Banking at your fingertips

Phanindra Sama is a convert: he has been using his mobile phone to pay bills and make transactions for a few months now. A dotcom entrepreneur, Sama has been so impressed with this facility that he has made his RedBus.in one of the first businesses to allow users to buy bus tickets using the mobile. But he is not alone. At last count, an estimated 250,000 mobile subscribers across the country had used their phones to pay their bills, transfer money or buy air and rail tickets at least once. No wonder telecom operators, banks and a clutch of service providers are already jostling for a piece of the massive potential market in mobile payments and banking. And they haven’t even scratched the surface of the potential of over 280 million mobile subscribers. The scope of “mobile banking”, defined as a banking transaction conducted through a mobile phone, is still very narrow, but in the not-so-distant future, you should be able to buy just about anything, straight from your phone.

A recent report by Gartner predicts that mobile phone penetration, which was at 19.8 per cent at the end of 2007, will rise to 60.7 per cent by 2012, which, accounting for population growth, will imply an estimated 730 million mobile phone connections. Says Probir Roy, Executive Director, PayMate, a mobile payments service provider: “There’s an estimated Rs 50,000-crore market in domestic remittances, much of it through informal channels. Why can’t this be done through mobile phones?” Actually, the operating question here is not “Why not?” but, rather, “Who will be responsible for the integrity of the transaction?” The Reserve Bank of India (RBI) has, in a set of draft regulations, said that fiduciary responsibility will reside not with third-party service providers or telecom operators but with the banks. It is expected to announce the final set of guidelines by the end of July or early August.

However, Sourabh Jain, CEO, JiGrahak, which offers the ngPay mobile commerce service, has a point. “The guidelines are welcome, but there has to be clarity between mobile banking and mobile commerce and the two should not be confused,” he says. Mobile commerce, he argues, does not need to involve the bank since you could charge a payment to a credit or debit card.

The draft RBI guidelines indicate that “mobile wallets”—money stored on your phone with which you can make payments—may not be allowed. Instead, telecom operators will act as payment facilitators using technology provided by companies such as PayMate or mChek, but the payment or money transfer will be made from a bank account linked to the subscribers’ phone. India’s largest mobile phone operator, Airtel, is already offering this service in a four-way tie-up alongside card processor Visa, mChek and four banks (State Bank of India, HDFC Bank, ICICI Bank and Corporation Bank).Rajeev Chatterjee, Head, Internet & Mobile Banking, HDFC Bank, however, admits that mobile banking has not really taken off in India. “Our mobile banking customer base is barely 10 per cent of our net banking base. The migration of customers from the Internet to the mobile phone hasn’t happened for two reasons—the first is that SMS-based transactions are incredibly difficult and then, the small size of the mobile screen is a huge impediment.”

Phoney money? Not quite. What you can do on your mobile today. Pay bills: If you have registered with your bank, you can directly pay mobile (or recharge pre-paid), Direct-To-Home TV, credit card and utility bills (in certain cities). Transfer money: Using the National Electronic Fund Transfer (NEFT) mechanism and services using Airtel-mChek and Hello Money from Barclays, can transfer funds directly from one account to another. But just remember the account or debit card number you are transferring money to. Buy tickets: If you have registered with both your bank and a service such as PayMate, you can pay for tickets using SMS without disclosing your card details. Many other mobile-commerce options on services, such as ngPay, also exist And tomorrow… You could pay anybody by transferring funds using your mobile and all you would need to know is the other person?fs mobile number.a back-end system will reconcile the mobile number with the bank A/C number. HDFC Bank and Airtel are running a pilot on these lines in West Delhi. But since you will need to have a bank A/C number just to make that transaction, it is also possible that the RBI might allow people to open bank A/Cs when they sign up for a mobile number. This will aid the government in implementing the Financial Inclusion Act, 2005. This will help in small ticket money-transfers to villages, since villagers could potentially withdraw cash from a bank-appointed agent if their relatives in the cities transfer funds to them. It is also likely that you could pay for fast-food and shopping from large retail chains by transferring money using an SMS to a short-code. Or you could swipe your phone like a credit card, because the Near-Field Communication technology, already in use in Korea and Japan, will allow your phone to be directly linked to your bank account. What if your phone gets lost? There will be multiple security layers that are being developed by the Mobile Payments Forum of India (MPFI). The first of these will be your phone numbers, systems will recognise which number is being used (even with GPRS/3G data connections). If you misplace your phone you can call up the telecom service provider to block the number and no transactions can be made. A second layer of security is a Personal Identification Number (PIN) that you will need to enter on every purchase.

But Chatterjee, like everyone else connected with mobile commerce and banking, believes that this is, indeed, the future. “The mobile is HDFC Bank’s lowest cost platform,” he says. Cost apart, the other plus going for this platform is reach. “Today, Airtel interacts with consumers at almost 400,000 points across the country. Even if we appoint only a few of them as ‘business correspondents’ as per RBI guidelines, the reach is tremendous.” The concept is simple, the “business correspondent” will act as a sort of physical cash dispensing machine for small sums of money.

Sanjay Swamy, CEO, mChek, says this is where the Know-Your-Customer (KYC) norms that mobile operators once complained about can become very useful. “If the government is serious about implementing the Financial Inclusion Act, 2005, the mobile phone has to be involved. Therefore, it should be possible for a person to open a bank account when he subscribes to a mobile phone.”

Adds Chatterjee: “This will make small-ticket transfers viable. So, for example, a Mumbai taxi driver from eastern UP will be able to transfer funds straight to his family’s account through his mobile phone.” A third-party service provider, such as mChek, will handle the verification, authentication and authorisation needed to complete the transaction and the payout can take place through an authorised business correspondent. “It will have to be a partnership environment,” says Manoj Kohli, President and CEO, Bharti Airtel, adding: “You cannot do this by yourself.”

But while banks and telecom service providers have big plans for the mobile money transfer market, mobile commerce, on which several small entrepreneurs are basing their business plans, also has massive potential. “In fact, there are a lot of mobile commerce services that we can roll out very fast, but we are waiting for the guidelines,” says Chatterjee, adding that he envisions a future, six months from now, where a person will be able to pay for his fast-food delivery directly through his mobile.

Adds Aditya Menon, CTO, Obopay India: “Ninety-five per cent of transactions in India today are made through cash. This includes both official and unofficial transactions and many of these are smallticket transactions. I don’t think anyone will buy a car using a mobile payment service, but it’ll definitely become popular for buying things like movie tickets and groceries.”

So, while the future does look rosy for both mobile money transfers and mobile commerce, the mobile wallet (m-wallet) might not be on the cards. “There are some rules regarding stored value cards, and I don’t think that ‘stored value mobiles’ will take off unless RBI relaxes regulations. And this may not happen given the concerns of the central bank on laundering,” he adds.

According to a report by payment processor Visa, m-wallets have been successfully deployed using Near-Field Communication (NFC, a derivative of Bluetooth) in East Asian markets like Hong Kong, Taiwan and Japan. This makes it possible for customers to swipe their mobile phones over a bill-payment facility and have the funds deducted from the amount “stored” in the phone. However, banks, telcos and third-party payment providers say that not only do existing and expected guidelines discourage this system, but also there aren’t enough Point of Sale (POS) outlets.

This is not to say that mobile payments, mobile commerce and mobile money transfers are setting the house on fire. But with RBI guidelines on the subject expected any day, this market is bound to take off. And even if a tiny sliver of banking and informal transactions in India shifts to the mobile device, India’s banking system might never be the same again. Just as Indian telecom operators revolutionised the service model, India’s banks and mobile operators can lead the way in transforming the way India transacts business.