Mobile banking in lay man terms means the using of a mobile phone to offer banking services. Banks have introduced two different products in mobile banking. One is a personal/retail banking product and the other is a product to promote financial inclusion. As a personal banking product it is offered to every savings/current account holder and provides anytime anywhere banking. The mobile banking initiatives were started by foreign and private banks followed by public sector banks.
Mobile banking service is primarily available over SMS (Short Messaging Service) or through GPRS (General Packet Radio Service) or sometimes through USSD (Unstructured Supplementary Service Data). The services available are:
Ø Funds transfer (intra and interbank)
Ø Balance enquiry services/mini statements
Ø Request services (cheque book)
Ø Utility bill payments and credit card payments
Ø Demat account services
Ø Mobile top up
Ø Merchant payment, life insurance premium
Ø Stop payment instructions
The rationale for using mobile banking as a product to promote financial inclusion is that even 63 years after independence, the majority of Indians do not have access to banking services. Growth and development of the Indian economy has to translate into income generation and empowerment of the whole population irrespective of areas and sectors. Access to finance by the poor and vulnerable groups is necessary for poverty reduction and social cohesion. Providing access to finance is a form of empowerment of the low income and weaker sections of the society. The various financial services include credit, savings, insurance, payments and remittance facilities.
The majority of the low income groups are wary of opening accounts with Banks partly because the nearest bank branch means an expenditure on transport (especially in the rural areas) plus loss of a day’s wages and partly because they are intimidated by the bank branch. The poor are not able to access banking facilities because of illiteracy, gender, age, low and irregular income, regulating factors like identity documentation, non availability of bank branches etc. A major barrier cited to expand appropriate banking services to the poor is also the cost of providing these services. Servicing the poor with small value services is not viable using conventional retail banking approach.
To overcome these problems RBI permitted Banks to open basic bank accounts with nil or low minimum balances called No Frills accounts and simplified Know Your Customer (KYC) norms. RBI also permitted Banks to outsource certain activities and issued guidelines for appointment of Business Correspondents and Business Facilitators as Delivery Channels of finance to the poor.
Banks use mobile phones to open smart card based No Frills accounts in unbanked villages and offer banking services through Points of Sale (POS) instruments handled by agents of Business Correspondents. Operations are not permitted for these accounts at the branches except as a fall back (like failure of BC, etc.). This can be called as a Bank in a Box. The entire set up consists of a mobile phone which serves as a POS machine, a finger print scanner and a tiny printer, all of which works on rechargeable batteries and can be packed into a small box. The customers open a No Frills account on smart cards. The smart card is akin to an e-purse and stores information about the customer, the account number, finger prints as well as balance in the account. The smart card can handle a number of accounts including loan accounts. The card is highly secure as it works on the biometric validation of the customer. The smart card works in conjunction with a mobile or hand held connectivity devise using the appropriate technology. Transactions are possible in both online and offline mode. It also permits real time updating of the balances in the card. By issuing a smart card to the customer, the cost of the transaction is reduced because paper based transactions are being dispensed with and the actual operation of the transaction in the account is being shifted from the branch to the Customer Service Point/Provider at any outlet in the location of the customer.
Thus customers can operate their account through a Business Correspondent outlet that only needs a mobile phone, a finger print scanner and a small printer to provide banking facilities and financial security to the customer. The salient features of the account are:
Ø It is a No Frills saving account
Ø Opened by individuals only
Ø No joint accounts are permitted
Ø It is available at Customer Service Points(CSP) of bank appointed Business Correspondents/Business Facilitators
Ø The initial deposit and minimum balance to be maintained is NIL
Ø Rate of interest is as applicable to normal savings accounts
Ø Cash withdrawals and funds transfer will be permitted at the CSP, subject to satisfactory biometric verification of the card holder
Ø KYC norms will be done as per RBI guidelines for No Frills accounts
Ø Nomination is made compulsory by some banks as the smart card is in single name only
Ø The core banking (CBS) branch closest to the CSP of the Business Correspondent will be the link branch. The smart card accounts will have the link branch as their home branch
Ø Banks normally designate an official to attend to any grievances of the card holders