mobile money order is derived from the existing mobile

banking models being presently used in India by NPCI (National Payment Corporation of

India) and there may be some changes based on the study of processes involved in money

order systems at India Post or regulatory changes happening during the course of study.

5. Due to the explosive growth of the mobile banking application and usage the

generalizations of the facts deduced within the duration of the research could not fully be

realized or relied on. However, the analysis made will be logical, structured and scientific

as possible as giving attention to all these limitations.

10. Conclusion

The primary focus of thesis project is to study and analyse the mobile banking based

money order as business development tools for remodeling the business models for India

Post and Indian Banking Sectors in India. The study will increase outreach of mobile

banking based money order not only for migrant remittances but also for other users in

money remittance services. This will be based on mobile banking based business model

prevailing in Indian Banking Sectors. This is not an easy task without realizing

challenges faced by field survey, focused group discussions and regulatory framework

view about using mobile banking based money orders for India post and Indian banking

sectors.

- 33 -

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