TECHNOLOGY FOCUS: Rural users yet to take a call on mobile banking

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Mobile banking (m-banking) in India, viewed by the government as a potent tool for financial inclusion, is yet to clear many hurdles before it can fulfil its objective of reaching the unbanked masses. Primarily so, say analysts, since the mobile density in tier II and III cities, is 11 percent and 10 percent respectively.

“In India, one of the largest microfinance companies (SKS Microfinance) has only about 15 percent of rural borrowers with mobile phones. If this is any indication, it will take some time for m-banking to reach to the unbanked. However, there are several initiatives being taken by governments, service providers, and the like, to enhance the offering and extend its reach. A case in point could be the initiative by the Government of Andhra Pradesh to enhance the reach and enrol 3 million rural citizens for m-banking services,” says Basant Shroff, associate director, Advisory Services, Ernst & Young.

Telecom companies can play their part in mass adoption if they issue a free SIM and set entry cost low, suggest analysts. But will banks cannibalise their existing transactions set-ups in which they have spent crores by using the mobile platform for extremely small ticket size transactions? they ask. RBI m-banking norms have limited the value of transaction at USD 50.00 per transaction and USD 100.00 per day.

Romal Shetty, executive director, Risk Advisory Services, KPMG, explains that the low average cost of transaction ($.05) makes up for the small-ticket size. “Besides, alternatives are expensive for the financially-excluded classes such as money orders for transfer or traditional money lenders for loans,” he notes.

Shroff adds: “Consider a customer asking for their account balance through a toll free number and compare this with the transaction costs of doing the same through m-banking, there is definitely savings in case of the latter.”

In rural India, where banks reach is limited, other non-transaction based services such as information (account balance enquiry etc) or authentication (one time password for transactions) would be performed through the mobile platforms, thereby supporting other systems of banks, rather than cannibalising. In the beginning, there will be large upfront setup costs for banks. But as transactions increase, the unit cost of transaction will start seeing a downward trend and this will make up for the other associated costs.

On the other hand, 50-60 percent phones are entry-level phones, maximum in rural areas. GPRS or WAP supported transactions are out of question there. Vijay Balakrishnan, CMO, Obopay, says: “In such areas, SMS-based banking will be the most viable option. Only barrier for rural adoption is language.” Technology service providers are working on bringing vernacular languages into their application ambit.

Dewang Neralla, Director, atom Technologies, says: “While ensuring availability across very low-cost handsets, the issue that needs to be looked at is primarily security. Whether such handsets will be able to provide a secure communication channel is a question that needs to be addressed.”

Another deterrent is that RBI regulations require mandatory physical document based registration. In rural areas where banks are very remote and few, it could have an impact on costs and adoption. Concludes an optimistic Shetty: “With an expected 200 million rural connections by 2012, up from about 90 million currently, the opportunity of 110 million potential depositors is high. Around 25 percent of Indian households are working with informal banking mechanisms. M-banking has placed this segment in the banking sectors radar as a means of growth.

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