Coming to grips with the mobile banking reality

by Sohini Bagchi    Dec 11, 2012

mobile bankingMobile banking has started to take off in India, and a growing number of customers will be banking with their mobile phones and tablets in the next five years, according to industry analysts, who believe that the convergence of mobile payment is not only logical, but also inevitable.

Globally, over the last three years, the number of people using mobile phones for financial transaction has increased dramatically. According to a Forrester research, by 2017, mobile banking will be used by 108 million people in the US, or about 46% of those holding bank accounts in the US. Currently, only about 13% of account holders in the US and 9% of European bank account holders have taken advantage of mobile banking services, but Forrester says those numbers will increase phenomenally in the next few years.

In India too, mobile banking is said to have the potential to be the next wave of financial and technological innovation. If RBI numbers are to be believed, in May 2012, close to 3.34 million transactions were concluded for Rs 2.86 billion through mobile as against Rs 1.28 million transactions of Rs 0.91 billion in May 2011. This shows a whopping growth of 200%.

According to Rathin De, GM – IT, ADC and CMS at United bank of India, mobile banking will transform the entire banking experience as general banking will be done through the mobile web that can be effortlessly connected to bank accounts transactions. Mobile banking will make mobile payments, mobile check processing, SMS banking and mobile banking apps ubiquitous and we will see this revolution happening soon.

However, despite the hype, the promise of mobile banking including payment services at a cheaper rate and in a secure way to the existing and potential customers are yet to take place on a massive scale.

According to Dr. Ashok Jhunjhunwala, Professor, Department of Electrical Engineering, IIT Chennai, “With mobile phones being connected to multiple bank accounts, transactions can be made effortlessly. However, he notes that currently, almost 50 banks have peer-to-peer connections through mobile payment service that helps in achieving around 1, 00,000 mobile transactions per month. The numbers need to go up because if there is a surge in mobile payments, it can benefit customers who can move beyond cash transactions. Banking by phone could transform the workings of the rural economy and therefore, this will increase the country’s GDP.

A Krishna Kumar, MD and Group Executive, State Bank of India too agrees that mobile payment is undoubtedly the next big thing in banking but there are certain challenges that need to be addressed.

“Currently, each handset needs a separate program to enable mobile banking facility in it. This deters the efficiency,” says Kumar. He adds that the transaction techniques should also be simpler. Mobile banking to most Indians is complex and too technical and there are talks on making it more visual and multi-lingual.

De is of the opinion mobile payments standardization of policies as well as the revenue models for service providers and banks are key concerns. These are essential to make mobile payment services a success. He adds that there are also concerns about security and the risks involved in the mobile payments eco-system.

Jhunjhunwala believes that the outlook for mobile payment in India seems bright, as long as banks take care of security. “In fact, secure mobile payment applications would be main feature to attract and build trust among the burgeoning mobile population. Once they follow best practices to mitigate the various security risks and challenges, mobile banking will become the most secured and reliable platform for transaction,” he says.

Kumar believes that mobile banking has the potential to universalize access to banking service without risking the regulatory framework of the financial sector. however, the awareness among customers regarding mobile banking needs to be increased.

This is certainly one of the areas one should look into. Even though in India, an estimated 775 million people are mobile phone subscribers. Yet, at the same time, nearly half of the country’s population still does not have a bank account. Combining the two sectors will have benefits not just for consumers but the economy as a whole, believes Dr. Jhunjhunwala.

Banks should increasingly come in collaboration with telecom operators to develop an alternate channel of delivery of banking services. “Once banks come in full agreement with the telecom operators and make mobile payment seamless, it will change the total enterprise landscape. From mobile to mobile payment to taxi drivers to grocery stores and even registering through Near Field Communication (NFC) to boarding a train – everything will soon become a reality,” Kumar quips.