The Telecom Regulatory Authority of India (TRAI) has released a consultation paper on USSD based mobile banking services for financial inclusion.  TRAI has asked for suggestions for the technology to be used by stakeholders – bank, RBI, TSPs, aggregators, for  providing banking services to the unbaked/ underbanked citizens. It has asked stakeholders to send written comments by October 4, 2013 and counter comments by October 11.

Some of the issues raised by the consultation paper include:

– Whether USSD is the most appropriate mode for mobile banking for financial inclusion. It states that transactions through USSD are in real time, and the accessibility cost of information through the technology is also low as all low end phones can use the technology.

– TRAI asks whether mobile banking as a means of financial inclusion can be enhanced by creating an aggregation platform to connect banks and TSPs, through which banks can provide USSD based mobile banking.

TRAI argues that while banks such as SBI and ICICI have already implemented USSD based mobile banking, it’s not available on all TSPs. Besides this, customers having accounts in various banks have to remember different USSD codes to access accounts on different banks. However, to enable aggregation platform providers to assume their role in the delivery model, it is necessary that they are able to establish a connection with the network of the TSPs.

– It further asks whether the Mobile Banking (Quality of service) Regulations, 2012 should be amended for mandating every TSPs to work with banks and its agents to use SMS, USSD, and IVR to provide banking solutions.

– While it recommends that TSPs should be mandated to  provide these services to banks, it has also asked for suggestions on whether TSPs should collect charges for USSD transactions for mobile from their subscribers as they do in case of SMS-based and app based mobile banking. It suggests following economic cases:

  1. The TSPs collect charges from the subscriber for every USSD session (B2C pricing model)
  2. The TSPs collect charges from the banks for every USSD session (B2B pricing model)

TRAI has also asked for suggestions on how much TSPs should charge per session. It has suggested a fix a ceiling of Rs. 1.50 per USSD session for mobile banking.

– Another problem with USSD based transactions is that TSPs are not able to charge for the transactions. It instead sends an SMS after the transaction, after which the subscriber is charged. Hence TRAI has asked whether records for USSD transactions should be generated by TSPs  to audit the transactions.

While TRAI is recommending USSD based mobile banking solution, it should keep in mind that National Payment Corporation of India (NPCI)‘s, which had launched USSD based Interbank Mobile Payment Service (IMPS) in 2011, had hit a roadblock with telcos over revenue sharing model. Besides this, Visa also claimed that telcos were blocking its USSD based payment service. However, the issue now seems to be resolved and Visa’s USSD based mobile banking solution is available on Loop Mobile, Aircel, BSNL & MTNL. This only points to the fact that in order to make the USSD based mobile banking service work, TRAI will have to closely work with telcos in the country.

Last year, NPCI had proposed the use of mobile phones for non-financial banking transactions such as account balance enquiry. In January 2012, the department of telcom had allotted *99# as the USSD (Unstructured Supplementary Service Data) code for the NPCI for operating mobile banking services through the channel. NPCI has been pushing mobile banking for a long time now.

Another thing to note is that USSD based codes only works with GSM telecom operators and not with CDMA telcos. Also, USSD based communication is quite cumbersome as compared to apps. The only advantage it offers is that users don’t have to send an SMS or require a GPRS enabled device and this system can be used even on a basic mobile handset.

Earlier this month, newly appointed governor of the Reserve Bank of India, India’s Central Bank, Raghuram Rajan identified mobile payments as “game changer both in the financial sector as well as to mobile companies”, and that the Reserve Bank of India will be setting up a technical committee to look into the feasibility of using “encrypted SMS-based funds transfer using an application that can run on any type of handset.” Read our take on mobile payments.

Download: Consultation Paper | Press Release


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