Mobile Banking in India- A Game Changer

Mobile Banking in India A Game Changer? Case Study This case was written by S. Nithya, Amity Research Centers Headquarter, Bangalore. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources. © 2014, Amity Research Centers Headquarter, Bangalore. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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Mobile Banking in India: A Game Changer?

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Author: S. Nithya


Abstract: The increased penetration of mobile phones in India had attracted several industries to tap the growth opportunity and achieve widespread reach across the country. The banking sector had been one amongst these industries which chose mobile phones as one of their service delivery channels. Mobile banking (m-banking), being one of the most innovative service delivery models was expected to join the successful trail of the ATMs and internet banking services in the country. But, m-banking failed to pick up a steady pace as it was not extensively accessed by customers due to lack of awareness. Experts pointed that the changing technology, security issues related to mobile phone technology, incompatible handsets and the absence of a comprehensive business model were the core drawbacks in the m-banking milieu. The complexities involved in these drawbacks further deepened the gravity of these challenges. How m-banking will rise above and detangle itself from these challenges remained to be seen. Pedagogical objectives The case study helps to understand and analyse:

Innovations in Banking Services Mobile Banking in India Future of M-Banking in India.

Case Study “M-banking will be the next big wave for the past 15 years. But I am yet to see a good model to put money on it.”1

– Munish Dayal, Partner, Barings Private Equity2

"Though mobile banking channel has the potential to be one of the key tools for achieving financial inclusion, the growth and acceptance of mobile banking as a channel of accessing banking service has been below expectations."3

– Reserve Bank of India

1 Mohan Raghu, “The Mobile Banking Tussle”, http://www.businessworld.in/news/finance/banking/the-mobile-banking-tussle/1096687/page-1.htmla, October 6th 2013 2 Barings Private Equity provide investment advisory services to Baring Funds, which have cumulative assets under management of approximately $1 billion, in the IT/ITeS, Life Sciences, Banking, Financial Services & Insurance, Energy & Infrastructure and Consumer Goods sectors. 3 “Growth of mobile banking in India has been below expectations: RBI”, http://gadgets.ndtv.com/mobiles/news/growth-of-mobile-banking-in-india-has-been-below-expectations-rbi-466009, January 2nd 2014

“© 2014, Amity Research Centers HQ, Bangalore. All rights reserved.”

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had a pivotal role in the financial system of a country. In India too, banks had been a backbone to the economic growth of the country. The Indian banking

sector had overhauled itself over the years, understanding the needs of the customers and developing efficient methods of banking. The introduction of Automatic Teller Machines (ATMs) and internet banking were lauded as the most notable innovations in the delivery of banking services. These services were highly customer friendly and had been the most convenient form of banking for the customers. India was on the forefront of growth in the telecommunication sector and the mobile phone penetration has been astounding. Embracing the technological growth, the Indian banking industry, further chose to offer mobile banking as their next innovative tool for delivery of banking services. While m-banking was slowly picking up pace in the country, the desired level of growth had not been achieved. The absence of a good and sustainable business model, low level of acceptance among customers, evolving technological changes in the mobile phone arena, regulatory frameworks and giant retailers joining the bandwagon were the core factors that were hindering the widespread acceptance of m-banking. With major challenges in its path, the success of m-banking as an innovative service delivery channel in India remained a question at large.

Innovations in Banking Services: An Overview The banking industry had been relentlessly working towards finding innovative ways to serve the customers and simultaneously achieve lower cost of operations by adopting various technological trends. One amongst these innovative service channels had been the launch of Automated Teller Machines (ATMs), which was a self-service delivery channel. The introduction of ATMs had revolutionised the concept of self-service in the banking industry as it was the first of its kind. The digital transformation in the banking delivery channels quickly gained importance at par with traditional branch banking and was expected to attain higher standards based on customer experiences. Over a period of time, banks observed that majority of the customers preferred visiting the ATMs largely for balance inquiry or getting mini statement of transactions. Banks noticed that this usage pattern in the ATM channel was burdening their financials. The internet banking too had begun facing troubles mainly due to the rising security threats, forcing customers to use internet banking within safer premises such as home and offices. With the existing digital banking channels being beset with such issues, the dawn of a new delivery channel had been the need of the hour.4 The proliferation of mobile phones amongst the people and its multiplicity of functions had caught the attention of the banking industry. Subsequently, banks identified mobile phones as the future banking delivery channel.5 Banking and financial services offered by the banks and availed by the customers through mobile telecommunication devices, was termed as Mobile Banking (m-banking).6 The first attempt of m-banking dated back to 1998 when mobile payment was experimented in Finland and Sweden; the mobile phone was used as a channel to pay for a Coca-Cola vending machine and car parking. It was commercially launched in Norway in 1999. In the same year, the foremost commercial payment

4 “Evolution of Mobile Banking”, http://www.infosys.com/finacle/solutions/thought-papers/Documents/evolution-mobile-banking.pdf 5 ibid. 6 VivekSrivastava, et al., “Mobile Banking – The Future Prospects”, http://www.vsrdjournals.com/MBA/Issue/2012_02_Feb/Web/1_Vivek_Srivastava_551_Review_Article_Feb_2012.pdf, 2012

BANKS

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system similar to that of banks and credit cards was introduced in the Philippines by mobile operators Globe and Smart.7 Subsequently, m-banking had advanced over the years, to become an inclusive banking transaction channel. This growth was driven by the increasing commercial needs and technological advancements in the mobile phone industry8 (Exhibit I).

Exhibit I Factors Driving the Demand for M-Banking

Growing Business Needs Progress in Mobile Technology

Source: “Evolution of Mobile Banking”,

http://www.infosys.com/finacle/solutions/thought-papers/Documents/evolution-mobile-banking.pdf

M-banking services were categorised into SMS Banking, Application (Software) oriented, Browser (Internet) based model and Mobile Apps. In the process of SMS Banking, banks offered banking services by sending an SMS to the registered mobile number of the customer. Customers using the Application or Software oriented service had to download the application developed by the bank in order to access the mobile banking service. In the Browser based m-banking service, the bank’s browser extending banking services was optimised and could be accessed by the customers’ mobile phones (equipped with internet). M-banking through Mobile Apps involved the creation of mobile applications for smartphones, utilising operating systems such as Android, Windows and Java. Services offered by banks through m-banking varied from one bank to another, yet the services provided commonly were Mini Statement, Balance Enquiry, Utility Bill Payments and Money Transfer.9 Africa was identified as the leading innovator in the m-banking realm, with the introduction of M-Pesa10 in Kenya with Safaricom11.The M-Pesa concept was further extended to other countries in Africa by the telecom major Vodafone and its partners. As of early 2014, close to 70% of the adult population in Kenya were found to be using M-Pesa and was also adopted by nine other countries which included Democratic Republic of the Congo, Mozambique, Egypt (where it is called Vodafone Cash), South Africa, Tanzania, India, Lesotho, Fiji and Qatar.

7 Devadevan V., “Mobile Banking in India – Issues & Challenges”, http://www.ijetae.com/files/Volume3Issue6/IJETAE_0613_90.pdf, June 2013 8 “Evolution of Mobile Banking”,op.cit. 9 “Mobile Banking in India – Issues & Challenges”, op.cit. 10 M-Pesa is a mobile-phone based money transfer and microfinancing service, launched in 2007 for Safaricom and Vodacom, the largest mobile network operators in Kenya and Tanzania. 11 Safaricom, Ltd is a leading mobile network operator in Kenya.

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M-banking was further projected to be driven by the urban population, particularly the youngsters, who used their mobile phones for commercial purposes. The Aité Group12 had named these young tech savvy people as the ‘smartphonatics’. According to the group around 36% of Gen ‘Y’ers13 were smartphonatics as close to one third of Gen ‘X’ers.14The findings from the 2012 Aité survey, stated that “Seventy per cent of smartphonatics have used their mobile device to make a payment and 80 per cent have used their device for banking purposes in the past six months.” Smartphonatics were found keen to swap their payment cards with mobile phones, in order to use the mobile phone as a channel to make payments.15 The Aité Group also projected that the growing use of smartphones was expected to fuel the number of consumers using m-banking in the U.S. The number was estimated to touch 96 million by 2016 from 33 million in 2012, at an annual growth rate of 30%. Consequently, it was anticipated that m-banking would expand its array of banking and related services by offering to manage portfolios, retirement accounts and similar such services. The developing countries on the other hand were expected to turn m-banking profitable. Countries such as Kenya proved to be the perfect example for the success of m-banking in the developing world. Mauro Guillen, Professor, The Wharton School of the University of Pennsylvania, thus added, “We’ve gotten to the point where, in some countries, more people use phones for banking than use banks.” Kenya had been one such country where more than half of the country’s adult population of 22 million accessed banking services through phone apps to do banking, while only 11 million had a bank account.16 Similar to Kenya, India was also proving to be an upcoming m-banking destination; the country where hardly land-line telephones existed several years back, had moved ahead to adopt the latest in mobile technology. This transformation had been pivotal to lead India’s banking sector to leapfrog ahead from traditional banking to wireless banking.17

Mobile Banking in India: The Next Wave A successful banking system had always been fundamental for the existence of a strong economy in India. Banks occupied a predominant position in the financial system of the country. Since the 1990s, the country’s banking system had received many accolades for its exceptional achievements. One amongst those had been the widespread reach. Banking services in India was not limited only to the urban areas but had also been extended to the distant parts of the country.18 The first and foremost bank in India was established in 1786. Since then the banking system in India had evolved through several stages which had been categorised as the early phase of Indian banks (1786 to 1969), nationalization of banks and the banking sector reforms (1969 to 1991) and, the new phase of Indian banking system, with the reforms (post 1991).

12 Aite Group (eye-tay) is a leading independent research and advisory firm focused on business, technology and regulatory issues and their impact on the financial services industry. 13 Generation Y: The generation of people born during the 1980s and early 1990s 14 The term "Generation X" generally refers to the generation of people born in the 1960s and 1970s. 15 Groenfeldt Tom, “Smartphones Boost Mobile Banking”, http://raconteur.net/technology/smartphones-boost-mobile-banking, February 2nd 2014 16 “Mobile Banking: The Next Big Thing Is Finally Here”, https://knowledge.wharton.upenn.edu/article/mobile-banking-the-next-big-thing-is-finally-here/, April 25th 2013 17 GovindarajanVijay, “Developing Countries Are Revolutionizing Mobile Banking”, http://blogs.hbr.org/2012/04/innovations-in-mobile-banking/, April 30th 2012 18 Khanna Manish and KaushalSaurabh, “Growth of Banking Sector in India: A Collective Study of History and its Operations”, http://oaji.net/articles/548-1395218428.pdf

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Banks provided various facilities to the customers, which included protecting customers’ money, providing loans and scrutinisation of accounts, issuing money orders and cashier cheques. Banks also offered insurance and investment products to the customers.19 These services were offered to the customers through several banking channels. For several years, customers had accessed the banking services through the traditional ‘Brick and mortar’ branches which were considered the foundation of India’s banking system. Since the late 1990s, the launch of ATMs in India had kick started the trend of self-service and the convenience of accessing money in any location and at any time of the day. The demand for self-service and the increased internet usage among customers impelled banks to introduce the concept of ‘anywhere banking.’ Through the facilitation of 24 hours banking services, the customers checked their account details, received bank statements, transferred money to other accounts and also paid pay their bills.20 While banks had been continuing to serve the customers through these channels, a change occurred with the technological advancements and growing needs of the customers. Both the urban and rural unbanked customers had been looking for a faster and efficient banking system. Banks too were in a similar search of a banking solution which would be cheaper and effective. In addition, analysts opined that serving the unbanked population through the ATMs and the banking correspondent model had not been successful on a large scale. Moreover, the percentage of the unbanked population was on the rise. Only 30% of the migrant laborers in India had bank accounts. A large number of the unbanked low income group had been storing and transferring huge sum of money through informal networks, which made them vulnerable to robbery and coercion. Close to 40% of the Indian population did not have access to banking services. Data from the National Sample Survey revealed that in 2012, 51.4% of 89.3 million families of farmers in India had no access to any form of credit from banks or non-institutional sources.21 The percentage of the unbanked population had been starkly different from the penetration percentage of mobile phones. The widespread reach of mobile phones across the country had been touted as one of the most amazing success stories on the economic and technological front, since 1987.The growth and adoption of the mobile phone technology had played a major role in the modernization of several other industry sectors as well as the socio-economic development of the country. India’s extensive network of telecommunication services had led to the expansion of markets, systematised flow of information and reduced cost of transaction. The increasing number of mobile phone users and extensive exposure of the mobile phone networks in the country prompted the banking sector to turn this as a channel for offering banking services. Tapping the advantages of this technology in order to provide banking services was expected to improve the lives of several households in India.22 These factors had led to the introduction of m-banking services in India23 (Exhibit II). In India, the principal m-banking model had been the bank-led model, in which the banks had been the central point of transactions. M-banking services are provided to the customers of the specific bank and all transfers and accounting are done through the bank. A variation of this model had been the partnership between the banks and telecom operators to provide services. Joint ventures between Vodafone Essar and ICICI Bank, and Airtel and Axis bank were some of the examples. In order to facilitate the m-banking operations, the mobile operators provided built-in applications or customised platforms. The services commonly offered by banks with m-banking options were

19 “Growth of Banking Sector in India: A Collective Study of History and its Operations”, op.cit. 20 Sudhir K., et al., “Mobile Banking in India: Barriers and Adoption Triggers”, http://som.yale.edu/sites/default/files/files/Mbanking%20report-Final.pdf, 2012 21 ibid. 22 ibid. 23 “Mobile Banking in India – Issues & Challenges”, op.cit.

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providing account information, money transfers and payments, investments, support and content services.24

Exhibit II The Growth of M-Banking in India

Source: “Can you carry your money in your mobile? M-Banking & M-Payments: The Next Frontier”,

http://www.deloitte.com/assets/Dcom-China/Local%20Assets/Documents/Industries/ Financial%20services/cn_gfsi_canucarryurmoneyinurmobile_040114.pdf, 2013

The m-banking service had been largely preferred by the customers. Data from the Reserve Bank of India (RBI) revealed that a total of 37 million mobile transactions had taken place during February and November 2012; an increase of nearly 1.7 times in volumes was recorded during this 10 month period. The transactions had witnessed close to a three-fold increase in value during the same period. While customers chose m-banking over the matter of convenience, the banks looked at m-banking as a low-cost yet effective channel for delivering banking services.25 M-banking in India was at the nascent stages and had been witnessing noticeable growth. According to the RBI more than 53 million people in the country were using m-banking as on October 2013. Data from the Boston Consulting Group anticipated that fees derived through m-banking will surpass $4.5 billion by 2015. In the similar context, a study by Assocham and Deloitte projected that the annual m-wallet and retail transactions would reach $410 billion; this included a prospective amount of $8 billion, out of which $5 billion was expected to be in the form of direct fees (individual usage of mobile to make a purchase or person-to-person payment) and $3 billion through indirect fees (utilization of network, voice and other services over the mobile). Having observed the growth of m-banking, Raghuram Rajan, Governor, RBI, revealed his keenness over tapping the mobile. “We will set up a technical committee to examine the feasibility of encrypted SMS-based funds transfer using an application to run on any type of handset, get banks and mobile companies to cooperate....” He further added, “It can be a game changer both in the financial sector as well as to mobile companies.”26

Banking in Finger Tips: A Digital Disruption? 24 “Mobile Banking in India: Barriers and Adoption Triggers”, op.cit. 25 KiranNiti, “Mobile banking on the rise in India”, http://businesstoday.intoday.in/story/mobile-banking-on-the-rise-in-india/1/191851.html, January 25th 2013 26 “Mobile Banking in India – Issues & Challenges”, op.cit.

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While industry observers were upbeat over the growth of m-banking in the country, analysts argued that m-banking has remained unexplored to the complete extent. The National Payments Corporation27 reported that as on January 2014, only 67 million mobile phones were linked to bank accounts despite the number of mobile phones in the country being more than 900 million and the bank accounts being over 450 million. This figure of 67 million according to analysts reflected the fact that the m-banking had not taken off completely in the country. In this context, Abhay P Hota (Hota), Managing Director and Chief Executive, National Payments Corporation, opined, "(Number of) Active mobile users in the country is between 500 and 600 million, while the total connections are around 900 million. Out of this active users, 90 per cent or around 400 million users have bank accounts. Of these however, only 67 million mobiles are linked to their bank accounts."28 In the half-yearly financial stability report released by the central bank in December 2013, the RBI had expressed that m-banking had not achieved the desired growth. The report also put forward the key reasons for the former experience. The reasons cited were ‘incompatible handsets, low levels of awareness and acceptance, inability of banks to seed the mobile number with the account number, absence of collaboration and revenue sharing models between banks and mobile operators, and absence of unstructured supplementary service data (USSD) channels for mobile banking.’29 Analysts highlighted the fact that the swift growth of mobile technology had been a drawback for the potential expansion of m-banking. The successive upgradation of mobile phone technology such as 2G, 3G, 4G had been major hurdles for the banks.30 Analysts asserted that the technological changes were hindering the banks from offering m-banking services to all customers. Furthermore it was turning the process cumbrous. Commenting on the same, Shyamal Saxena, General Manager, Retail banking products, Standard Chartered Bank added, “It is at a nascent stage and one obvious reason is the protocols. The services are not seamless across platforms such as ordinary phones or smartphones.”31 Possessing mobile phones of different technological levels, led to variations in the services demanded by customers. On this note Ritika Basu, Director, Programme Management, SapientNitro32, pointed out, “The tech-savvy urban dweller would look for functionality beyond simple remittances. The unbanked will look for ease of transacting over simpler ways (like SMS).” Putting forward his view over the same Arindam Mukherjee (Mukherjee), Manager, Regional Sales (BFSI), Cisco (India & Saarc), asserted, “You have a sharp divide between what an iPhone and Android wallet with an e-wad of cards can do in a mall, and what basic phones with prepaid or no cards at all can offer to the less affluent parts of the world.”33 The launch of smartphones had transformed the conventional mobile software into Mobile Apps. Developing Apps was challenging according to analysts, since it had to be developed specifically for different mobile operating systems.34 Designing an app for m-banking was expected to be a difficult task. Highlighting the challenge of designing a banking app, particularly for startup firms, Alok Mittal, MD, Canaan Partners India, stated, “It involves a lot of integration of software and hardware, large

27 National Payments Corporation of India (NPCI) was established in India in 2009 with a mission to build state of the art world class customer friendly electronic retail payment available and affordable to all round the clock. 28 “Only 67 million mobile phones linked to bank accounts: NPCI”, http://articles.economictimes.indiatimes.com/2014-01-26/news/46636535_1_bank-accounts-ussd-mobile-banking, January 26th 2014 29 “Growth of mobile banking in India has been below expectations: RBI”, op.cit. 30 “The Mobile Banking Tussle”, op.cit. 31 Kumar Saurabh, “What’s holding us back from using mobile banking?”, http://www.livemint.com/Money/x3UqDvjzgX4mcr0nNnK8RK/Whats-holding-us-back-from-using-mobile-banking.html, February 12th 2013 32 SapientNitro is an interactive marketing, creative design, & technology services agency that helps companies solve challenges to make brands more successful. 33 “The Mobile Banking Tussle”, op.cit. 34 “Mobile Banking in India – Issues & Challenges”, op.cit.

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teams and contracts that last for lengthy periods.” In the similar context, Rahul Chandra (Chandra), Managing Director, Helion Venture Partners stated, “There is an ecosystem of firms building apps for bank customers, but these are early days.” According to experts, developing an app for m-banking involved a two-fold challenge to the banks; the spaghetti-style difficulty of assimilating various apps over a period of time and consolidating them with its core banking system. Expressing his view over the gravity of the problem Chandra added, “A middleware is important to manage the cost and complexity of building apps. Strong knowledge of core banking is required to provide rapid integration without disrupting bank operations.” Putting forward his view about app-based financial inclusion Priyanshu Gupta, Associate Vice-President, Lok Capital, opined, “App-based financial inclusion is under experimentation. But there are many barriers. You have to make the smartphone easy to use and then there are trust issues.”35 The trust issue as pointed out by analysts had been a major hurdle as customers were concerned over the security of banking through mobile phones. Moreover, the mobile phone being a small and handy device was prone to theft. Industry experts felt that banks would have to give a serious concern over this issue and also educate customers over the security mechanisms for m-banking to be safe and effective.36 Speaking about the security issues, Dominic K. (Dominic), cyber security expert and founder, Jarviz Mobile Security, asserted, “The very portability of mobile phones makes them easy to steal. A sophisticated attacker with enough time can defeat most security features of mobile phones and gain access to any information they store.” Experts in this field opined that several software applications or apps which looked genuine, were actually vicious. “Anyone can develop apps for some of the most popular mobile operating systems and mobile service providers may offer third-party apps with little or no evaluation of their safety,” stated Dominic. He further added, “If you back up your phone data to a personal computer, look for an option to encrypt the back-up.”37 A research was conducted amongst customers to understand the factors hindering them from choosing m-banking. The issues prompted by the customers were assimilated under four broad categories – ‘lack of awareness, security concerns and support issues as other major reasons apart for not using the mobile phone for banking purposes.’38 (Exhibit III). Apart from issues related to the mobile phones, industry experts cited that the bank-led model was acting as a major drawback. In this model the service is relayed to the customer through the telecom networks. For instance, if Axis Bank was tied up with Airtel Money it was an extension of the channel. Customer can access ‘Airtel Money-Axis Bank’ outlets, in order to open an ‘Airtel Money Super Account’ (a no-frills account) to deposit, withdraw and remit funds to other users. However, m-wallets could function specifically on a given telecom’s network and does not support inter-operability. Indicating this factor to be a disadvantage for m-banking, Piyush Singh, Managing Director, Financial Services, Accenture, stressed “If the closed m-wallet is made open, it can give it a leg up.” Expressing a similar viewpoint, Jose Thattil, Head, Sales and Marketing, ElectraCard Services39, opined, “You have to link it to the larger payment ecosystem, retailers and across telcos to get volumes. Or you will have islands.” In the telco-led model, payment of cash in an outlet by the customers resulted in the generation of e-credits which would get stored in the mobile. The usage of e-credits was at the choice of the 35 “The Mobile Banking Tussle”, op.cit. 36 “Mobile Banking in India – Issues & Challenges”, op.cit. 37 “What’s holding us back from using mobile banking?”,op.cit. 38 “Mobile Banking in India: Barriers and Adoption Triggers”, op.cit. 39 ElectraCard Services, a MasterCard company is a leading global provider of software solutions and processing services for electronic payment and card systems.

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customers or they could exchange it for cash at the outlet. Telecom companies alleged that the m-banking license was provided by the RBI and not by the Telecom Regulatory Authority of India. Moreover they also pointed that they were not keen to perform the role of a bank. M-wallet was generally funded by cash or by a credit card and in the case of prepaid plastic, funds had been kept in a bank’s escrow account (escrow generally refers to money held by a third-party on behalf of transacting parties).Voicing a similar opinion, Sriram Jagannathan, CEO, Airtel MCommerce, stated, “We can’t use it for our treasury business. There’s a misconception that telcos are interested in such floats.”

Exhibit III Factors Preventing Customers from Adopting M-Banking

Lack of Awareness Technology Problems Security Concerns Support Issues

“Not many people I know currently use

m-banking “

“Mobile phone needs to be compatible for m-banking operations”

“Anyone can misuse my details incase I lose my

mobile”

“There is no human interface or service

executive that you can contact with questions”

“I currently don’t have the need”

“At times there is no mobile network”

“Possibility of errors in m-banking higher than in

internet banking”

“Lack of acknowledgement of the

transaction at times”

“Not as popular as net banking”

“Data transmission is too slow on the mobile’

“M-banking is not a safe and secure mode to do financial transactions”

“It is expensive to use mobile for these

activities” - - -

“Don’t know much about” - - -

“M-banking services not versatile enough” - - -

“M-banking is too complicated to use” - - -

Source: Sudhir K., et al.,“Mobile Banking in India: Barriers and Adoption Triggers”, http://som.yale.edu/sites/default/files/files/Mbanking%20report-Final.pdf, 2012

Speaking about the tussle between the banks and the telecom companies, Mukherjee, opined, “Banks worry telcos want to be banks; telcos worry banks want to become telcos. Neither is right.” He further added, “The RBI does not have enough regulatory authority over mobile payment firms.” In the similar context, DuvvuriSubbarao, former Governor, RBI, opined, “Entry into the banking space has to be on open, transparent and contestable criteria. It may not be prudent to allow mobile operators privileged access to banking through the mobile route.”40 In order to transcend the struggle of banks trying to tie up with several mobile network operators (MNOs) and to aid the spread and usage of m-banking through USSD, analysts stressed the need for a common USSD gateway for m-banking. Experts opined that a common USSD Gateway facilitated offering m-banking services in a well-planned and cost effective manner for all customers.41 Speaking about the development regarding the USSD Gateway for m-banking, Hota declared, “Here you dial a two digit number prefixed with a star sign and followed by a hash tag. This throws up various service options. The department of telecommunication has asked all telecom companies to

40 “The Mobile Banking Tussle”, op.cit. 41 “RBI panel favours single mobile banking app on all SIMs”, http://www.thehindubusinessline.com/economy/policy/rbi-panel-favours-single-mobile-banking-app-on-all-sims/article5665059.ece, February 7th 2014

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reserve *99# for USSD-based financial services.” But, industry experts predicted that it would take time for the USSD-based services to be implemented. Pointing the issue related to USSD, Saxena, opined, “The good thing is that it can be used on any phone, so a standard platform can be there. But it requires you to remember codes, which may be difficult. The question is who should promote USSD? All stakeholders will have to find a middle path in terms of revenue sharing for USSD for it to become operational.”42 While the telcos and the banks are busy in a tussle, the mega retailers were quietly working out their plans. Joining the bandwagon, large retailers had begun tapping this segment. Predictions from the European Financial Review (March 2013) had projected that by 2015 more than 900 million people were expected to transact $1 trillion in m-payments. Mega retailers like Best Buy, Walmart and Target had come together to design their variant of an m-wallet, the Merchant Customer Exchange, vying to gain control in payments. Similar to these were the Apple Passbook and Google Wallet. Furthermore, there were Facebook Credits, which was licensed for money transmission in more than 15 states in the U.S. and the Twitter-based fund-raising ‘Twitpay’. Consequently, experts feared that the foray of big retailers into India and the growth of social networking would have an upper hand in this segment, despite RBI framing the rules over the payments.43 Besides the technical and regulatory challenges, India’s multi-linguistic atmosphere was considered as major challenge for the proliferation of m-banking. India had 18 official languages; two-thirds of the population in India was illiterate.44 Providing m-banking services overcoming the language and literacy barrier would be tough asserted industry analysts. Furthermore, analysts felt that m-banking would be successful only if operators provide local language options. Pointing out this factor, Hota stated, "We cannot expect any inclusion without having systems in local languages."45 Post the launch of m-banking in India, m-banking transactions had witnessed growth, yet it had not gained larger preference among customers who still preferred conventional banking.46 Experts felt that there were a few factors for m-banking to succeed in India. In this context Ravi Jagannathan (Jagannathan), Vice-Chairman, eMudhra47 and Director, YPayCash48, stressed, “If one were to look at the US, players from different industry segments have come together to create JVs and consortiums. ISIS has been formed with banks, card companies and telcos coming together.” Besides arriving at the right m-banking model, experts opined that m-banking must comprehend key factors such as the effectiveness of the product design, additional value offered to the customers and merchants, incorporating shopping-related criterions to payment and achieving sustainability by having a revenue model at a unit level. Commenting on the same, Jagannathan opined, “Square, m-pesa and PayPal attest to the fact that they have had sustainable margins at a unit level along with product features which have addressed either a customer or merchant need.” Highlighting the overall picture of m-banking, Singh opined that, “It is not about technology. Sooner or later, it will get created and adopted. Just what is the proposition that m-mobile presents to the customer? M-banking is just another channel. Can you service the customer across channels? That is the point.”49 42 “What’s holding us back from using mobile banking?”, op.cit. 43 ibid. 44 Goyal Vishal, et al., “Mobile Banking in India: Practices, Challenges and Security Issues”, http://warse.org/pdfs/ijatcse03122012.pdf 45 “Only 67 million mobile phones linked to bank accounts: NPCI”, op.cit. 46 Saini Gurmeet Singh, “MOBILE BANKING IN INDIA: ISSUES AND CHALLENGES”, http://www.saiompublications.com/journal/index.php/ISSN-2347-7571/article/view/96/pdf_15, March 2014 47 eMudhra Consumer Services Limited offers various web and mobile based technology solutions to Indian consumers. 48 Y-Cash Software Solutions Pvt. Ltd aims to provide leading edge & maverick solutions and services using mobile technology. 49 “The Mobile Banking Tussle”, op.cit.

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Mobile Banking in India- A Game Changer

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