Application of Mobile Communication in Banking

Prepared By:

Jainendra Sinha (68) Karthik V (78) Merin Mandanna A (89) Neha Mahajan (99) Pooja Shenoy (109) Rahul Singh (119)

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TABLE OF CONTENTS
1. Introduction to Mobile Banking a) b) c) d) e) Mobile Banking Basic Definition Era before Mobile Banking Mobile Banking Classification of services Basic Mobile Banking Technologies Current Mobile Banking Providers

2. Business Models a) Banking Agent b) Bank-focused model c) Bank-led model d) Non-bank led model 3. Customer Requirements and Services Provided 4. Current Trends and Future Developments 5. Mobile Banking in Indian Scenario 6. Case Study a) Kenya b) China c) Afghanistan 7. Challenges 8. References

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INTRODUCTION Youve probably seen the commercial: A woman, hanging from the side of a mountain, receives a text message on her cell phone. The message is from her bank, telling her that her account is about to be overdrawn. With just a few clicks on her phone, she transfers funds from her savings account to her checking account. Problem solved. She finishes her climb, confident that her financial life remains in order. This scenario, though highly dramatized for effect, illustrates what many believe is the future of banking. Its mobile banking, or m-banking, which enables mobile phone users to access basic financial services even when they are miles away from their nearest branch or home computer. In some parts of the world, such as the Philippines, Brazil and Africa, mobile banking is already flourishing. But in the United States, only about 10 percent of consumers - about 1.7 million people -- currently use their cell phones to conduct bank transactions. That number is expected to grow to 35 million by 2010 [source: CNBC]. Several trends will drive this growth. First, more banks are rolling out mobile banking solutions, paralleling a move by major cellular carriers to upgrade their networks to deliver faster data speeds. At the same time, people are investing in more advanced, W eb-ready phones and personal digital assistants (PDAs), although well see that even basic cell phones are perfectly capable of delivering mobile banking services. And, finally, awareness and consumer confidence are on the rise. Mobile Banking Basic Definition In todays world, Mobile Banking is a popular term. Mobile Banking means a financial transaction conducted by logging on to a banks website using a cell phone, and can include transactions such as viewing account balances, making transfers between accounts, or paying bills. It is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device Era before Mobile Banking For 30 years, financial institutions have been on a quest to satisfy their customers need for more convenience. First was the automated teller machine (ATM), which New Yorks Chemical Bank introduced to the American public in 1969. It did little more than dispense cash at first, but the ATM evolved over time to become a true bank-away-from-bank, providing a full suite of financial transactions. Then in the mid-1990s the Internet banking came into market, which enabled consumers to access their financial accounts using a home computer with an Internet connection. Despite
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its promise of ultimate convenience, online banking saw slow and tentative growth as banks worked out technology issues and built consumer trust. Today, Internet banking has reached a critical mass, with about 35 percent of U.S. households conducting bank transactions online [source: Information Week]. Yet banking at the living room computer still has some serious limitations. First, only 62 percent of American households have a computer, according to a 2003 study conducted by the U.S. Census Bureau. And only 28 percent of Americans have broadband Internet access, which is essential to efficient, convenient service [source: GAO]. The biggest issue, however, is mobility. Even with a laptop, its almost impossible to stay connected in virtually any location on the planet. Not so with mobile phones. They can be carried anywhere and are -- by an enormous number of people. More than 238 million people in the U.S. have mobile phones. Thats a whopping 78 percent of the population. And worldwide there are more than 3.25 billion mobile phone subscribers, with penetration topping 100 percent in Europe [source: ZDNet]. If mobile phones only delivered voice data, then their use as a vehicle to deliver banking services would be limited. Most phones, however, also provide text-messaging capabilities, and a growing number are Web-enabled. That makes the mobile phone an ideal medium through which banks can deliver a wide variety of services. Why did mobile banking come into being in the first place? Here are some issues that people had with the traditional banking system. Hassle of carrying cash or cards. Customers in rural places would have to travel large distances to find a bank. Less stickiness with the customer. Less Customer Privacy. Less Authenticated proof or paper based proofs Much slower transactions. High transaction amount.

Mobile Banking Classification of Services Banks classify services based on how information flows. A pull transaction is one in which a mobile phone user actively requests a service or information from the bank. For example, inquiring about an account balance is a pull transaction. So is transferring funds, paying a bill or requesting a transaction history. Because banks must respond or take some action based on the user request, pull transactions are considered two-way exchanges. A push transaction, on the other hand, is one in which the bank sends information based on a set of rules. A minimum balance alert is a good example of a push transaction. The customer
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defines the rule -- "Tell me when my balance gets below $100" -- and the bank generates an automatic message any time that rule applies. Similar alerts can be sent whenever there is a debit transaction or a bill payment. As these examples illustrate, push transactions are generally one way, from the bank to the customer. You can also classify mobile banking based on the nature of the service. Transaction-based services, such as a funds transfer or a bill payment, involve movement of funds from one source to another. Inquiry-based services dont. They simply require a response to a user query. The chart below summarizes these various types of mobile banking services. Push Transaction Pull
y y y y y

Funds transfer Bill payment Share trade Check order Account balance inquiry Account statement inquiry Check status inquiry Transaction history

Inquiry

y y

Minimum balance alert Credit/debit alert Bill payment alert

y y y y

Clearly, push transactions are not as complex as their pull counterparts. Mobile banking solutions also vary in their degree of complexity, and some only offer a fraction of the services you would find in a bricks-and-mortar branch. In this respect, mobile banking isn't always full-service banking. The factors that affect this are the type of phone being used, the service plan of the mobile subscriber and the technology framework of the bank. Basic Mobile Banking Technologies There are four fundamental approaches to mobile banking. The first two rely on technologies that are standard features on almost all cell phones. i. Interactive Voice Response (IVR)

If youve ever called your credit card issuer and meandered through a maze of prompts -"For English, press 1; for account information, press 2" -- then youre familiar with interactive voice response. In mobile banking, it works like this: 1. 2. 3. 4. 5. Banks advertise a set of numbers to their customers. Customers dial an IVR number on their mobile phones. They are greeted by a stored electronic message followed by a menu of options. Customers select an option by pressing the corresponding number on their keypads. A text-to-speech program reads out the desired information.

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IVR is the least sophisticated and the least "mobile" of all the solutions. In fact, it doesnt require a mobile phone at all. It also only allows for inquiry-based transactions, so customers cant use it for more advanced services. ii. Short Message Service (SMS) In some circles, mobile banking and SMS banking are synonymous. Thats because SMS banking uses text messaging -- the iconic activity of cell phone use. SMS works in either a push mode or a pull mode. In pull mode, the bank sends a one-way text message to alert a mobile subscriber of a certain account situation or to promote a new bank service. In push mode, the mobile subscriber sends a text message with a predefined request code to specific number. The bank then responds with a reply SMS containing the specific information. SMS banking has several advantages:
y y

It works on virtually every cell phone, regardless of manufacturer, model or carrier. Its a familiar, ubiquitous technology. There were 1.5 trillion text messages sent in 2007 -- a number that will grow, according to Gartner, to 2.3 trillion by 2010 [source: ZDNet]. Sending text messages is relatively cost-effective. Text messages typically cost 10 to 15 cents each (to send or receive) when purchased individually, but can cost as little as one cent or less when part of a monthly calling plan. It accommodates two-way communication, allowing messages to be initiated by banks or by customers.

The disadvantages of SMS are related to the inherent limitations of text messaging. For example, messages can only be 160 characters in length. Plus, there are no guarantees that a message will actually be delivered to its recipient. But most troubling for banks is the inability of SMS to deliver a custom interface. More advanced mobile banking solutions, like those we will discuss in the next section, overcome these challenges. Advanced Mobile Banking Technologies The next generation of mobile banking is the most similar to the Internet banking paradigm. It requires an application -- either a browser or a standalone application -- and a more advanced smartphone to run it. Smartphones are more like real PCs, with an identifiable operating system and advanced functionality, such as enhanced data processing and connectivity. There are two approaches to setting up this type of mobile banking.

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iii.

Wireless Application Protocol (WAP)

WAP is the technology architecture that makes accessing Internet pages possible from a mobile phone. Because it includes the concepts of browsers, servers, URLs and gateways, WAP provides a user experience that echoes Internet banking conducted on a home computer. This is an attractive feature to many banks, who also appreciate the fact that customers dont have to download any proprietary software to enjoy robust access to a full line of services and transactions. WAP banking does have its disadvantages:
y

y y

The browsers that run on mobile phones must work on a very small screen. As a result, banks must create "mobile-friendly" sites that work more efficiently in cramped quarters. Even with such accommodations, the number of clicks required to complete a task can be prohibitive. WAP banking requires a smart phone or a PDA, but such devices represent less than 10 percent of the phones in use. Even if a customer has a WAP-enabled phone, he or she can elect not to sign up for the more costly data plans required for Internet access. Mobile phones lack the level of anti-virus and personal firewall protection now considered standard on PCs. Two-way communication isn't possible. Customers can initiate a dialog, but banks cant. Standalone Mobile Application

iv.

Some banks are now providing a downloadable client that mobile subscribers can use to access bank services. These mobile applications offer a reliable channel and enable users to conduct even complex transactions. They also allow banks to customize the interface and brand it accordingly. Although this solution likely represents the future of mobile banking, there are some issues. First, users are forced to download, install and learn a proprietary application. Not only that, the application must be customized to each mobile phone on which it will reside, greatly increasing development costs. And just like the mobile browsers used in WAP banking, these standalone applications are vulnerable to attacks, have limited availability and can only accommodate customer-initiated communication. As a financial institution prepares for the mobile banking revolution, it must weigh the advantages and disadvantages of these various solutions to decide which one best meets the needs of its customers and its own technology infrastructure. In the next section, well look at the specific mobile banking solutions of two leading banks.

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Current Mobile Banking Providers Although several financial institutions, including Wachovia, Washington Mutual, Wells Fargo and ING Direct, are launching mobile banking services, we are going to look at two of the largest and most developed -- Mobile Banking from Bank of America and Citi Mobile from Citibank. i. Mobile Banking from Bank of America

Bank of America chose wireless application protocol as its technology platform. That means any cell phone with Web access can use the service -- without downloading any software. However, any customer who wishes to use the mobile banking services must be set up in online banking. Thats because all transfer and payee information must be set up on a PC prior to making payments or transfers in Mobile Banking. Once these criteria are met, customers can:
y y y y y

Access their checking, savings, credit card, mortgage, line of credit, loan and other Bank of America accounts Pay bills anywhere, anytime Transfer funds from one Bank of America account to another Locate branches or ATMs Get maps and directions

Bank of America advertises its Mobile Banking as free, but that doesnt mean customers wont incur costs. They will be charged access rates depending on their mobile carrier. Those who wish to use mobile banking regularly will be better off signing up for a data plan providing a certain allotment of data and text messages for a monthly fee. Such a plan is likely more cost-effective than paying for several one-off charges. ii. Citi Mobile from Citibank

Citibank opted for the application-based approach to its mobile banking offering. Like Bank of America Mobile Banking, Citi Mobile requires that users spend some time on a PC getting the service set up. Citi Mobile customers must also download software -- a custom, Citibankbranded interface -- to their phones. Heres how the process works: Citibank customers sign on to their online banking accounts and enter their cell phone numbers, the name of their wireless carriers, and their cell phone models. This information is necessary because the Citi Mobile application must be customized to the make and model of the phone.

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After customers enroll, two text messages land in their cell phone inbox - the first with download instructions and the second with activation key, this is required to set up the application on the phone. Customers download and install the application to their phone, a process that takes about two to three minutes. Next, customers launch the application and enter their activation keys and cell phone numbers to initiate the mobile banking service. They're ready to sign on. Every time they sign on, customers will need to enter their telephone access codes -- the same code they use to access Citibanks telephone banking service. The Citi Mobile interface provides access points into account information and activity, payments and transfers. It also allows users to find Citibank locations and to connect to customer service with a single click. Citibank is looking to push the boundaries of mobile banking with some innovative cell phone trials. One trial, a partnership with MasterCard, AT&T and Nokia, involves placing near field communications (NFC) chips in certain Nokia phones. By passing the phone within a few inches of a reader, the NFC chip can be used to charge a payment to the user's credit or debit card. Such a payment is called an m-payment, an exciting concept in the world of mobile banking. M-payments will be possible even when the phones user doesnt have a bank account. In such a situation, a cell phone owner buys prepaid units from a mobile operator and then uses those units to pay for goods and services at a partnering service provider or retailer. Some see this type of transaction as a vital way to get basic financial services to populations in developing countries or in rural or remote areas, where people are more likely to have cell phones than bank accounts. So perhaps a future commercial for mobile banking will not show an American woman hanging from a cliff in the Utah badlands, but a Kenyan villager using her cell phone to make a money transfer in downtown Nairobi.

MOBILE BANKING MODELS

The mobile banking models are structures on which the mobile banking operates. The mobile banking models for the rural areas and low income population groups are primarily the banking agents.

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Banking Agent A banking agent is a retail or postal outlet contracted by a financial institution or a mobile network operator to process clients transactions. The owner or an employee of the retail outlet conducts the transaction and lets clients deposit, withdraw, and transfer funds, pay their bills, inquire about an account balance. The banking agents can be any one of them: 1. Pharmacies 2. Supermarkets 3. Convenience stores 4. Lottery outlets 5. Post offices These banking agents are increasingly utilized as important distribution channels for financial institutions. The customers transact using their mobile phone to access their bank account. Customer Identification is normally done through a PIN, but could also involve biometrics. Local regulation will determine if financial institutions are allowed to work through retail outlets. Regulators generally determine what kind of, if any, financial institutions are permitted to contract banking agents, what products can be offered at the retail outlets, The banking agents are really useful to areas where there are no banks or accessibility to an ATM center is less. The banking agents are the back bone of financial institutions in these areas. The transaction process is given as follows. STEP 1: An existing bank client presents his card at the agent and requests a specific transaction and the amount to be withdrawn, deposited, or transferred; STEP 2: The agent selects the type of transaction on the POS device or personal computer, enters the amount, swipes the clients card through the device, and lets the client enter his PIN; STEP 3: A GPRS dial up, or satellite communication connects with the banks server to authorize the transaction; STEP 4: Once the transaction has been authorized, the device prints the clients receipt Indian scenario This banking agent concept is prevalent in the India. State Bank of India have tied up with the EKO India Financial services to provide the mobile banking using the banking agents. Today it has 180000 users doing more than 6,000 money transfer transactions a day through a network of 700 banking agents, in which neighborhood grocery and pharmacy stores serve as Customer Service Point (CSP), in Delhi NCR, six districts of Bihar and one district of
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Jharkhand state] processing Rs. 3.5 crore every day, in 2010 more than Rs. 100 crore were processed through its branches. Based on the nature of agency agreement between bank and the Non-Banking agents, models of branchless banking can be classified into three broad categories - Bank Focused, Bank-Led and Nonbank-Led. Bank-focused model The bank-focused model is one in which a traditional bank uses non-traditional low-cost self service delivery channels to provide banking services to its existing customer. For instance, Barclays' .mobi domain online banking service provides a customised online banking user interface that allows customers to access the Barclays internet banking site over mobile web. The use of a .mobi domain makes for better branding of mobile banking, since customers immediately recognise that the site has been optimised for mobile access. The Barclays .mobi domain provides the customers with the following services:
y y y y y

Logging into account. Checking balance. Making transfers between accounts. Making payments to third parties Viewing mini-statements.

Bank-led model The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions through mobile phones instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel, a different trade partner and may be significantly cheaper than the bank-based services. The bank-led model may be implemented by creating a JV between Bank and non-bank agency. In this model customer account relationship rests with the bank. The example of this model is given below: MONILINK Limited is the banking service operating in the Britain that gives customers access to their financial information directly from their mobiles. MONILINK is a joint venture between Monitise and LINK (UK).Currently, MONILINK offers customers the chance to check their balance in real time, view a mini statement detailing the last six transactions and add credit. The future services will include options to move money between accounts, pay bills, and purchase travel tickets. The banking partners are HSBC, Royal Bank of SCOTLAND and the networking partners are Vodafone, Orange and T-Mobile.

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Non-bank-led model The non-bank-led model is a model where a bank has a limited role in the day-to-day account management. Typically its role in this model is limited to safe-keeping of funds. Account management functions are conducted by a non-bank who has direct contact with individual customers. An example of this is Payforit, a payment system launched jointly by mobile operators Orange, Vodafone, T6 mobile and O2 that allows subscribers to make small value purchases using their mobile phone and pay for them out of prepaid credit or along with their monthly phone bill. The example of Payforit is given below: Payforit is the payment service, supported by all licensed Britain mobile phone operators designed to make it easy to pay for low cost services on the mobile phone. The payforit scheme has been developed by the operators to promote a trustworthy and consistent standard for paying by mobile. The consumers dont need a credit card or bank account to use the service. They use their mobile phone to shop. CUSTOMER REQUIREMENTS AND SERVICES PROVIDED There are three inter-related concepts in mobile banking: y Mobile Accounting (Transaction based) y Mobile Brokerage (Transaction based) y Mobile Financial Information services (Non Transaction based) Non-transaction based services essential for conducting transaction based ones. Though, Informational Services may operate as separate modules. Internets omnipresence has assisted in the growth of online banking business. There are industries like online banks, online brokers and wealth managers well operational though account for a tiny fraction in the industry. Services offered by Mobile Banking: The services provided and the associated customer requirements are listed below. Account Information y Mini-statements and checking of account history y Alerts on account activity or passing of set thresholds y Monitoring of term deposits y Access to loan and card statements y Mutual funds / equity statements y Status on cheque, stop payment on cheque y Ordering cheque books
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Account Information (contd.)

y y y y y

Balance checking in the account Due date of payment. Insurance Management PIN provision, Change of PIN and reminder over the Internet Blocking of (lost, stolen) cards. Domestic and international fund transfers Micro-payment handling Mobile recharging Commercial payment processing Bill payment processing Peer to Peer payments Withdrawal at banking agent Deposit at banking agent. Time saving by non-requirement of travelling to banks and waiting in ques. Resources spent are lesser. A more authenticated and updated service from the bank on a cheaper rate. An improved and closer relationship with the bank. Portfolio management services Real-time stock quotes Personalized alerts and notifications on security prices. Status of requests for credit, including mortgage approval, and insurance coverage Check (cheque) book and card requests Exchange of data messages and email, including complaint submission and tracking ATM Location General information such as weather updates, news Loyalty-related offers Location-based services

Payments, Deposits, Withdrawals, and Transfers:

y y y y y y y y

Customer Expectations:

y y y

Investments

y y y y

Support

y y

Content Services

y y y y

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Safety Requirements while processing mobile banking

y y y

Security of any thick-client app running on the device - In case the device is stolen, the hacker should require at least an ID/Password to access the application. Authentication of the device with service provider before initiating a transaction - This would ensure that unauthorized devices are not connected to perform financial transactions. User ID / Password authentication of banks customer. Encryption of the data transmitted over the air. Encryption of the data that will be stored in device for later / off-line analysis by the customer OTP(One-time Passwords):They are the latest tool used by financial and banking service providers in the fight against cyber fraud. Instead of relying on traditional memorized passwords, OTPs are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumers phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.

Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the younger, more "tech-savvy" customer segment. A third of mobile phone users say that they may consider performing some kind of financial transaction through their mobile phone. But most of the users are interested in performing basic transactions such as querying for account balance and making bill payment. CURRENT TRENDS AND FUTURE DEVELOPMENTS There are basically two categories of banking activity surrounding mobile banking today, namely, information tasks and transactional tasks. The former encompasses tasks such as finding out the current balance of the users checking account or seeing what transactions
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have cleared. The latter category involves transactional elements, such as transferring money between accounts, paying bills or virtual wallet (e-wallet) for consumer spending payment. Mobile banking services - insights and reports Based on data gathered in April 2011 for Feb/March mobile banking urban Indian customers checking account balance is the most frequently cited reason for using mobile banking. 43.7 million Urban Indians used their mobile phones to check their bank account balances followed by viewing last three transactions. ICICI bank maintains its position as country biggest private lender on mobile screen as well with 17.75 million users. HDFC accounts for second most subscribers with 9.1 million subscribers followed by State Bank of India with 6.13 million subscribers. Most Popular Banking Service on Mobile Checking account balances is the most popular banking service used by urban Indians with almost 43 million users followed by checking last three transactions, 28 million and status of cheques with 21 million users.

Figure -1 Statistics on most popular mobile banking services (Urban Indian Mobile Phone Users). Future functionalities in Mobile Banking With the advent of technology and increasing use of smart phone and tablet based devices, the use of Mobile Banking functionality would enable customers to connect across entire customer life cycle much comprehensively than before. In this scenario, current mobile banking objectives like building relationships, reducing cost, achieving new revenue stream will transform to enable setting of new objectives that target higher level goals such as building brand of the banking organization. Emerging technology and functionalities would enable us to create new ways of lead generation, prospecting as well as developing deep

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customer relationship and mobile banking world would achieve superior customer experience with bi-directional communications. The objectives that can be fulfilled by making use of Mobile Banking technology include:  Communication enrichment: - Video Interaction with agents, advisors.  Pervasive Transactions capabilities: - Comprehensive Mobile wallet  Customer Education: - Test drive for demos of banking services  Connect with new customer segment: - Connect with Gen Y Gen Z using games and social network ambushed to surrogate banks offerings  Content monetization: - Micro level revenue themes such as music, e-book download  Vertical positioning: - Positioning offerings over mobile banking specific industries  Horizontal positioning: - Positioning offerings over mobile banking across all the industries  Personalization of corporate banking services: - Personalization experience for multiple roles and hierarchies in corporate banking as against the vanilla based segment based enhancements in the current context.  Build Brand: - Built the banks brand while enhancing the Mobile real estate. Mobile Banking for Generation Y Revenue Generator in the App Economy Characteristics of the Gen Y vary by region, depending on social and economic conditions. They are technology savvy and expect access to their banking services and information anywhere, anytime and via any device. Virtual wallet is a mobile banking tool geared toward the 20-something set who are mostly i-phony or smartphony. Gen Y does not reconcile cheque-books, and they dont believe in float. Virtual wallet is available online and as a mobile application featuring tiered savings account, a calendar, a wish list and electronic bill payment. The following section depicts scenario of smart phone working with ATM with regard to transactional banking and its supporting new banking service in remote cheque capture. y Looking Ahead: Mobile Phone Interaction with ATM y Using Smart Phones to Drive ATM Transaction Virtual Card Mobile phones can be used to interact directly with an ATM and a bank system to allow a customer to "order" cash withdrawals. The technology offers protection against cardskimming or personal identification number (PIN) surfing at ATMs, since a customer's mobile phone becomes his or her input device to the ATM. This offers a greater sense of security to consumers who worry about entering their personal account information where others can watch or an unauthorized camera can record a PIN entry. Mobile phone enables a user of a wireless device to interact with an ATM by using the wireless device's display and keypad instead of the display and keypad on the ATM. It can be argued that using smart phone as a virtual card is more hygienic and higher perceived level of
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privacy than via physical encrypted pin pad on ATM. One of the key considerations is transaction security of Near Field Communication (NFC) technology against typical threats like eavesdropping, data modification, man-in-the-middle (MITM) attack. Leveraging speech to text or conversational interactive technology, it is anticipated that smart phone with NFC support can possibly facilitate transactional banking with voice authentication and initiation of ATM transaction in the near future. Using Smart Phones to do Remote Deposit Capture (RDC) It goes without saying that people will use anything including but not limited to smart phone with camera that will automate something they find distasteful or a waste of their time, like driving to the bank to make a cheque deposit or going to an ATM to deposit a cheque. Mobile Source Capture enables users to make secure cheque deposits at remote locations without having to use ATM equipment by making electronic phone transfer and capturing cheque image details on the smart phone camera. In summary, it is obvious that key business drivers like offering more personalized banking services via smart phones to capture and retain profitable Gen Y segment and cost savings through the further automation of banking transactions leveraging new technology features (NFC, speech-to-text, camera) of mobile phone. Smart phone banking can open up novel ways to interact or work with ATM by acting as a virtual bank card, real time transaction alert and 1-to-1 marketing device (via SMS or MMS) and support innovative banking service like remote deposit capture and virtual wallet. MOBILE BANKING IN THE INDIAN SCENARIO Mobile banking has a growing significance in the Indian scenario. There are 800 million mobile users and most of the banks in India are already in this space or in the process of providing mobile banking facility to their customers. However it is being considered that mobile banking will proof to be of great help for a huge un-banked population. Juniper Research conducted a survey and in its report released ea rlier this month stated mobile banking around the world is expected to grow tenfold to 816 million users by 2011. The report also stated that by same year, only China and Western Europe will have more mobile banking customers than India. In addition to around seven million mobile users every month, bank officials still feel that it would be too early to gauge the success of mobile banking in India. Officials from various banks expressed their views said, Mobile banking is still in its nascent stage and we will have to wait and watch if it really changes the way we bank. There is also a difference in mobile banking services. Some banks are just offering SMS alerts to their customers, while some of the banks are offering services like payment of utility bills, viewing balance information and requesting mini statements, among others. Similarly,
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some charge their customers for their mobile banking services, while some others offer them as a free add-on service. Furthermore, different banks have different modes for customers to avail of their mobile banking services. The UK-based Barclays, which has recently launched its Hello Money mobile banking operations this year, offers services like fund transfers and bill payments without the customer having to download any application to bank through mobile phones, according to Suresh Gurumani, director of retail banking at the bank. However, it is charging Rs. 30 per month from its customers. ICICI Bank introduced mobile banking four months back and the customers are required to download an application called iMobile from its website. It offers services similar to the ones provided by Barclays. It is not just private sector banks like Standard Chartered and ICICI that are providing mobile banking services to its customers, even public sector banks like Corporation Bank is also offering their customers a choice to pay their bills and shop using their mobile phones. Banks that are not already in the mobile banking told that they have plans to begin operations soon, Bank of Baroda being one. Banks are also expanding the services they offer in mobile banking since not many offer all the services under the gamut of mobile banking. Although ICICI Bank is offering mobile banking service free of cost, its head of retail liabilities, Maninder Singh Juneja feels it is an extremely important focus area for us to make banking convenient for our customers. CASE STUDY 1. Kenya 2. Afghanistan 3. China 1. M-Pesa: Transforming Millions of Lives in Kenya The economic impact of mobile phones is a well talked about fact but the role of mobile phones in remittances and money circulation can be far greater. Despite the great potential, there are very few examples of successful mobile money transfer due to regulatory hurdles and evolving business models. By far the most successful example of mobile money is MPesa. M-Pesa is a joint venture between Vodafone and Safaricom (the local mobile operator) with the backing of Citibank and Commercial Bank of Africa. The name M-Pesa is derived from the Swahili word pesa, meaning cash. M-PESA allows users to make four basic types of transaction: y transfers from person to person y transfers from person to person y transfers from individuals to businesses y cash withdrawals at designated outlets y loan receipt or repayment
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How does the service work? The M-Pesa service platform, developed in-house by Vodafone and the consulting company Sagentia, integrates a mobile wallet with Safaricoms rating, billing and provisioning systems. Subscribers of Safaricom can register for the M-Pesa service by filling up a simple form and providing any identification proof. Once registered, Safaricom replaces their SIM with the MPesa enabled SIM (if required, all new mobile subscribers now get the M-Pesa enabled SIM). To load the money on the wallet, the user needs to visit the nearest agent and deposit cash there in exchange for e-Float. This e-Float is like currency that can be used to make payments or transfer to any other person. The e-Float is can be transferred to any person or merchant via encrypted SMS. The receiver of the virtual currency can either use it for further transactions or can cash-out from M-Pesa designated outlets. The figure-2 below depicts the M-Pesa transaction flow.

Figure 2: M-Pesa Transaction System How has the service performed so far? Safaricom has regularly been releasing the financials of M-Pesa service which have been impressive by any standard: 1. As on November, 2009, M-Pesa had 8.6 million users which is ~25% of Kenyas population 2. Close to 15K agents (more than doubled in last one year). Kenya has 1500 ATMs and 840 bank branches which pale in comparison 3. Monthly person to person transactions worth over $320 million with average of $37 per user per month.
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The service is not only scoring high on financials but also on the consumer confidence. Kenyas independent Financial Sector Deepening Trust (FSD), which aims to support the development of inclusive financial markets in Kenya, carried out a survey of M-PESA use in 2008. The survey of 3,000 randomly selected households across Kenya, 300 randomly selected M-PESA agents and 50 M-PESA head offices found almost 40% of households use M-PESA, with 63% sending regular financial support. Of those surveyed: 90% believe their money is safe with M-PESA 81% find M-PESA very easy to use and a further 15% say it is quite easy to use 84% say losing M-PESA would have a large negative effect. Factors behind M-Pesas success y Large Market Share -- Market share of Safaricom in Kenya was in excess of 80% at the time of launch of the service. This large base could ring in the network effect which is reflected in the high consumer adoption.
y

Trust - Safaricom selected the agents with a lot of care to ensure agents with high integrity are there on its network. Since the service involves money, it is important gain user trust. Safaricom communicated a lot with the users; if the server is slow, it would communicate that to the users so that there is no anxiety amongst the users. The survey conducted by FSD confirms the faith reposed by users in the M-Pesa service. Relationship with the Regulator and other Banks -- Safaricom never had any confrontation with the regulators. It involved the central bank right from the very beginning. It always tries to accommodate concerns of the regulator and the banking industry. The Kenyan Government had voiced concerns over the possibility of criminals using the service to launder money, and on May 4th 2009 had ordered the Central Bank to audit Safaricoms M-Pesa service. Safaricom welcomed the Governments decision and passed the audit due to complete transparent operations and proactive sharing of data with the regulator. The Central Bank declared the service safe and in line with Governments objectives of financial inclusion. Quick response to consumer needs- Safaricom quickly changed its focus from repayment of microloans to helping people make person-to-person (P2P) remittance payments to their friends and family after it found the consumer preference for P2P transfers in a survey at the beginning of the service. Safaricom has been able to keep a tab on the pulse of the consumers and has been nimble enough to adjust its value proposition to the needs of the consumers. Simple Communication -- At the start of the service, the communication was simple, Send Money Home targeting the migrant workers. The communications focus on what the single largest service (rather than all that M-Pesa) could do was a wellarticulated value proposition.

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Pricing -- Safaricom kept the pricing of the product very transparent and lower than other alternatives. Free registration and no monthly fee helped the agents in persuading the potential user to subscribe to the service. This helped in building up the customer base initially that was important for agent and merchant recruitment. Store Management -- Safaricom ensured consistent branding, training and constant supervision of the stores to deliver the right user experience. It worked tirelessly for proper liquidity management at the stores. Limited KYC -- M-Pesa was not positioned as a bank alternative and hence the Know Your Customer requirements were quite relaxed. The users were required to submit only the identity proof to get the service started. This limited KYC helped many Kenyans especially in the rural areas where the address proofs and other documents required by the banks are not available with most of the Kenyans. People who were not able to fulfil the documentation requirements of the bank saw M-Pesa a good alternative. Dedicated Customer Care Line - In Kenya, not everyone can read, so sometimes people make mistakes and send money to the wrong person, so Safaricom established back office support to assist people get the money back where possible. M-PESA has its own dedicated call centre with its own number. Safaricom ensures that a very high quality of customer care is maintained. The strong back office support has helped the company in not only building trust but also attracted the users who are afraid of technology.

Criticism of the service Despite being touted as a financial inclusion service, M-Pesa user households are twice more likely to have a bank account than non-user households. It is young, male, urban migrants who are driving the uptake of services customer adoption. Hence, the adoption is not uniform across social strata. Both agents and customers complain of cash float problems, especially in the rural areas. Because the majority of transactions in the village are withdrawals, agents must maintain their cash float. They do this by making frequent trips to the bank. This can be problematic if the agent is not close to an urban center, where most banks in Kenya are located. This situation is frequent despite great efforts by Safaricom on the store liquidity management. The service availability is not uniform across the country. The service availability is defendant on the network availability which is strong in the south-west corner of the country (as seen in the picture alongside). There are only 2000 towers of Safaricom which are not sufficient to cover the entire country.

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2. A Case Study on China Over the last few decades financial services in china had gone through lot of reforms but still lacked behind as urban and rural inequality persisted. First of all, the distribution of banking outlet was uneven. Statistics put banking outlets nationwide at 175000 or 1.34 per 10000 persons, while for the rural areas it was only 27000 outlets or 0.36 per 10000 persons. Compared to 43 financial service personnel in cities there was only one financial person in the villages. Rural financial services faced problems like limited product offerings, short service hours and low efficiency. Chinas financial regulators strictly felt a need for change. China banking regulatory commission came out with regulations which required the financial institutions to come up with measures to improve financial services in the rural areas. Mobile banking was one of the solutions offered as it had been successfully replicated in countries such as Philippines and Kenya. It offered advantages like low costs and affordability thereby it was conducive to reducing financial inequality between urban and rural areas. It could also give a boost to online shopping and deepen the use of mobile internet. Further banks would also be able to reduce cost involved in running and constructing ATM machines, banking outlets and other small transactions. This accorded with the requirement of developing low cost and yet quality financial services in rural areas. Mobile banking service underway in China Mobile banking service is jointly offered by banks and mobile communication carriers and performed through mobile phones. It is basically an extension of traditional banking channels on the mobile phone and is supported by the clients bank account. China basically focused on the bank led model of mobile banking. Here the customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco/chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank. Rural mobile banking called for co-operation among banks, operators and financial regulators. Banks and operators were motivated to develop mobile banking as a new source of profit. Financial regulators needed to join hands to form regulations and laws governing mobile banking by rural financial institution. Since it involved multiple entities the regulators in conjugation with related departments like the ministry of information and technology
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needed to introduce standards for long term sustainability and compatibility of mobile banking. China mobile joins hands with Pudong Development B ank for mobile banking. On 25th of November, 2010 China mobile signed a strategic agreement with Pudong Development Bank of Shanghai. It started to experiment with mobile payment business in 2007 and by 2009 had by and large completed mobile payment technologies and business programs. China mobile and Pudong development bank have been in co-operation in mobile payment area and have energetically developed mobile remittance in order to increase financial inclusion of the rural areas. Pudong development bank has recently introduced a service called remittance through mobile phone numbers. If both the remitter and the beneficiary have account with Pudong development bank and each binds his mobile phone number to his account, the remitter does need to enter the beneficiarys account number but only his mobile number. This is definitely more convenient than the traditional methods. The bank provides at least three mobile banking security guarantee to its clients. First the system automatically recognises the number that the client is using. Second it verifies his inquiry password and personal identification. Thirdly the transaction is successful only after the verification. China mobile reported that by the end of 2009 its rural outlets had amounted to nearly 520000. Through this, Pudong bank took advantage of China mobiles extensive network in the rural areas. It further reported that by 2010 its mobile banking business exceeded 6 billion Yuan. As an emerging financial service platform mobile banking is gaining increasing recognition and popularity. 3. Mobile Banking in Afghanistan M-Paisa: y Over 97% of the population in Afghanistan does not have access to a traditional bank account or financial services, one of the highest percentages in the world. Afghanistans conventional banking industry is virtually non-existent and highly fragmented: a total of 17 banks share among them approximately 300 branches around the country (most of which are in major cities) and there are only 38 ATMs for a population of 32 million. Necessity has forced Afghanistan to be innovative with mobile banking and we could learn from their example.
y Migrant workers require quick and efficient money transfer services to send money to their families. Small entrepreneurs often have to take time to work and travel long distances to repay their microfinance loans. Companies need secure ways to pay and disburse salaries to their employees. Existing methods of money transfer in Afghanistan, however, are mostly inefficient and insecure. Moving cash throughout the country is risky, expensive and time consuming. Furthermore, the political situation in
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the country remains fragile and shifting, especially in the aftermath of the recent presidential election.

y In 2008, Roshan (Afghanistans leading telecommunication provider), partnered with Vodafone to launch MPaisa in Afghanistan. MPaisa enables registered Roshan customers to transfer money using their mobile phone in a quick, easy, safe, and cost effective manner for peer to peer transfer, repayment of microfinance loans, purchase of airtime and salary disbursement for companies. Today, MPaisa has over 120,000 registered subscribers. y The MPaisa SIM application is embedded on a GSM SIM card, which means that any Roshan subscriber can use the service. The sender simply punches in the mobile number of the recipient and the amount for transfer, followed by a PIN code that ensures security in the system. A secure Short Message Service (SMS) is sent to the recipient. Roshans extensive distribution network, present in the most remote villages, serves as a transaction point for deposits and withdrawals. The recipient visits an MPaisa agent to withdraw funds, entering a PIN code to secure the transaction. Both the agent and recipient receive a confirmation SMS once the transaction is complete. y In 2009, the Afghan National Police began to pay salaries through mobile phones using MPaisa, rather than in cash. It immediately found that at least 10 per cent of its previous payments had been going to non-existent policemen; corrupt middlemen in the police were taking the difference for themselves. Most Afghan policemen assumed that they had been given a pay rise, when they simply had received their full pay for the first time. In some cases they received pay 'rises' of up to a third. The service uses interactive voice recognition in three languages - Dari, Pashto and English - to ensure that illiteracy is not a barrier to use. y The service is likely to be extended to pay the Afghan National Army and, given that these payments are guaranteed by the government, all of Afghanistan's operators are likely to attempt to outdo each other in offering mobile banking to its less prosperous populace; a refreshing case of the mobile being more powerful than the sword. y Now M-Paisa has been expanded so that anyone with a mobile phone and an M-Paisa account can transfer money across the country for a small fee. When someone in a farflung rural mountain village in Afghanistan wants to transfer money to family in another part of the country, there are few conventional banking options, this new textbased payment service, backed by the country's banks and telecom providers, now offers a simpler, more convenient alternative. y M-Paisas capacity to measure money flows is a key ingredient to its success, especially in light of the environment in which it operates. M-Paisa provides a
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legitimate and transparent way for funds to be tracked, reducing the transfer of money between illegitimate industries. Benefits of m-paisa: y The transactions are much speedier than traditional methods, which involved the supervisors literally stacking up bills in their office, dividing up salaries, and calling employees in one-by-one to administer payments. y SMS transactions allow for greater accountability, because each one leaves a digital footprint which can be tracked and can't easily be tampered with. y SMS banking brings an element of privacy to the entire process. Families can keep their finances to themselves, and neighbourhood trips to the nearest bank are replaced with brief text messages and electronic banking, thereby bringing a sense of individuality they never had before. That changes the societal structures. y This method brings financial inclusion to the economic landscape. Without any minimum transaction amount, users are able to make micropayments easily to help develop small businesses. Mobile telephony as a tool to widen access to micronance and combat corruption: y MPaisa has also facilitated access to microfinance for thousands of individuals, following a partnership between Roshan and First Microfinance Bank (FMFB) to test run MPaisa in Afghanistan. Today, over 2,500 microfinance clients make loan payments through MPaisa. MPaisa makes it easy for small informal, often rural entrepreneurs, as well as women and the poor with no access to banks, to reimburse loans without having to travel vast distances and shut down operations for a day. With a repayment ratio of 97%, microfinance loans have been a roaring success to date. y Clearly, as the experience with FMFB seems to suggest, microfinance institutions (MFIs) in Afghanistan can benefit greatly from a product such as MPaisa. Interest rates charged by MFIs are typically higher than those charged by conventional financial institutions, given the high administration costs of thousands of small accounts and the logistical difficulties of travelling to remote areas to deliver loans in cash or receive reimbursements. With the introduction of MPaisa, MFIs no longer need to open additional branches. Instead, a Roshan agent can serve as an outsourced micro branch, increasing the MFIs presence in cities and towns to a level the industry could not have hoped to reach before. CHALLENGES FACED 1. Interoperability This is one of the main issues in the challenges in mobile computing. All the phones dont have a common platform as certain phones operate on the java while others operate on the Symbian and the android. Since the mobile banking involves all types of customers, low end mobiles should also be able to operate. This has been reduced by certain companies providing
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portals such as the R-World and the Airtel Live to its low end java phones. The SMS banking is operable with all handsets but it becomes very complex. 2. Security The security of the transaction is the most important as the user operates from the remote place and the information flows over the internet. The following security measures need to be addressed: y User ID/Password authentication. y Authentication of device before initiating a transaction. y Encryption of data transmitted over air. y Security of client application running in handheld device in case of theft. The new technology now being adapted is the One Time Password wherein the customer requests for a password before initiating any transaction. Since it is done through the SMS, the gateways should provide necessary security. 3. Scalability and Reliability The customer base is increasing for the mobile banking rapidly and transactions can occur from anywhere in the world thus the banks must be upgraded to handle the traffic and develop necessary infrastructure to support them. The increase in services provided increases more demand and the reliability issues come to picture, hence the necessary infrastructure and latest technologies must be implemented. 4. Personalization The following are expected from the mobile application to support personalization such as : 1. Preferred Language 2. Date / Time format 3. Amount format 4. Default transactions 5. Standard Beneficiary list 6. Alerts 5. Customer Education The mobile banking caters to all walks of people hence the customer must be trained before the usage of the application. Simple techniques must be used and it should be user friendly. Thus teaching the customer is one of the main challenges. 6. Mobile Network The back bone of the mobile banking is the mobile networks. The necessary infrastructure should be developed to improve the mobile area coverage and to provide the uninterrupted connectivity so that transactions are not disconnected in the middle. If these challenges can be overcome, mobile banking will definitely redefine banking experiences for customers in the future.
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References:
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http://www.telecomcircle.com/2009/01/impact-of-mobility-on-economic-growth-indeveloping-countries/ http://www.chillibreeze.com/articles_various/Indian-Finance.asp http://money.howstuffworks.com/personal-finance/online-banking/mobilebanking4.htm http://ndn.org/blog/2010/06/mobile-banking-afghanistan-experts-insight-culturaldifferences http://www.csmonitor.com/Innovation/Latest-News-Wires/2011/0225/Can-mobilebanking-take-off-in-Afghanistan Case Study on China: a study conducted by the "Accenture institute of high performance. http://banksnews.blogspot.com/2008/04/mobile-banking-significance-in-indian.html

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