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Mobile Banking: TRAI paper seeks financial inclusion of rural India

February 15, 2011
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The Telecom Regulatory Authority of India (TRAI) has released a consultation paper entitled “Issues Arising Out of Provisioning and Delivery of Basic Financial Services Using Mobile Phones in the Context of Pricing of Services by Mobile Service Providers”.

According to TRAI, a significant proportion of India’s populace, especially those residing in rural and remote areas, does not have access to basic financial services. National Sample Survey data reveals that 51.4 per cent of the nearly 89.3 million farmer households do not have access to any form of credit, neither from institutional nor non-institutional sources. In comparison, the number of rural mobile subscribers, at over 200 million, far exceeds the number of rural bank account holders. “Our aim is to utilise the fast growth of mobile telephony in rural and remote areas to provide a platform to deliver financial inclusion,” notes the TRAI statement.

In 2010, an interministerial group (IMG) was constituted by the Government of India to draft a framework for the delivery of basic financial services through mobile phones. The IMG submitted its report in late 2010. According to the broad framework outlined in the report, the services that can be provided through mobile banking are account opening, cash deposit, cash withdrawal, transferring money to another mobile-linked no-frills account, and balance enquiry.

The IMG report also suggested a shared delivery of infrastructure and processes among the service providers in order to minimise costs and make the model viable for micro transactions. The IMG also envisaged the opening of mobile-linked no-frills accounts that would be operated via mobile phones. According to the IMG, these accounts would be held by banks and the money would be stored in the bank account and not in the user’s mobile phone, and therefore the loss of the user’s phone or SIM would not result in any monetary loss. In this context, the IMG indicated that an account mapper – a device that would have linkages between the unique identity (UID) number, mobile number and the mobile-linked no-frills account details – should be introduced. After being given a UID or mobile number, a mobile-linked no-frills account number can be provided.

Further, the IMG framework has made TRAI responsible for resolving all issues arising out of the provisioning and pricing of financial services by mobile service providers. In order to finalise a suitable framework, TRAI has sought the comments of the stakeholders.

Key issues for consultation

• When a customer approaches a business correspondent or his agent for opening a no-frills account, will there be any provisioning requirements at the service provider’s end for any of the methods/ options like  interactive voice response, SMS, SIM toolkit, wireless access protocol or unstructured supplementary service data?

• It is necessary to specify the different provisioning and pricing norms since these methods vary in implementation.

• There may be requirements of prioritisation and encryption of the messages exchanged for financial transactions. Will this affect the provisioning and pricing of services?

• Whether tariffs for providing basic financial services using mobile phones should be under forbearance or should be brought under regulation? If they are to be regulated, should a ceiling be prescribed by TRAI?

• Any other comments related to the provisioning and pricing of mobile services for financial transactions.

Besides these, according to TRAI, regulations on tariff will become critical if the adoption of mobile banking is to be encouraged, especially among the unbanked segments of the population. In such a situation, the cost effectiveness of delivering basic financial services through mobile phones will become an important consideration, as the main objective of provisioning financial services through mobile phones is enabling financial inclusion.

The main beneficiaries of these services will be the people residing in rural and remote areas with low-income levels. Therefore, every effort should be made to keep the provisioning of these services affordable. Nevertheless, the transaction fees charged for banking facilities through mobile phones can be market determined and the price discovery process can become more defined once the product’s rollout is stepped up.

TRAI has also emphasised the need for adequate security measures while using the methods proposed by the service providers for the five basic transactions – no-frills account opening, cash in, cash out, balance checking and money transfer.

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