With even kiranas now entitled to perform a few banking functions, telcos can be allowed to transfer funds -- customers trust them enough to pay crores of rupees in pre-paid revenues.
BD Narang, former CMD, Oriental Bank of Commerce
'Letting telcos transfer money is a bad idea since they don't meet KYC norms. Whenever unregulated entities have done this, there has been a problem'
The success story of the telecommunication industry in India is very well documented. It is in recognition of the potential of telecommunications as a tool of financial inclusion that the government has been mulling over the possibilities of using mobile banking for transfer of resources from government accounts to the accounts of beneficiaries directly, cutting down the host of intermediaries, paperwork and time involved for efficient execution of the transaction.
This process has immense potential for improving the efficiency of allocated resources, besides bringing the targeted population into the fold of organised banking system.
Mobile operators have evinced interest in getting into the business of money-transfer. In the organised sector, this activity has so far been handled by regulated entities, namely banks. Common instruments of money transfer used are demand drafts, mail transfers, telegraphic transfers and, of late, there is electronic transfer of funds as well.
The essence of the system is the existence of bank accounts [which are fully compliant with the Know Your Customer norms for both the transferor as well as the transferee, the encryption of messages exchanged (with detailed procedure for cross-checking authentication at every stage) and a secure settlement mechanism in place. Banks have also evolved reasonably well-defined procedures for grievance redressal.
Banks have also introduced mobile-enabled services with varying degrees of complexities.
The possibilities of additional services that can be offered on mobile-banking platforms are truly mind-boggling. This means the customer will stay with the banks for a longer period, which will eventually also lead to an improved level of non-interest income.
The system has, however, not yet fully stabilised and has, therefore, not been fully exploited -- the risks involved have not yet been fully exposed/realised. Serious work on training the banks' staff as well as the education of users needs to be undertaken.
Mobile banking is popular mainly with younger, more tech-savvy customers.
Several telecom and bill-payment firms have made serious attempts to handle some of the services with or without the help of banks. Clients have to disclose the particulars of their accounts to these firms. Misuse of client details is common.
Wherever cash has been handled by unregulated entities, there have been serious mishaps without much recourse. Increasingly, mobile users are being flooded with sale/purchase/downloading offers without adequate disclosures.
Apparently, the sale and purchase of client IDs is a common phenomenon in the marketplace. There are some pretty serious issues that have come up and that need to be urgently addressed in respect of the protection of client account details, compliance of KYC norms, secrecy of message encryption/decoding systems and cash settlement when it comes to mobile telephone transactions.
All these risks fall within the domain of financial regulator RBI. Mobile operators with poor track records of KYC norms, protecting client IDs, and a virtually non-existent grievance redressal system are ill-equipped to meet the norms laid down by the financial regulator.
Besides, there are serious issues with the quality and the availability of the telecom network across the country. Many handsets are not even compatible with good anti-virus software.
I am of the firm opinion that the move to allow telecom operators to transfer money without involving banks is premature.
The Indian Banks' Association, along with technology intermediaries, should initiate evaluation studies on the possibilities and risks associated with the various types of technology deployed in the field as well as the additional steps required by banks and gateway switch entities to ensure secure access/execution and to identify regulatory requirements of various legs of the transactions.
Banks, including regional rural banks and cooperative banks, need to absorb the technology so that their rural client base can better assimilate, evaluate, accept and adopt technology-driven products.
We need to define the liabilities of the subscriber, the operator, and technology and service providers. Regulations pertaining to recognition of damages and financial compensation need to be revisited and redefined to reflect the requirements of the 21st century.
TR Dua, officiating director general, Cellular Operators Association of India
'With customers paying even before using our services at 1.5 mn outlets, we will offer true financial inclusion and have proved this globally'
In emerging countries like India and China, where mobile phone penetration is much higher than the penetration of banking services, the first screen for the common man, especially in rural areas, is most likely to be the mobile phone.
While banking in India has developed into a well-established machinery now, telecom is still in the process of expanding to cover rural areas.
The banking industry, however, has more important issues to deal with. For a customer to be profitable for the bank, the average quarterly balance that needs to be maintained by the customer is around Rs 2,500. However, many experienced bankers would agree that these numbers will be more and not less with the incumbent banking systems prevalent in our country.
Besides, the banking sector faces unavailability of secure last-mile connectivity across the remotest parts of the country -- one reason why the largest unbanked population is in the north-east region. Moreover, servicing costs for customers cause reduced profitability for the banks.
In such a scenario, mobile operators can do mobile banking by themselves. As an industry, we have managed to keep our costs under control and still maintain a profitable business. India has the most affordable tariff in the world. The mobile telecom operators touch the lives of 488 million (growing at the rate of 12-14 million every month) customers.
It's interesting to note that close to 97 per cent of the new acquisitions are prepaid, and of this almost 50 per cent of the customers have a mobile phone but do not have a bank account.
Though it may be argued that there are multiple SIMs, yet our estimate is that there are about 190 million unique customers who have mobile phones but not bank accounts.
The telecom industry also has the largest distribution network -- over 1.5 million entrepreneurs in the country -- which helps servicing customers on a daily basis.
This distribution network is distinct as it covers the length and the breadth of our country. Its uniqueness lies in its ability to conduct thousands of crores of small-value transactions through a risk-free, pre-paid model.
The entire channel first pays and then does business; in a similar manner, this channel will first pay and then facilitate mobile banking. Hence, chances of frauds on customer deposits by entrepreneurs can be ruled out.
The common man is used to dealing with dealers, and knows that payments are to be made only when confirmation reaches the customer on his/her mobile phone. The entire channel is trained to collect complete information under Know Your Customer and is compliant with all security parameters of the country.
However, the KYC should be proportional to the risk of the account that is being opened. For instance, Rs 50,000 balance restriction and a total value of transactions at Rs 200,000 in a year are great examples to limit KYC to get more Indians into the financial fold.
The mobile telecom industry has the ability to address the correct customer base through intelligent data points available with mobile phone operators on a daily basis.
Telecom operators do not just offer low-cost, last-mile connectivity, but can also offer information on an aggregate basis by examining calling patterns, in order to target the correct customer base.
For example, if a large number of calls are being made between Kapashera in Gurgaon and Hoshairpur in Punjab, clearly, this is a corridor worth tapping for the banks.
Similarly, many such natural corridors that exist in the telecom world can be extended to the banking world so that these areas can be included in the financial fold.
Internationally, there are notable examples of how mobile banking has revolutionised the banking sector, and thus touched lives of people. Mpesa in Kenya has reached out to 47 per cent of the Kenyan population with every second Kenyan having either received or sent money using Mpesa.
Similarly, Gcash has been able to revolutionise the way migrant Filipinos send money to their families in the Philippines.
What we need in India is an enabling regulatory framework that will take mobile banking forward. When the mobile industry rises to the occasion, this will result in true financial inclusion for millions of people across the country.
