Although the number of mobile users in India has reached 600 million, the percentage of mobile banking users is very low. Over the past two years, only 5% users have registered for mobile banking and only .05 % of the total, are active users, according to global consultancy Deloitte. Even in the urban cities the customers still prefer to engage in informational and not transactional activities through their mobile.
The reason for low rate of mobile banking is lack of integration between telecom operators and banks, along with an unattractive and in-scalable revenue model for banks. According to Sanjeev Patel, head and executive vice-president, “The transactions in mobile banking are relatively miniscule as compared to other established channels such as internet and ATM. Thus standalone costs for the mobile banking transactions are fairly high.”
Sachin Sondhi, senior director, Deloitte says, “Acquisition of customers remains a major issue for banks so that they can scale up their model and make money out of mobile banking.”
It is believed, the modified business correspondent model and UID enabled bank accounts will be a game changer for mobile banking. Business correspondents are persons who, besides helping rural people to open bank accounts, would facilitate in banking transactions. Their main role is to accept deposits and remit money. The outsourcing guidelines are formed by the regulator which ensures that there is no conflict of interest when certain banking activities are outsourced.
Sondhi from Deloitte explained that banks are providing mobile banking services for free and have restricted to no frill services and accounts. “Its time they provided attractive loan services at some cost, at least in the tier I cities and get more customers into mobile banking. Only when customers engage in transfer funds and loan payments through mobiles, banks would be in a position to scale up their services and profit from mobile banking”. Therefore a different model is needed for tier I cities and rural cities.
Besides reducing high transaction cost, India also need to resolve another issue in mobile banking. The system requires collaboration from different constituencies - banking institutions, mobile operators and regulators. Patel from HDFC says that the permission given by the central bank to the banks and operators to leverage the available infrastructure is going to help in long run and it will ensure success of using mobile banking services for inclusive growth of financial services.
Regarding the bank-telco integration, Rajesh Dongre, COO, mobile commerce, Vodafone Essar says that telecom service points are quite large in number and are easily accessible when compared to bank branches. He added, “In mobile banking, partners should be allowed to play to their strengths. That is, the bank performs the banking activities and the telco takes on the other related activities. The best way to popularize mobile banking is for the banks and regulators to bank on the mobile operator.”
Although the business correspondent model is in a growing stage in India and still most of the banks are waiting for guidance from the regulator. But the question arises whether banks and operators can come together? And if this does not, happen then most of the banks will depend wholly on the business correspondent model, said Sondhi from Delloite.