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Phone Funds: Banks ride on USSD channels to drive financial inclusion

October 27, 2014
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In a bid to extend banking services to the unbanked population in India, mobile companies have been brought in to share their infrastructure and enable basic banking services through mobile phones. Though initially reluctant, 10 telecom companies have reportedly signed agreements with the National Payments Corporation of India (NPCI) – the payments gateway backed by the government – to facilitate these services. The gateway will use telecom companies’ unstructured supplementary service data (USSD) channel via a simple and interactive text messaging system which allows credit and debit card transactions as well.

While USSD technology provides session-based communication and enables a number of applications, the current plan is to restrict the system to basic banking services like low-value bill payments, fund transfers, balance inquiries for savings accounts, change of PIN, mini-statements, and cheque book requests through text messages from ordinary mobile phones without requiring internet access.

Telecom companies were initially not enthusiastic about signing up for this initiative as they expected their businesses to be adversely affected if they provided USSD channels to the banking system. But the Telecom Regulatory Authority of India (TRAI) intervened and stated that the communication channel should be available to anyone with a mobile phone and bank account, with each transaction costing the user Rs 1.50.

“Operators were hesitant to sign on as USSD was thought to be an outdated technology which could not support volumes. We didn’t want to be reduced to dumb pipes. In addition, the initial interconnect charges we were offered were very low but these were raised after the intervention of TRAI. The revised charges will cover our costs. The banks will mainly be responsible for the quality of service, customer care, etc. We will just provide access. This agreement has been signed under the request of TRAI,” says Rajan S. Mathews, director-general, Cellular Operators Association of India.

Telecom companies already offer wallet services and the USSD system will widen the scope of mobile banking transactions. Wallet services enable subscribers to carry out transactions like prepaid mobile recharges, utility bill payments and money transfers, while the USSD system enables inter-bank transactions as telecom companies can access NPCI’s centralised system, which is linked to the banks.

Recently, Reliance Communications (RCOM) announced that it was ready with its mobile banking service, which would enable banking transactions irrespective of the handset, make or region. The company has already successfully completed the testing of the service at Dhirubhai Ambani Knowledge City, Navi Mumbai, on various types of GSM handsets, according to an RCOM statement. RCOM subscribers (both GSM and CDMA) need to dial *99# short code on their handsets, which will allow them to access banking services across 29 nationalised banks with a single number.

RCOM stated that it had integrated NPCI gateways with charging systems and USSD gateways located in Mumbai. NPCI will now manage the banking menu and call flow with each bank.

“Financial inclusion is a national priority and we are proud to launch this platform for offering basic financial services even in areas beyond the reach of traditional banking. Mobile technology has a crucial role to play in servicing the under-banked and unbanked sections of society and RCOM’s endeavour is to bridge the gap with customised solutions,” says Vinod Sawhny, chief executive officer, RCOM.

According to telecom analysts, mobile banking is a far better way to enable financial inclusion than setting up ATMs in remote areas. USSD also enables card transactions, which could improve volumes significantly. However, telecom companies could still resist as the Reserve Bank of India recently permitted them to serve as payments banks, which would mean a new revenue stream for the debt-laden sector. Telecom operators can leverage their large user base and wide reach across the country for this purpose, especially in semi-urban and rural areas. As payments banks, telecom companies can accept deposits and remittances, but they cannot lend. Bharti Airtel and Vodafone India already offer payment instruments – Airtel Money and Vodafone M-Pesa – but they cannot offer transactions that involve cash transfers because of regulatory restrictions. The licence to operate as a payments bank solves this problem.

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