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

Lack of Financial Access The Scale of the Challenge

Definitions of Financial Inclusion/Exclusion

Institution/Author ADB (2000) Definition Provision of a broad range of financial p , , services such as deposits, loans, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises. A financial sector that provides access to credit for all bankable people and firms, to insurance for all insurable 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. The process of ensuring access to p g financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. cost Indicators Deposits, loans, payment services, money transfer and , y insurance.

United Nations (2006)

Access to credit, insurance, savings, payment services.

Report of the Committee on p Financial Inclusion in India (Chairman: C.Rangarajan) (2008)

Access to financial services and timely and adequate credit.

Source: Chapter VII, Financial Inclusion, Report on Currency and Finance Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 3

Lack of Financial Access The Scale of the Challenge

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

Lack of Financial Access The Scale of the Challenge

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 Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 5

Lack of Financial Access The Scale of the Challenge

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 Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 6

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 Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 7

Financial Inclusion Role of Mobile Devices

Channel Accessibility by Different Population Segments y y g

Channel
Internet

Primary Segments
Affluent, Mass Affluent

Accessibility Attribute
- Dependency on access to Computers - ICT network - Regulatory g y Restrictions - Infrastructure Costs - Regulatory Restrictions - Infrastructure Costs - Accessible to low income Group - C t effective Cost ff ti - Anytime, anywhere

Affluent Mass Affluent

ATM

Affluent, Mass , Affluent Affluent, Mass Affluent, Mass Market Affluent, Mass Affluent, Mass Market, Low M k t L Income + Unbanked

Branch Mass Market Mobile Low Income + Unbanked

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

April 2010 Slide 8

Financial Inclusion Role of Mobile Devices

Mobile Devices - Another Option for Accessing Financial g Services

Bank card POS Device Mobile Device + Chip (SIM / NFC) Mobile Device + Card Reader

+ +

ATM

+ +

Mobile Device + Cash Till Mobile Device + GPRS/SMS/ USSD

April 2010 Slide 9

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

Financial Inclusion Role of Mobile Devices

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

Source: Mint Newspaper Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 10

Enabler Models for Financial Access

Mobile Banking and Payments Service Models

Mobile Banking M bil B ki PUSH Services (Alerts) to send information to the customers mobile on the occurrence of certain events in their accounts Information Banking SMS-based IVR based service Branchless Banking* BCs using the mobile as one of the facilitators of end-to-end banking service Mobile as payment instrument
Transaction-based Banking Application based service IVR based service WAP-based banking USSD platform based (Yes Bank) Mobile Payment Aggregator Mobile Commerce Aggregator gg g Mobile Based Prepaid Cards

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

April 2010 Slide 11

Enabler Models for Financial Access

The Indian Mobile Banking Landscape

Models Provider Name Basic Working Relevant Information

Branchless Banking

A Little World/ Zero Microfinance* ( (Business Correspondent/ Microfinance Concept)

ZMF acts as a Business Correspondent to 22 Banks under RBI guidelines. Technology platform provided by A Little World 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 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.

9,400 outlets are now live, for 22 Banks 3.8 million customers have registered g Operations extend to most parts of India

* FINO, Eko are two other solution providers that works on a similar model
Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 12

Enabler Models for Financial Access

A Little World Snapshots of the Operation

Operators Mostly SHG women

Enrolment - Fingerprint Capture

Enrolment - Photo Capture

Payment to Beneficiary FP verification

Printing of the receipt

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

Check Mobile equipment and cash

Source: Financially Connecting India through Mobiles - Low Cost Operation Using Mobile Phones + Biometrics by Sonjoy Mohanty CEO Biometrics, Mohanty, CEO, A Little World Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 13

Enabler Models for Financial Access

The Indian Mobile Banking Landscape

Models Provider Name
PayMate (IVR Technology + SMS, mobile mall for ecommerce transactions). Operator independent.

Basic Working
Links with partner Bank accounts or debit and credit cards to process payments to merchants in the network. Can also link to prepaid account which is only reloadable through AMEX, MC, Visa or CitiBank debit or credit card Links with partner Bank accounts or debit and credit cards to process payments to merchants in the network.

Bank Partners
State Bank of India, IDBI, Cosmos Bank, Canara Bank, Lakshmi Bank, Corporation Bank, HDFC Bank, Standard Bank, RBS, South Indian Bank, Karnataka Bank, Bank Bank of India, India CitiGroup HDFC Bank / ICICI Bank / Standard Chartered Bank & Corporation Bank issuing Debt Cards on mcheck.

Merchant network
Online merchants, retail outlets, mobile recharge, utility billers, tickets (flight, rail, movie, bus), Direct to Home (DTH) providers (Tata Sky, Sun Direct, Dish TV

Mobile Payment Aggregator

mCheck (SIM toolkitbased application, GPRS based download to phone )

Telecom Operators, Utility Bills, Insurance, Insurance Online Travel Portals . Movie tickets, online shopping, DTH pm mobile mall.
April 2010 Slide 14

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

NgPay A Mobile Commerce Provider

Models Provider Name
ngpay (Mall on Mobile) Mobile Commerce Aggregator
(Application based technology)

Basic Working
Links with partner Bank accounts and execute direct debit transactions (NEFT) over mobile.
Direct debit is an established mechanism to make online payment to merchant or to a person.

Bank Partners
HDFC Bank / AXIS Bank

Merchant network
More than 120 partners across 10 sectors. Shop, send gifts, buy books, buy movie tickets, book all travel tickets, recharge mobile & DTH, bank and more - easily and securely - from your mobile handset.
Note: largest mobile channel for Indian Railways

Can also link to prepaid account of the bank.

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

April 2010 Slide 15

Enabler Models for Financial Access

The Indian Mobile Banking Landscape

Models Provider Name Basic Working Merchant network Relevant Information

Prepaid Cash Card/Prep aid Card

ItzCash* (Prepaid Card by non-bank) )

Can be obtained from approx 180,000 outlets across approx 1800 Tier I & II towns in India. Also available at approx 15, 000 ItzCash franchisees. Option to have card home delivered. delivered Has 12 digit account number and a 4-digit password at the back of the card that are necessary for online, mobile and IVR transactions.

Electricity billers, Telephone Landline, Mobile Postpaid, Mobile Prepaid, p , Cooking gas, Insurance companies, ISP, Railway tickets, Travel Agencies, Cable/DTH, Cable/DTH Citizen Services by Government or Government bodies

Launched in the year 2005 More than 7 million unique active users and rapidly increasing g Processes more than one lakh transactions daily Processes more than Rs. 80 mn ~ Rs. 100 mn worth transactions daily Have won various awards including "Innovative Use of Technology"

* ZipCash is another provider that works on a similar model

Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 16

Financial Inclusion RBI Initiatives

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

Final Operating Guidelines for Mobile Banking transactions for Banks

Prepaid Policy Guidelines Amended

Nov, 05

Dec, 07 D

Oct, O t 08

Apr, Apr 09

Aug A 09

2005

2006

2007

2008

2009

2010

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

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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 SHG-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) EBT Through Banks y, g 100% Financial Inclusion drive & Financial Literacy, Credit Counselling and 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 Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 18

Barriers to Achieving Financial Inclusion

Barriers to Financial Inclusion Through Mobile Banking g g

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

Lack of Awareness of M-Banking services Awareness Limited Handset Capabilities

Low Penetration of GPRS

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

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

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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
Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 20

Thank you

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.

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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

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Appendix

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Rural and Urban Teledensity in India

Source: TRAI Annual Report 2008-2009

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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

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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

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

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The Rural Market is Moving Up the Value Chain

Rural

Urban

H UM M LM L

11

25

12

22

10

18

23

26

36

46

35

24

47

24

18

1998 99

2006 07

1998 99

2006 07

Source : NCAER

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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 banks 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 banks responsibilities
Use of the Mobile Channel to Increase Financial Inclusion - the Indian Experience PricewaterhouseCoopers April 2010 Slide 28

Key Features of Relevant RBI Policies, Circulars and Guidelines

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

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

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Key Features of Relevant RBI Policies, Circulars and Guidelines

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 semi closed Non-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 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

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

April 2010 Slide 31