Mobile banking tapped for growth in India

INDIA--The mobile banking subscriber base may be low, but the concept is making inroads into Indian villages through micro banks that run on mobile phones using near-field communications (NFC), industry players.

India is the world's second largest mobile market, with over 400 million subscribers, but it still only has 20 million to 25 million registered users for mobile banking, Prathima Rajan, an analyst for Celent, told ZDNet Asia in an e-mail interview. "The active user base is only about 10 percent of the total user base," she said.

Sanjay Tugnait, Accenture's partner and managing director of financial services, concurred: "India has a long way to go insofar as mobile banking is concerned." He noted that in most economies, increase in mobile penetration is followed by growth in mobile banking adoption. In a phone interview with ZDNet Asia, Tugnait said the same will eventually happen in India.

Celent expects the penetration of India's active mobile banking user base to reach 2 percent (25 million) by 2012, up from the current 0.2 percent (2.5 million).

While the subscriber base for mobile banking may be small, such services are gaining popularity in another sector of the market--rural India, through micro banks that run on mobile phones.

According to Anurag Gupta, founder and CTO of A Little World (ALW) and president of Zero Microfinance and Savings Support Foundation (ZMSSF), 3.8 million people in rural India are enjoying the benefits of mobile banking through micro banks. ALW provides mobile banking technology to 22 banks, while ZMSSF is a not-for-profit organization appointed as "business correspondent" for local banks. Zero Mass Foundation (ZMF), also run by Gupta, creates the last-mile operations network in villages, under predefined service agreements with banks, and supports front-end delivery of full-featured transactional services on behalf of banks.

In 2006, India's apex bank--the Reserve Bank of India (RBI)--announced a new policy initiative to allow banks to do business using the "business correspondent" framework. Under this model, third parties such as ZMSSF, conduct business in remote areas on behalf of banks.

ZMSSF has 3.8 million enrolled customers and runs 8,300 micro-bank branches in northeast India and states such as Andhra Pradesh, Orissa and Uttarakhand. Gupta said in a phone interview that the company is the only player to use mobile phone-based micro-banking services. Its competitors use desktop terminals and other handheld devices to deliver micro-banking services.

The reluctant subscriber
In India, mobile banking services are offered at no cost. Despite this, the urban mobile subscriber base of over 170 million has made little attempts to make banking transactions.

According to Rajan, there are two main reasons for the low acceptance among urban users. First, these subscribers have accessibility to various alternative modes of transaction and payment such as Internet banking, ATMs and credit cards. Second, security remains a concern.

"Customers are still ambiguous about this new channel, its service offerings and smooth processing," she said.

According to Tugnait, active mobile banking users are typically professionals in the age group of 18 to 30 years, earning around US$2,094 to US$6,281 (100,000 to 300,000 rupees) per month. He said much of mobile banking that takes place in India today is push-based, where the bank sends information such as the balance in the user's account and reminders about credit card payments, through SMS.

"There are very few people who actually pay bills and transfer funds using mobile banking," he added.

India's rural markets are also difficult to tap due to high illiteracy, poor infrastructure that inhibits accessibility and lack of technology.

However, Rajan believes the potential for growth is tremendous. "India currently has approximately 35 to 40 percent (373 million) of working population that falls in the age group of 25 to 40 years. This is the most attractive target group for increased spending on mobile and wireless technology," she said, noting that Celent estimates this age group to increase to 400 million by 2015.

Making inroads into rural India
Rural India is a huge and challenging market insofar as banking is concerned. The country has close to 600,000 villages, making it difficult to establish brick-and-mortar banks everywhere. According to RBI, 40 per cent of Indians lack access to formal financial services and remain largely "unbanked".

Following the RBI policy on business correspondents, many banks have initiated pilot projects for micro banks using NFC.

According to Gupta, mobile banking is the cheapest way to reach the rural customer, where it costs just US$523 to US$837.5 (25,000 to 40,000 rupees) to set up a micro-banking outlet. "With scale, we hope to bring down the cost to US$209 (10,000 rupees)," he said.

Rajan added: "Thousands of people from rural areas across 12 states are likely to get their social security pension and wages paid under the National Rural Employment Guarantee Act (NREGA) scheme with the help of mobile phones."

Tugnait echoed similar sentiments: "E-government will lead to wider adoption of mobile banking."

In a mobile-based micro bank, the mobile phone acts as a bank branch by storing the customer database. It also has a smartcard, which biometrically stores the identity of the customer including name, address, photograph, fingerprint templates and relevant details of savings or loan accounts held by the issuing bank. Customers are given an account number, while agents handle deposits and dispense cash.

Several public sector banks have set up or are in the process of setting up mobile phone-based micro banks. Major players include State Bank of India, Union Bank of India, Axis Bank, Andhra Bank, State Bank of Hyderabad, Andhra Pradesh Grameen Vikas Bank and Punjab National Bank. Even telecom providers such as Bharti Airtel and Reliance Communications, have tied up with banks to extend their mobile remittance services to rural areas.

Several technology firms such as Ekgaon Technologies and Spanco Systems, have also stepped up to offer mobile banking tools. NXP Technologies has done pilot projects for micro banking in areas such as Aizwal (Mizoram), Medak (Andhra Pradesh) and Pithoragarh (Uttarakhand).

Most micro banks use Nokia's NFC-enabled 6212C handset, which allows consumers to share content, access services and information, and conduct payments and ticketing by tapping the device.

"We would be adding another 4 million customers and 6,000 branches over the next six months," Gupta said. In one day, the micro banks run by ZMSSF handled 250,000 transactions, he said, citing figures captured on Oct. 1. "Mobile banking is poised to grow by leaps and bounds. We hope to be 10 times our size over the next 18 months and be present in one-third of the country."

Swati Prasad is a freelance IT writer based in India.