A New Order Emerging in Mobile Based Financial Services

India is at the cusp of evolving a radical mobile-based banking & payments framework, which could potentially revolutionize the approach to financial inclusion and electronic payments.

With over 700 million mobile connections, and growing, much has been written about the opportunity for leveraging the mobile to empower citizens to conduct safe and trustworthy transactions including cash deposits, withdrawals, balance enquiry, payments and transfers.

An Inter-Ministerial group, established in 2009, has released a blueprint “Framework for Delivery of Basic Financial Services using Mobile Phones”

The framework builds a mobile based financial services model ground up and outlines the roles and impact on banks, mobile pperators, business correspondents (BC), clearing houses and the customer

Outlined below are some of the key components proposed and a summary of the key recommendations:

A.    New Components proposed :

1. Account Mapper A table with three attributes – Mobile No. UID and No Frills Bank account number

2. INFAST (Interoperable Infrastructure for Accounting Small Transactions) An additional shared infrastructure for creating & managing mobile no-frill bank accounts. Hence micro-transactions could be routed only to INFAST instead of issuing and receiving banks.

Could provide a scalable cost efficient alternative to traditional core banking systems and a facilitator for smaller banks to participate in this space

3. REMIT (Real-Time Micro Transaction) switch : An interoperable central payments switch driving real time transaction routing between BCs, Banks UIDAI, Account Mapper and mobile service providers

Interface with UIDAI for authentication

Interface with Account Mapper to derive bank account details

4. Micro ATM  A small device available with BCs for cash withdrawal and deposits using biometric authentication via UID standards

5. Mobile Banking POS A mobile phone with a BC to conduct basic transactions possibly even connected with a printer, speaker

B.    Key Recommendations

The following are the key recommendation of the Inter Ministerial Group (IMG):

1.       Mobile linked No-Frills Accounts will be created by the Banks enabling five key financial transactions : i. cash deposit ii. credit customer‟s mobile linked no-frills account, iii. cash withdrawal, iv. peer to peer transfer & v. balance inquiry

2.       Executed via a mobile based m-PIN system using Mobile Banking POS or through a biometric based system using micro ATMs of the BCs (or sub-agents of BCs)

3.       The following common infrastructure to be created for real time transaction processing, to ensure interoperability and to reduce costs

a. An account mapper that provides linkages between UID No, mobile number and the mobile linked no-frills account

b. An interoperable central payments switch that will facilitate real time transaction routing amongst BCs (or sub-agents of BCs), Banks (or associated FIs and outsourcing partners of Banks), UIDAI, account mapper and mobile service providers.

c. Interoperable repositories at for hosting and managing mobile linked no-frills accounts that may be created and managed by independent third party service providers / organisations on behalf of the participating Banks.

4.     KYC Requirements : The RBI to simplify KYC requirements for the Mobile linked No-Frills Accounts, based on norms & verification procedures of UIDA

5.     Charges : Mobile Operators to provide prioritized services with respect to these transactions & the charges levied should be regulated by TRAI (Telecom Regulatory Authority of India) 

6.     G2C Payments : Government to drive social benefit and other G2C payments into these accounts. A proposed transaction flow in the new framework outlined below:

7.     Guidelines with respect to BCs :

a. The stipulation that the BC or his sub-agent should be within 30 Km distance of a branch of the sponsoring Bank may be relaxed

b. Organizations allowed to act as BCs may be allowed to act as BCs of one or more Banks in different locations. However, the individual sub-agents to be associated only with one bank with regard to opening of mobile linked no-frills account.

c. The sub-agents of BCs to be allowed to carry out basic banking transactions (except opening of the Bank account) for all banks

8.     “For profit” corporate entities be allowed to become BCs of banks. 

More on the potential impact and developments in a subsequent post.

 Look forward to hearing your views!