neel majumdar

Banking and Capital MarketsMobile Banking and Payments

Greater Mekong Mobile Payments & Banking SummitBanking SummitUse of the Mobile Channel to Increase Financial Inclusion - the Indian Experience*ExperienceApril 2010

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

PwC*connectedthinking

Agenda/Contents/Section

Lack of Financial Access – The Scale of the ChallengeLack of Financial Access – The Scale of the ChallengeRole of Mobile Devices in Increasing Financial AccessVarious Enabler Models for Financial AccessRBI InitiativesRBI InitiativesKey Barriers to Achieving Financial Inclusion through the Mobile DevicePossible Facilitators to Overcome the Barriers

Definitions of Financial Inclusion/Exclusion

Lack of Financial Access – The Scale of the Challenge

Institution/Author Definition Indicators

ADB (2000) Provision of a broad range of financial services such as deposits, loans,

Deposits, loans, payment services, money transfer and p , ,

payment services, money transfers andinsurance to poor and low-income households and their micro-enterprises.

, yinsurance.

United Nations (2006) A financial sector that provides ‘access’ to Access to credit, insurance, credit for all ‘bankable’ people and firms, to insurance for all insurablepeople and firms and to savings and payments services for everyone. Inclusive finance does not require that

savings, paymentservices.

finance does not require thateveryone 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 The process of ensuring access to Access to financial services pFinancialInclusion in India (Chairman:C.Rangarajan) (2008)

p gfinancial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost

and timely and adequate credit.

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

affordable cost.Source: Chapter VII, Financial Inclusion, Report on Currency and Finance

Why Financial Inclusion?


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 itho t broad

y

• Transformation to post-industrial modern society not possible without 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 leakagesg 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 mainstreaminto 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

PricewaterhouseCoopers

liability mismatches

Slide 4April 2010Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience

Extent of Financial Exclusion in India


• Out of 600,000 habitations (villages/towns/cities), only about 30,000 have a commercial bank branch

Onl abo t 40 percent of pop lation ha e bank acco nts• Only about 40 percent of population have bank 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• National Sample survey data shows that in 2003, out of the 89.3 million 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 savingsa savings account

• Only 24 % of Rural households havehouseholds have a savings account

PricewaterhouseCoopersApril 2010

Slide 6Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience

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

The Market Opportunity for MobilesFinancial Inclusion – Role of Mobile Devices

Approx. 400 M mobile accounts in India of which 187 million (46%) do

not have a bank accountnot 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

Source: TRAI Data Presentation by Amit Mehta at Mobiiles & Money Summit in Mumbai e Financial Inclusion “Towards

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 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

Financial Inclusion – Role of Mobile Devices

y y gChannel Primary

SegmentsAccessibility Attribute

Internet Affluent, Mass - Dependency on

Affluent

Internet Affluent, Mass Affluent

Dependency on access toComputers

- ICT network

ATM Affluent, Mass - Regulatory

Mass Affluent

,Affluent

g yRestrictions

- Infrastructure Costs

Branch Affluent, Mass Affluent, Mass

- RegulatoryRestrictions

Mass Market Market - Infrastructure Costs

Mobile Affluent, Mass Affluent, Mass M k t L

- Accessible to low income GroupC t ff tiLow Income + Unbanked Market, Low

Income + Unbanked

- Cost effective- Anytime, anywhere



Mobile Devices - Another Option for Accessing Financial


gServices

Mobile DeviceBank card

Mobile Device + Chip (SIM / NFC)

+

POS Device + Mobile Device

+ Card Reader

ATM+

Mobile Device + Cash Till

Net Banking

+ Mobile Device + GPRS/SMS/



Banking USSD

The Mobile Channel Offers Drastically Lower Cost of Withdrawal/


yDeposit Methods



Source: Mint Newspaper

M bil B ki

Mobile Banking and Payments – Service ModelsEnabler Models for Financial Access

Mobile as payment instrumentMobile Banking

• PUSH Services (Alerts) tosend information to thecustomer’s mobile on the

Mobile as payment instrument

• Transaction-based Banking

• Application based serviceoccurrence of certain eventsin their accounts

• Information Banking

• IVR based service

• WAP-based banking

−SMS-based

−IVR based service• Branchless Banking* – BCs

• USSD platform based (Yes Bank)

• Mobile Payment Aggregator

• Mobile Commerce Aggregatorusing the mobile as one of the

facilitators of end-to-end

banking service

gg g

• Mobile Based Prepaid Cards



The Indian Mobile Banking LandscapeEnabler Models for Financial Access

Models ProviderName

Basic Working Relevant Information

Branchless Banking

A Little World/ Zero Microfinance*(Business

• ZMF acts as a Business Correspondent to 22 Banks under RBI guidelines.

• Technology platform provided by A Little World

• 9,400 outlets are now live, for 22 Banks

• 3.8 million customers have registered(

Correspondent/Microfinance Concept)

• No-frills zero-balance bank accounts are opened for every villager.

• Fingerprint authentication used to operate the account.

• Entire village gets a full suite of banking

g• Operations extend to

most parts of India

• Entire village gets a full suite of 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

Enabler Models for Financial Access

Operators – Mostly SHG women

Enrolment - Fingerprint Capture

Enrolment - Photo Capture

Getting ready for the day –Mobile Charged, Registers, forms, etc

Check Mobile equipment and cash

Payment to Beneficiary – FP verification

Printing of the receipt

Source: Financially Connecting India through Mobiles Low Cost Operation Using Mobile Phones + Biometrics by Sonjoy Mohanty CEO



Source: Financially Connecting India through Mobiles - Low Cost Operation Using Mobile Phones + Biometrics, by Sonjoy Mohanty, CEO, A Little World


Models ProviderName

Basic Working Bank Partners Merchantnetwork

PayMate(IVR Technology +SMS, mobile mall for

Links with partner Bankaccounts or debit and credit cards to process payments to merchants in the network.

State Bank of India, IDBI, Cosmos Bank, Canara Bank, Lakshmi Bank, Corporation Bank,

Online merchants,retail outlets, mobile recharge, utility billers, tickets (flight, rail, movie,

Mobile

mall for ecommerce transactions). Operatorindependent.

Can also link to prepaid account which is only reloadable through AMEX, MC, Visa or CitiBank debit or credit card

Corporation Bank, HDFC Bank, Standard Bank, RBS, South Indian Bank, Karnataka Bank Bank of India

(flight, rail, movie, bus), Direct to Home (DTH) providers (Tata Sky, Sun Direct, Dish TV

PaymentAggregator

credit card Bank, Bank of India, CitiGroup

mCheck(SIM toolkit-based

Links with partner Bankaccounts or debit and credit cards to process payments

HDFC Bank / ICICI Bank / Standard Chartered Bank &

Telecom Operators, Utility Bills, Insurance Onlinebased

application, GPRS based download to phone )

cards to process payments to merchants in the network.

Chartered Bank & Corporation Bank issuing Debt Cards on mcheck.

Insurance, Online Travel Portals . Movie tickets, online shopping, DTH pm mobile


mall.

April 2010Slide 14

Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience

NgPay – A Mobile Commerce Provider

Models ProviderName

Basic Working Bank Partners

Merchant network

Mobile

ngpay(Mall on Mobile)

(Application

Links with partner Bankaccounts and execute direct debit transactions (NEFT) over mobile.

HDFC Bank / AXIS Bank

More than 120 partners across 10 sectors. Shop, send gifts, buy books, buy movie tickets, book all travel tickets, rechargeMobile

Commerce Aggregator

based technology)

Direct debit is an established mechanism to make online payment to merchant or to a person.

Can also link to prepaid

all travel tickets, recharge mobile & DTH, bank and more - easily and securely - from your mobile handset.

account of the bank.Note: largest mobile channel for Indian Railways




Models ProviderName

Basic Working Merchant network Relevant Information

Prepaid Cash Card/Prepaid Card

ItzCash*(Prepaid Card by non-bank)

Can be obtained from approx 180,000 outlets across approx 1800 Tier I & II towns in

Electricity billers, Telephone Landline, Mobile Postpaid, Mobile Prepaid,

• Launched in the year 2005 • More than 7 million unique

active users and rapidly increasing )

India. Also available at approx 15, 000 ItzCashfranchisees. Option to have card home delivered

p ,Cooking gas, Insurance companies, ISP, Railway tickets, Travel Agencies, Cable/DTH Citizen

g• Processes more than one

lakh transactions daily • Processes more than Rs.

80 mn ~ Rs. 100 mn worth transactions dailydelivered.

Has 12 digit account number and a 4-digit password at the back

Cable/DTH, Citizen Services by Government or Government bodies

transactions daily • Have won various awards

including "Innovative Use of Technology"

of the card that are necessary for online, mobile and IVR transactions.



* ZipCash is another provider that works on a similar model

Key RBI Policies, Circulars and Guidelines Issues to Promote

Financial Inclusion – RBI Initiatives

yFinancial Inclusion

RBI Directive to B k

Payments and

Final Policy Guidelines

Banks to make “No

Frills” Accounts available

Settlements Act Passed

Final

Gu de esfor issuance

and operation of

Prepaid Payment

RBI Annual Policy

Statement stressing need for Financial

RBI Guideline allowing

Banks to use BCs/BFs

Final Operating Guidelines for Mobile Banking

transactions

Instruments

Prepaid PolicyFinancial

Inclusion for Banks

D ’07 O t ’08 Apr ’09

Policy Guidelines Amended

A ’09

2005 2006 2007 2008 2009 2010

Nov, ‘05 Dec, ’07 Oct, ’08 Apr, ’09 Aug ’09



Easier credit facilityRBI Initiatives for Financial InclusionFinancial Inclusion – RBI Initiatives

• Easier credit facility

− General Purpose Credit Card (GPCC) facility up to Rs. 25,000

− SHG-Bank Linkage ProgrammeSHG Bank Linkage Programme

− 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)• Facilitation of new products (Prepaid accounts)

• EBT Through Banks

• 100% Financial Inclusion drive & Financial Literacy, Credit Counselling and y, gProject Financial Literacy

• Liberalization of Bank branches and ATM expansion; expansion of banks in north-east


north east

Slide 18April 2010Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience

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

Barriers to Financial Inclusion Through Mobile Banking

Barriers to Achieving Financial Inclusion

g g

Most importantChallenge Is trust and

Difficulty in Reading& Writing SMS

Security

Is trust andsecurity

Illiteracy

Lack ofAwareness

of M-Banking

LowPenetration

of GPRS

AwarenessLimited Handset

Capabilities

services

Can we makethe solutionsaffordable to the masses

Still many R l t h dl



Affordability Regulatory Environment

Regulatory hurdles

Facilitators to Overcome the Barriers to Achieving Financial

Facilitators to Overcome Barriers

• Allow telecom companies to take part in payment and settlement cycle;

gInclusion

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 and special incentives to Technology players

including Telcos and handset manufacturers and third party aggregators

• Increasing financial awareness in unbanked population through outreach• 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 manufacturersstakeholders (Banks and non banking FIs, telcos, handset manufacturers

and third party aggregators)

• Introduction of Technology Enabled (For ex. Java based) Mobile handsets


at minimal costApril 2010


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

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

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

Contact:Contact:Neel Majumdar

Managing Consultant

Performance Improvement PracticePerformance Improvement Practice

Tel: +91 33 4404 3196

Cell: +91 9830381643

E il l j d @i

PwC

Email: [email protected]

AppendixAppendix

PwC

Rural and Urban Teledensity in India

PwC

Source: TRAI Annual Report 2008-2009

Growth of wireless subscribers capable of AccessingData services/Internet

PwC

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

Mobile Phones Have Become the PCs of the Developing Worldg

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

UrbanRural

25113 6H

22

26

24

12

23

35

4

10

36

6

18

46LM

M

UM

1998 – 99 2006 – 07

24

3

35

18

36

47

46

24

1998 – 99 2006 – 07

L

LM

Source : NCAER

1998 99 2006 – 071998 99 2006 – 07

PwC

C/ f

Key Features of Relevant RBI Policies, Circulars and Guidelines Engaging BC/BFs for Financial Inclusion

• Business Facilitators (BFs)

− BFs to facilitate through collection and preliminary processing of loan applications, creatingawareness about savings, nurturing SHGs, monitoring and recovering payments postdisbursal

• 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 valueremittances

− Strict due diligence norms to be followed before banks engage BCs, strict norms on cashholding limits and requirement that funds collected to be transferred to bank’s books withinone working day

• Banks allowed to pay reasonable fees to BC/BFs

• Reputational, legal and operational risks involved; hence banks required to implementtechnology based risk mitigation solutions


• Compliance with KYC norms continues to be bank’s responsibilities

April 2010Slide 28


“No Frills” Account DirectiveKey Features of Relevant RBI Policies, Circulars and Guidelines

− Asked banks to offer a basic banking “no-frills” account with low or zero minimumbalances and minimum charges to expand the outreach of such accounts to lowincome groups

Payments and Settlements Act

− Provided authority to the Reserve Bank of India (RBI) to regulate Payments andSettlement Systems in the countrySettlement 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 SettlementSystems Regulation 2008 and the Payment and Settlement Systems RegulationsSystems Regulation, 2008 and the Payment and Settlement Systems 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” andother 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 ofgreat importance, as in India, other than the Real Time Gross Settlement (RTGS)

t ll th t t f ti t ttl t b i


system, all other payment systems function on a net settlement basis.

April 2010Slide 29


Key Features of Relevant RBI Policies, Circulars and Guidelines

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• Daily transaction limit of INR 50,000 for P2P and P2B transfers

• Per transaction limit of INR 5,000 (and monthly cap of INR 25,000 per customer) forremittance of funds for disbursement of cash through ATMs or BCs

C f f f• Compulsory two-factor authentication, one of the factors need to be mPIN or anyhigher standard; transactions up to Rs. 1,000 can be facilitated by banks withoutend-to-end encryption

I t bilit t b t b k d ll bil b ki i t h• Interoperability must between banks and all mobile banking service operators; hencemessage 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 throughnationwide infrastructure, enabling real-time fund transfer between two accounts heldin any bank and operated by users using mobile banking services of any operator



Key Features of Relevant RBI Policies, Circulars and Guidelines

Prepaid Instrument Guidelines

• Three broad categories – closed, semi-closed and open system paymentinstruments

• Only banks allowed to offer mobile banking services are eligible to offer mobilebased pre-paid payment instruments (mobile wallets & mobile accounts)

• Non-banks allowed to offer only semi-closed prepaid instrumentsNon banks allowed to offer only semi closed prepaid instruments

• 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 6thmonths

• Semi-closed prepaid instruments for utility payments can be offered without KYC upto a limit of INR 10,000

• Reload of such payment instruments allowed against payment by cash/debit to bankaccount/credit card either by bank or by agent appointed by bank/non-bank



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