Dr. K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, at India Telecom 2009, was severely critical of the lack of uptake in mobile banking in India. “There is tremendous scope, and enough guidelines have been issued. But we are not encouraged or enthused: one year has passed since the issuance of Mobile Banking guidelines in India. 32 banks have been given approvals to provide mobile banking in India, and of these 21 banks have started providind these services. Yet we haven’t seen much activity in this area. Transaction volumes are very low.”
Dr. Chakrabarty also expressed his surprise at the lack of applications for prepaid payment instruments (like Itz Cash Card, Done Card etc) from mobile operators, saying that “only one mobile service provider has applied for approval to provide such services. ” The reason for the surprise? According to him, the change in guidelines, which permit all non-bank entities to provide mobile based prepaid payment instruments, was mandated following representations from the COAI (Cellular Operators Association of India). “Are we to conclude that any model that does not provide a financial float does not interest Mobile Service Providers? It will have to be recognized that Mobile Service Provider led model cannot also permit them to enjoy the float funds. These funds remaining with non-banks are tantamount to deposit taking which needs to be discouraged.”
Key points from his speech
— Importance of speedy, qualitative delivery of services: Dr. Chakrabarty pointed out that, traditionally, the delivery of financial services is a support function, while in case of m-commerce and e-commerce, it becomes the most critical function: delivery has to be speedy, qualitative and responsible. Service providers should not neglect the delivery, and those who will not be able to provide delivery, they will be wiped out.
— Mobile Banking cannot be without a Bank: “There have to be two partners: one is mobile operator and the other is the service provider. For Mobile medicine, the mobile company cannot provide the medicine. There has to be a tie-up with a hospital or the government. For mobile broking, there has to be a broking infrastructure. Similarly, Mobile Banking cannot be without a Bank. Mobile company and bank have to join together […] If you say that we will do mobile banking and payments without a bank account, it is not going to happen. We understand that you (mobile operators) say that the number of bank accounts are not there. If people don’t have bank accounts you can’t take the approach of not having banks for mobile banking. The approach should be of ‘how do we increase the number of bank accounts’. That’s where we have initiated steps asking the banks to come around, and bring in financial inclusion with no frills accounts, with no charge to customer.
— Banks need to shape up: Dr. Chakrabarty pointed out that Banking Technology is of recent origin in the country – around two years. Hence, scaling up may require more time. He also encouraged banks to look beyond payments and remittances, saying that loans and other financial products also need to be provided. He cited the recent enabling provisions for appointment of Business Correspondents as means to this ends, but warned that if Banks continue as laggards, the system will have to look for alternate non bank model. “The important end of inclusive growth cannot suffer on account of our insistence on a particular means/model.”
— Issues Banks Face: Dr. Chakrabarty pointed out some issues faced by banks, for low uptake of mobile banking:
(i) The requirement of end-to-end encryption makes implementation costly. They feel low ticket transactions do not require end-to-end encryption.
(ii) The transaction limits of Rs 5000 and Rs 10,000 need to be revised upwards. Banks point out that these limits do not permit transactions like air lines ticket purchase.
(iii) Facilitation of mobile banking requires tie-ups with individual service providers for enabling such services. Banks face difficulties in entering into such partnerships.
(iv) Mobile Service Providers do not open up channels for facilitating mobile banking services by banks: ppening up USSD(Unstructured Supplementary Services Data) channel for mobile banking and enabling the accessing of mobile banking facilities through all GPRS connections.
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