Neel majumdar

Banking and Capital Markets
Mobile Banking and Payments

Greater Mekong Mobile Payments &
Banking Summit
Use of the Mobile Channel to Increase
Financial Inclusion - the Indian
Experience
Experience*
April 2010

By Neel Majumdar, Managing Consultant, PricewaterhouseCoopers Private Limited, India

*connectedthinking PwC

Agenda/Contents/Section

Lack of Financial Access – The Scale of the Challenge
Role of Mobile Devices in Increasing Financial Access
Various Enabler Models for Financial Access
RBI Initiatives
Key Barriers to Achieving Financial Inclusion through the Mobile Device
Possible Facilitators to Overcome the Barriers


Definitions of Financial Inclusion/Exclusion
Institution/Author Definition Indicators

ADB (2000) Provision of a broad range of financial Deposits, loans, payment
services such as deposits, loans,
p , , services, money transfer and
, y
payment services, money transfers and insurance.
insurance to poor and low-income
households and their micro-enterprises.
United Nations (2006) A financial sector that provides ‘access’ to Access to credit, insurance,
credit for all ‘bankable’ people and firms, savings, payment
to insurance for all insurable services.
people and firms and to savings and
payments services for everyone. Inclusive
finance does not require that
everyone who is eligible use each of the
services, but they should be able to
choose to use them if desired.
Report of the Committee on
p The process of ensuring access to
p g Access to financial services
Financial financial services and timely and and timely and adequate
Inclusion in India (Chairman: adequate credit where needed by credit.
C.Rangarajan) (2008) vulnerable groups such as weaker
sections and low income groups at an
affordable cost.
cost
Source: Chapter VII, Financial Inclusion, Report on Currency and Finance

Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience April 2010
PricewaterhouseCoopers Slide 3


Why Financial Inclusion?
y
Extremely important for India if it is truly to emerge as a Global Power and to
transform itself into a developed economy.
• Transformation to post ind strial modern societ not possible without broad
post-industrial society itho t broad-
based financial access
• Financial access provides economic opportunity and provides opportunities
to build savings, make investments and avail credit
• Makes it possible for government to make payments such as social security
transfers, minimizing transaction costs including leakages
g g g
• At the macro-economic level, Financial Inclusion (FI) provides an avenue for
bringing increasing liquidity and investment by releasing savings of the poor
into the mainstream
• Large number of low-cost deposits offer banks opportunity to reduce
dependence on bulk deposits and better manage liquidity risks and asset-
liability mismatches



Extent of Financial Exclusion in India
• Out of 600,000 habitations (villages/towns/cities), only about 30,000 have a
commercial bank branch
• Onl about 40 percent of pop lation ha e bank acco nts
Only abo t population have accounts
• Many of the bank accounts opened are dormant without any evidence of
banking transactions or receiving credit
• Less than 10 percent of the population have any kind of life insurance cover
• Only about 0.6 percent of the population have non-life insurance cover
• 13 percent of the population have debit cards
• 2 percent of the population has credit cards
• National Sample survey data shows that in 2003 out of the 89 3 million
2003, 89.3
farmer households in the country, 51 percent did not seek credit from either
institutional or non-institutional sources of any kind

Source: Remarks by Dr. D. Subbarao, Governor, RBI, at the Bankers’ Club, 9th December 2009



Financial Exclusion Is Directly Correlated with Low Income
y

• Only 56% of
Urban
households have
a savings
account
• Only 24 % of
Rural
households have
a savings
account

Source: Mobile Banking Business Models for Low Income Rural Markets, presentation by Amit Mehta, TCS, at Mobiles and Money
Conference, Mumbai, 2009

Financial Inclusion – Role of Mobile Devices

The Market Opportunity for Mobiles

Approx. 400 M mobile accounts in
India of which 187 million (46%) do
not have a bank account
Between 15 and 17 million new
accounts being added every month
17 GSM & CDMA Operators

Over 80% of the market is prepaid

Over 135M financially excluded
households – 2nd highest in the world

Source: TRAI Data Presentation by Amit Mehta at Mobiiles & Money Summit in Mumbai, e-Financial Inclusion “Towards
Data, Mumbai e Financial Towards
Accelerating Society Goals using ICT” by Dr. A.K. Chakravarti, former advisor and Group Coordinator, DIT, Set 7 2009



Channel Accessibility by Different Population Segments
y y g
Channel Primary Accessibility
Segments Attribute
Internet Affluent, Mass - Dependency on
Affluent access to
Computers
- ICT network
Affluent
ATM Affluent, Mass
, - Regulatory
g y
Affluent Restrictions
Mass Affluent - Infrastructure Costs
Branch Affluent, Mass - Regulatory
Affluent, Mass Restrictions
Market - Infrastructure Costs
Mass Market

Mobile Affluent, Mass - Accessible to low
Affluent, Mass income Group
Low Income + Unbanked Market, Low
M k t L - C t effective
Cost ff ti
Income + - Anytime, anywhere
Unbanked



Mobile Devices - Another Option for Accessing Financial
g
Services

Mobile Device
Bank
+ + Chip (SIM /
card
NFC)

POS Mobile Device
Device + + Card Reader

ATM Mobile Device
+ + Cash Till

Mobile Device +
Net + GPRS/SMS/
Banking
USSD


The Mobile Channel Offers Drastically Lower Cost of Withdrawal/
y
Deposit Methods

Source: Mint Newspaper


Enabler Models for Financial Access
Mobile Banking and Payments – Service Models
Mobile Banking
M bil B ki Mobile as payment instrument

• PUSH Services (Alerts) to • Transaction-based Banking
send information to the
customer’s mobile on the • Application based service
occurrence of certain events
• IVR based service
in their accounts
• Information Banking • WAP-based banking

−SMS-based • USSD platform based (Yes Bank)

−IVR based service • Mobile Payment Aggregator
• Branchless Banking* – BCs
• Mobile Commerce Aggregator
gg g
using the mobile as one of the
• Mobile Based Prepaid Cards
facilitators of end-to-end
banking service



The Indian Mobile Banking Landscape
Models Provider Basic Working Relevant Information
Name

Branchless A Little World/ • ZMF acts as a Business Correspondent • 9,400 outlets are now
Banking Zero to 22 Banks under RBI guidelines. live, for 22 Banks
Microfinance* • Technology platform provided by A Little • 3.8 million customers
(
(Business World have registered
g
Correspondent/ • No-frills zero-balance bank accounts are • Operations extend to
Microfinance opened for every villager. most parts of India
Concept) • Fingerprint authentication used to operate
the account.
• Entire village gets a full suite of banking
banking,
insurance and utility services at the
doorstep.
• Platform built around a low-cost NFC
mobile phone, used as Bank branch,
which securely stores the entire general
ledger and the ID profile of all customers
in and around the village.

* FINO, Eko are two other solution providers that works on a similar model



A Little World – Snapshots of the Operation

Operators – Mostly SHG Enrolment - Fingerprint Enrolment - Photo
women Capture Capture

Payment to Beneficiary Getting ready for the day – Check Mobile equipment
Printing of the receipt and cash
– FP verification Mobile Charged, Registers,
forms, etc
Source: Financially Connecting India through Mobiles - Low Cost Operation Using Mobile Phones + Biometrics by Sonjoy Mohanty CEO
Biometrics, Mohanty, CEO,
A Little World




Models Provider Basic Working Bank Partners Merchant
Name network
PayMate Links with partner Bank State Bank of India, Online merchants,
(IVR accounts or debit and credit IDBI, Cosmos retail outlets, mobile
Technology + cards to process payments Bank, Canara Bank, recharge, utility
SMS, mobile to merchants in the network. Lakshmi Bank, billers, tickets
mall for Corporation Bank, (flight, rail, movie,
ecommerce Can also link to prepaid HDFC Bank, bus), Direct to
transactions). account which is only Standard Bank, Home (DTH)
Operator reloadable through AMEX, RBS, South Indian providers (Tata Sky,
Mobile independent. MC, Visa or CitiBank debit or Bank, Karnataka Sun Direct, Dish TV
Payment credit card Bank,
Bank Bank of India,
India
Aggregator CitiGroup
mCheck Links with partner Bank HDFC Bank / ICICI Telecom Operators,
(SIM toolkit- accounts or debit and credit Bank / Standard Utility Bills,
based cards to process payments Chartered Bank & Insurance,
Insurance Online
application, to merchants in the network. Corporation Bank Travel Portals .
GPRS based issuing Debt Cards Movie tickets,
download to on mcheck. online shopping,
phone ) DTH pm mobile
mall.


NgPay – A Mobile Commerce Provider

Models Provider Basic Working Bank Merchant network
Name Partners
ngpay Links with partner Bank HDFC Bank / More than 120 partners
(Mall on accounts and execute direct AXIS Bank across 10 sectors. Shop,
Mobile) debit transactions (NEFT) send gifts, buy books,
over mobile. buy movie tickets, book
(Application all travel tickets, recharge
Mobile based Direct debit is an established mobile & DTH, bank and
Commerce technology) mechanism to make online payment
Aggregator to merchant or to a person.
more - easily and
securely - from your
Can also link to prepaid mobile handset.
account of the bank.
Note: largest mobile channel
for Indian Railways



Models Provider Basic Working Merchant network Relevant Information
Name

Prepaid ItzCash* Can be obtained from Electricity billers, • Launched in the year 2005
Cash (Prepaid approx 180,000 outlets Telephone Landline, • More than 7 million unique
Card/Prep Card by across approx 1800 Mobile Postpaid, active users and rapidly
aid Card non-bank)) Tier I & II towns in Mobile Prepaid,
p , increasing
g
India. Also available at Cooking gas, • Processes more than one
approx 15, 000 ItzCash Insurance companies, lakh transactions daily
franchisees. Option to ISP, Railway tickets, • Processes more than Rs.
have card home Travel Agencies, 80 mn ~ Rs. 100 mn worth
delivered.
delivered Cable/DTH,
Cable/DTH Citizen transactions daily
Services by • Have won various awards
Has 12 digit account Government or including "Innovative Use
number and a 4-digit Government bodies of Technology"
password at the back
of the card that are
necessary for online,
mobile and IVR
transactions.

* ZipCash is another provider that works on a similar model


Financial Inclusion – RBI Initiatives

Key RBI Policies, Circulars and Guidelines Issues to Promote
y
Financial Inclusion
RBI Payments Final Policy
Directive to and Gu de es
Guidelines
Banks
B k to Settlements for issuance
make “No Act Passed and
Frills” operation of
Accounts Prepaid
available Payment
Final
RBI Annual Instruments
RBI Operating
Policy Guideline Guidelines
Statement allowing for Mobile
stressing Banks to use Banking
need for Prepaid
BCs/BFs transactions
Financial Policy
for Banks
Inclusion Guidelines
Amended

Dec, ’07
D Oct,
O t ’08 Apr,
Apr ’09 Aug
A ’09
Nov, ‘05

2005 2006 2007 2008 2009 2010


Financial Inclusion – RBI Initiatives
RBI Initiatives for Financial Inclusion
• Easier credit facility
− General Purpose Credit Card (GPCC) facility up to Rs. 25,000
− SHG-Bank Linkage Programme
SHG Bank
− Introduction of Kisan Credit Card and doubling of agriculture credit over
2004-05 to 2006-07- transform rural credit.
• Simpler KYC norms, Business Correspondent (BC) model
• Use of information technology (mobile device, smart cards)
• Facilitation of new products (Prepaid accounts)
• EBT Through Banks
• 100% Financial Inclusion drive & Financial Literacy, Credit Counselling and
y, g
Project Financial Literacy
• Liberalization of Bank branches and ATM expansion; expansion of banks in
north east
north-east
Source: Remarks by Dr. D. Subbarao, Governor, RBI, at the Bankers’ Club, 9th December 2009

Barriers to Achieving Financial Inclusion

Barriers to Financial Inclusion Through Mobile Banking
g g

Difficulty in Reading Most important
& Writing SMS Challenge
Is trust and
security

Illiteracy Security

Lack of Low
Awareness Penetration
of M-Banking of GPRS
services

Awareness
Limited Handset
Capabilities

Can we make
the solutions
affordable to
Still many
the masses
Affordability Regulatory h dl
R l t hurdles
Regulatory
Environment


Facilitators to Overcome Barriers

Facilitators to Overcome the Barriers to Achieving Financial
g
Inclusion
• Allow telecom companies to take part in payment and settlement cycle;
greater compatibility between RBI and TRAI
• Greater flexibility in RBI regulations without compromising on security
• Technolog infrastr ct re and special incenti es to Technolog pla ers
Technology infrastructure incentives Technology players
including Telcos and handset manufacturers and third party aggregators
• Increasing financial awareness in unbanked population through outreach
programmes supported jointly by the Government and mobile banking
stakeholders (Banks and non-banking FIs, telcos, handset manufacturers
non banking
and third party aggregators)
• Introduction of Technology Enabled (For ex. Java based) Mobile handsets
at minimal cost

Thank you

PwC
© 2010 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network
of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent
legal entity.

About PricewaterhouseCoopers
PricewaterhouseCoopers Pvt. Ltd. (www.pwc.com/india) provides industry - focused tax and
advisory services to build public trust and enhance value for its clients and their stakeholders.
PwC professionals work collaboratively using connected thinking to develop fresh perspectives
and practical advice.

Complementing our depth of industry expertise and breadth of skills is our sound knowledge of
the local business environment in India PricewaterhouseCoopers is committed to working with
India.
our clients to deliver the solutions that help them take on the challenges of the ever-changing
business environment.

PwC has offices in Ahmedabad Bangalore Bhubaneshwar Chennai Delhi NCR, Hyderabad
Ahmedabad, Bangalore, Bhubaneshwar, Chennai, NCR Hyderabad,
Kolkata, Mumbai and Pune.

Contact:
Neel Majumdar
Managing Consultant
Performance Improvement Practice
Tel: +91 33 4404 3196
Cell: +91 9830381643
Email:
E il neel.majumdar@in.pwc.com
l j d @i

PwC

Rural and Urban Teledensity in India

Source: TRAI Annual Report 2008-2009

PwC

Growth of wireless subscribers capable of Accessing
Data services/Internet

Source: Telecom Regulatory Authority of India,(TRAI) The Indian Telecom Services Performance Indicators, July - September 2009

PwC

Mobile Phones Have Become the PCs of the Developing World
g

Source: Mobile Banking Business Models for Low Income Rural Markets, presentation by Amit Mehta, TCS, at Mobiles and Money
Conference, Mumbai, 2009


The Rural Market is Moving Up the Value Chain

Rural Urban

3 6 11 25
H

4 6 12 22
UM

10 18 23 26
M

LM 36 46 35 24

L 47 24 18 3

1998 – 99 2006 – 07 1998 – 99 2006 – 07

Source : NCAER

PwC

Key Features of Relevant RBI Policies, Circulars and Guidelines
Engaging BC/BFs f Financial Inclusion
C/ for
• Business Facilitators (BFs)
− BFs to facilitate through collection and preliminary processing of loan applications, creating
awareness about savings, nurturing SHGs, monitoring and recovering payments post
disbursal
• Business Correspondents (BCs)
− BCs have greater systemic importance, responsible for disbursal of small value credits,
recovery of principal and interest on loans disbursed, collection of small value deposits,
selling micro insurance/MFs/pension products and receipt and delivery of small value
remittances
− Strict due diligence norms to be followed before banks engage BCs, strict norms on cash
holding limits and requirement that funds collected to be transferred to bank’s books within
one working day
• Banks allowed to pay reasonable fees to BC/BFs
• Reputational, legal and operational risks involved; hence banks required to implement
technology based risk mitigation solutions
• Compliance with KYC norms continues to be bank’s responsibilities


“No Frills” Account Directive
− Asked banks to offer a basic banking “no-frills” account with low or zero minimum
balances and minimum charges to expand the outreach of such accounts to low
income groups

Payments and Settlements Act
− Provided authority to the Reserve Bank of India (RBI) to regulate Payments and
Settlement Systems in the country
− Under this Act, two Regulations have been made by the Reserve Bank of India,
namely, the Board for Regulation and Supervision of Payment and Settlement
Systems Regulation 2008 and the Payment and Settlement Systems Regulations
Regulation, Regulations,
2008. Both these Regulations came into force along with this Act on 12th August 2008.
− The Act defines “payment obligation”, “payment instruction”, “payment system” and
other commonly used terms like “electronic fund transfer”, “gross settlement system”,
“netting”, “settlement”, “systemic risk”, “system participant” and “system provider”
− The Act also provides the legal basis for “netting” and “settlement finality”. This is of
great importance, as in India, other than the Real Time Gross Settlement (RTGS)
system, all other payment systems f
t ll th t t function on a net settlement b i
ti t ttl t basis.


Mobile Banking Transactions Guidelines
• Initially, only Banks with Core Banking Systems can provide Mobile Banking services
• Daily transaction limit of INR 50 000 for P2P and P2B transfers
50,000
• Per transaction limit of INR 5,000 (and monthly cap of INR 25,000 per customer) for
remittance of funds for disbursement of cash through ATMs or BCs
• C
Compulsory two-factor authentication, one of the f
f f factors need to be mPIN or any
higher standard; transactions up to Rs. 1,000 can be facilitated by banks without
end-to-end encryption
• I t
Interoperability must b t
bilit t between b k and all mobile b ki service operators; h
banks d ll bil banking i t hence
message formats like ISO 8583 mandated
• Bilateral or multi-lateral agreements between banks for clearing and settlement
• Long term goal of mobile banking is to ensure 24*7 clearing and settlement through
nationwide infrastructure, enabling real-time fund transfer between two accounts held
in any bank and operated by users using mobile banking services of any operator


Prepaid Instrument Guidelines
• Three broad categories – closed, semi-closed and open system payment
instruments
• Only banks allowed to offer mobile banking services are eligible to offer mobile
based pre-paid payment instruments (mobile wallets & mobile accounts)
• Non-banks allowed to offer only semi-closed prepaid instruments
Non banks semi closed
• Non-banks not allowed to offer Person-to-Person transfer of value
• Maximum value not to exceed INR 50,000, validity period can be a maximum of 6
months
th
• Semi-closed prepaid instruments for utility payments can be offered without KYC up
to a limit of INR 10,000
• Reload of such payment instruments allowed against payment by cash/debit to bank
account/credit card either by bank or by agent appointed by bank/non-bank


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