Mobile Banking in India

June 4, 2016 | Author: anir_1986 | Category: Types, Research
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Research Project Report On





I, Mr. Annirban Bhattacharya hereby declare that this Research Project Report on “Mobile Banking in India” is the record of authentic work carried out by me during the period from last semester and has not been submitted earlier to any university or institute for the award of any degree/diploma etc.




This is to certify that Mr. ANNIRBAN BHATTACHARYA of MIT Pune’s, MIT School Of Telecom Management (MITSOT) has successfully completed the RPT work titled “Mobile

Banking in India” in partial fulfillment of requirement for the

completion of PGDM course as prescribed by the MITSOT. This RPT report is the record of authentic work carried out by him/ her during the last semester. He has worked under my guidance.

Prof. Archana Deshpande Project Guide MITSOT

Dr. Sanjay M. Bhale Director MITSOT

Table of Contents 1. OBJECTIVE AND SCOPE ………...................................................................................... 01

2. EXECUTIVE SUMMARY …………................................................................................... 03 2.1 CHANNELS AVAILABLE IN MOBILE BANKING.............................................. 05 3. INDUSTRY OVERVIEW ………………………………………….………………..……. 07 3.1 REGULATIONS FROM TRAI ………………………………………………………… 09 3.2 MOBILE BANKING USERS – SERVICE USAGE PATTERN …………………….… 11 3.3 MOBILE BANKING USERS – SERVICES PREFERENCE ………………………….. 12 3.4 MOBILE BANKING ISSUES – OVERALL ANALYSIS ……………………………... 12 3.5 FEATURES & BENEFITS OF MOBILE BANKING ………………………………….. 13 3.6 CHALLENGES WITH ADOPTION OF MOBILE BANKING ………………………... 15 3.7 RECOMMENDATIONS ………………………………………………………………... 16 4. COMPANY DESCRIPTION ……………………………………………………………... 18 4.1 STRATEGIC ANALYSIS………………………………………………………….…… 19 4.1.1 BUSINESS PLAN ………………………………………………………………. 19 4.1.2 CRITICAL ANALYSIS …................................................................................... 20 4.2 LIMITATIONS AND PROBLEMS OF MOBILE BANKING ………………….…….. 21 5. CONCLUSION …………………………………………………………………………….. 22 6. FUTURE ASPECTS ……………………………………………………………………….. 24 7. REFERENCES ……………………………………………………………………………... 25


Chapter No.

Figure No.

Name of the Figure

Page No.



Transaction volume vs. Amount Transacted



Mobile Banking Service Preference



Chapter No.

Table No.

Name of the Table

Page No.



Mobile Banking Service usages pattern (a)



Mobile Banking Service usages pattern (b)



Analysis of Mobile Banking Issues



Chapter Objective and Scope


The main objective is to study that why mobile banking in India might seem a little premature as Indians are not so confident to carry all the transactions via computer or a mobile and the mindset of Indian customer for mobile phones is just limited to a usual phone for voice call and messaging.

A mobile payment service in order to become acceptable in the market as a mode of payment the following conditions have to be met: 

Simplicity & Usability



Security, Privacy, and Trust



Cross border payments

The mobile banking system has many advantages as compared to the disadvantages, but due to economic, regulatory, and demographic challenges the mobile banking is still facing numerous problems to be accepted from Indian Customers. In this report I also cover the main issue that is the security. Literature will also show that possibility of security threat exists for transaction of payment using mobile device.

The scope of my report is limited to the Indian banks only. According to my research, in India there are around 77 public and private banks which are providing net banking to its customers. But my study is limited to study the service patterns, service preference and level of agreement of the respondents with issues of public banks such as State Bank of India & Punjab National Bank and private banks such as ICICI & HDFC.



Chapter Executive Summary


Across the world, there are more than 7 billion mobile phone subscribers, while just 4.5 billion people have bank accounts. That leaves approximately 2.5 billion people who have a mobile phone, but do not receive a financial institution‟s services. In addition, nearly 60 percent of the mobile phone subscribers reside in the developing world. Thus, many entities with a focus on global development have turned to the mobile phone as a viable platform for delivering financial services to under banked and unbanked populations.

The under banked population in developing countries refers to the people who have limited access to financial services. Alternatively, the unbanked population pertains to those without formal bank accounts that operate in a cash economy, limiting their ability to take out loans, maintain savings and make remote payments, which in turn constraints and inhibits their economic opportunities. These obstacles can be at least partially overcome by financial services being delivered through mobile phones.

In developed economies, increasingly fragmented financial services have developed in competition with individual banks and financial institutions. The cost for the current fragmented nationally based payment systems is approximately 2-3 percent of the Gross Domestic Product. Banks themselves also bear a large share of this cost. They currently spend one third of their operating costs on payments. That fact positions banks, along with other payment service providers, processors and end-consumers, to be major beneficiaries of a simpler and convergent market.

Talking about India is socially and economically divided into two segments. The country promises to be one of the powerhouse‟s of the world by 2100 with its middle class very similar to the developed world‟s in consumer habits, infrastructure and behavior. Simultaneously, large tracts of the country remain mired in poverty, lacking basic services such as banking, education and trading markets. Approximately 59% of India‟s population is unbanked. In rural India, the banking coverage among the adult population is 39%, in contrast to 60% in urban area. However, this does not necessarily mean that 60 out of every 100 India adults in cities have bank accounts, as it is common for one person to have multiple accounts. In 2010, only 5.2% of the country‟s 650,000 villages had bank branches despite the fact that 39.7% of overall 32,525 bank branches were in rural India. 4

The largest bank in India, State Bank of India (SBI), posted 529,318 mobile transactions with a transaction volume of Rs.32.63 crore in February 2011 alone. In 2010, SBI posted YTD growth of 1,865 % in transaction values; ICICI bank posted a growth of 532% and HDFC percent growth. This demonstrates that the areas of India which are covered by financial services are of immense economic potential.

So we can say from the above data that why the way out is mobile banking due to following four major reasons:

1) For Financial inclusion. Almost 60% of the population does not have a bank account.

2) Take banking to the masses - there are only 90,000 bank branches in India and covering the whole population with physical bank branches will take more than 20 years. 3) Mobile banking costs make for a compelling business case - according to Citibank the bank branch is 10 times more expensive than doing a transaction on a mobile phone. 4) Large part of the population has a mobile phone, but no bank account - making the case of using mobile phones for financial services (like payments) compelling.

2.1 Channels available in Mobile Banking: GSM 

SMS as channel - Almost every bank in India has Mobile Banking alert feature

Mobile Banking application - Specific to Mobile handset platform using GPRS & SMS as a channel

USSD - Using USSD as channel to carry out mobile banking

WAP bases Low bandwidth Mobile Banking Site

NFC Based Banking solutions(Not much accepted in India due to unavailability of NFC handsets)


BREW Application 5

WAP based mobile Banking

SMS Banking

Mobile Banking application available in Market: 

ICICI Bank - iMobile

SBI Bank - Freedom

Citi Bank - Citi Mobile


Kotak Bank - kMobile

ING Vyasa - Mobile Banking

Union Bank - UMobile

Barclays- Hello Money (USSD)



Chapter Industry Overview


If we talk of global, there are over 7 billion population, we can say around 87% of population of the world are using mobile phone in their day to day life. As of February 2013, the total population of India is around 1.26 billion out of which 70.23% population i.e. more than 89 Crores mobile phones are being used. India being the second largest country after China (1.06 billion mobile phones) in terms of number of mobile phones but only 24.24% of users in India uses the mobile banking with a time period of less than 6 months. Mobile commerce is yet to become a natural successor in India to electronic commerce. The mobile banking has the capability to pay electronically and in India, the mobile payment is regulated by RBI and governed by big telecos in the country. A natural evolution of e-payment will eventually facilitate mobile commerce and will evolve linearly like other value added services in a mobile even though it had failed to pick up as it was expected to grow like other nations. Mobile Banking is the activity of commencing commercial transactions between both B2B and B2C entities via mobile devices. It is a part of the broader, e-commerce market which accommodates any commercial transaction via internet. This facility will increase tendency to save time and energy, especially amongst the working population will further intensify the ecommerce market by a large extent. But if seen mobile banking scores more over Internet banking as a user can do „Anytime Anywhere Banking.‟ It is the hottest area of development in the banking sector and is expected to replace the debit & credit card in future. If we talk about numbers then mobile banking in India has increased by 6.39% to 4.72 million as of November 2012 as compare to 4.43 million in October 2012. The total amount transacted for the month increased to 8.3% to Rs 5.40 million from Rs. 4.98 million.

Figure 3.1: Transaction volume vs. Amount Transacted


The increase of number of transactions and the amount transferred was a “win-win” situation for the banks as well as for the mobile operators. Using compact HTML and WAP technologies, the following operations can be conducted through advanced mobile phones which are further viewed in channels such as the Internet via the Channel Manager. 

Bill payments /Mobile recharge

DTH Top up/ recharge

IMPS- Mobile to Mobile Transfer

Funds transfer

Balance enquiry

Change MPIN

3.1 Regulations from TRAI: The Telecom Regulatory Authority of India has issued new regulations on mobile banking to ensure faster and reliable communication for enabling banking through mobile phones. It has prescribed norms for telcos for facilitating communication related to banking and parameters for quality of service.

We believe that these regulations were long due, and would specially benefit online transactions, since they require an OTP (one time password), which is delivered through mobile networks. At times, the non-delivery of these transactional messages lead to failed transactions. It all depends on how service providers make changes to abide by these regulations.

Here are some of the highlights of the TRAI regulations on Mobile Banking: a) On mode of delivery & time frame Every Access Provider acting as a bearer needs to facilitate banks to use SMS (Text Messages), USSD (Unstructured Supplementary Service Data) and IVR (Interactive Voice Response) to provide banking services to its customers. Access providers can also optionally allow banks to use WAP or STK (SIM Application Toolkit) to provide banking services to their customers.


The bank generated message should be delivered to the customer by the access provider within a prescribed time frame of less than or equal to 10 seconds for SMS, IVR, WAP and STK and less than or equal to two seconds for USSD. In case SMS is used for the transaction, the access provider should ensure that the message is treated as a transactional message and is sent through separate telecom resources. In addition, the access provider also needs to ensure that a report confirming the delivery of the message is sent to the customer or the bank or send an USSD communication to the customer confirming the completion of the transaction, in case the SMS is not delivered to the customer due to any network or handset related issues.

The access provider should ensure that the customer is able to complete basic services like cash deposit, cash withdrawal, money transfer and balance enquiry, in not more than two stages of message transmission, in case of SMS, or not more than two stage of options in case of USSD and IVR.

b) On Quality of service Service providers should ensure to meet the quality of service standards as specified by TRAI for cellular mobile telephone service. The regulation mandates access providers to maintain a 99.5% success rate in delivering financial transactional messages and time taken to deliver either error or success confirmation message should be less than two minutes for 99.5% of the messages. However, there should be 100% transaction update in the system.

c) On Security Every Access Provider is mandated to protect the privacy and security of m-banking communications and ensure the confidentiality of end-to-end encryption, integrity, authentication and non-repudiation of such communication i.e. message sender cannot later deny having sent the message and the recipient cannot deny having received the message.

Every Access Provider should maintain a complete and accurate record of mobile banking transaction messages for six months for audit purposes.


3.2 Mobile banking users: Service usages pattern Data was further subject to Percentile Analysis which suggested that among mobile banking users majority, 87.87 were availing mobile banking services from public/govt. banks. State Bank of India was largest mobile banking service provider overall followed by Punjab National Bank.

Among private banks HDFC Bank was leading in mobile banking services. Percentile Analysis also suggested that majority of users were using services from less than 2 years and frequency of uses among majority of users was weekly as shown in Table 1. .

Bank from which availing services

% Users

Public Banks


1. SBI 2. PNB Private Banks


1. HDFC 2. ICICI Both Public & Private Banks

6.06 Table 3.1: Mobile Banking Service usages pattern (a)

Mobile Banking Users Time

% of users

Period Less than 6


% of users

of use 39.39









months 6 months to 2 years More than 2 years Table 2: Mobile Banking Service usages pattern (b)


3.3 Mobile banking users: Services preference Data related to various mobile banking services in users were interested was also subject to Percentile Analysis to explore currently most preferred services in mobile banking. Checking balance through mobile banking was most used service where as checking status of D.D. or cheque was least used as shown in Figure 2.

% of users using particular service

Balance Check


Last Trasactions Check


Bill Payment


Fund Transfer


Share Trading


Cheque Book Request Cheque/DD Status Check

21.7 8.6

Figure 3.2: Mobile Banking Service Preference

3.4 Mobile banking issues: Overall analysis Overall Percentile Analysis was done for the responses of mobile banking users and non-users to explore selected issues in mobile banking which may impose challenges to service providers (banks), RBI, telecom operators etc. and thus may influence success of mobile banking in India as shown in table 3.


Level of Agreement of the respondents (in % terms) with issues Mobile Banking Issues

Strongly Agree




Strongly Disagree

Mobile Handset Operability






Security / Privacy












Downloading & Installing application Software












Telecom Services Quality






Table 3.3: Analysis of Mobile Banking Issues

On standardization again majority 59.08 % respondents strongly agree or agree that mobile banking service standards are lacking among Indian banks which makes it difficult to do mobile banking from multiple service providers. On the issues of download & installation of application s/w, customization (user‟s preferred language) and telecom service quality; majority of the respondents were either indifferent or disagree. Reason may be that study was conducted in urban area so technological aspect of application s/w, absence of local/preferred language and telecom service quality like network unavailability were not perceived as major issues.

3.5 Features & Benefits of Mobile Banking (Mobile Payment Characteristics)

A mobile payment service in order to become acceptable in the market as a mode of payment the following conditions have to be met: 1. Simplicity and Usability: The m-payment application must be user friendly with little or no learning curve to the customer. The customer must also be able to personalize the application to suit his or her convenience.


2. Universality: M-payments service must provide for transactions between one customer to another customer (C2C), or from a business to a customer (B2C) or between businesses (B2B). The coverage should include domestic, regional and global environments. Payments must be possible in terms of both low value micro-payments and high value macropayments.

3. Interoperability: Development should be based on standards and open technologies that allow one implemented system to interact with other systems.

4. Security, Privacy and Trust: A customer must be able to trust a mobile payment application provider that his or her credit or debit card information may not be misused. Secondly, when these transactions become recorded customer privacy should not be lost in the sense that the credit histories and spending patterns of the customer should not be openly available for public scrutiny. Mobile payments have to be as anonymous as cash transactions. Third, the system should be foolproof, resistant to attacks from hackers and terrorists. This may be provided using public key infrastructure security, biometrics and passwords integrated into the mobile payment solution architectures.

5. Cost: The m-payments should not be costlier than existing payment mechanisms to the extent possible. A m-payment solution should compete with other modes of payment in terms of cost and convenience.

6. Speed: The speed at which m-payments are executed must be acceptable to customers and merchants.

7. Cross border payments: To become widely accepted the m-payment application must be available globally, wordwide.


3.6 Challenges with Adoption of Mobile Banking Economic Challenges: The rural population in India is spread across 600,000 villages, each with a low transaction value. Profitability can only be achieved by large volumes, requiring significant initiative from financial institutions. Unlike the very successful M-PESA of South Africa, whose model has been very successful due to the lack of alternative payments in South Africa, India does possess some infrastructure in the forms of postal payments, reasonable transport and local governments. Therefore, any mobile banking must be inexpensive enough to be attractive for the end-customer over existing methods.

(a) Regulatory Challenges

Although the RBI is supportive of mobile banking in India, there are many regulations that are being put into place:

i) Restricted to Financial Institutions: The guidelines state that only existing financial institutions and banks are allowed to offer mobile banking. Although the guidelines cover Microfinance Institutions (MFIs), significant economies of scale cannot be achieved by these due to existing large fixed costs. For a very inexpensive solution, it would have been more effective to allow non-profit organizations or evangelical organizations to build their own MFI without being encumbered by large existing infrastructure.

ii) Rupee Transactions: All transactions must be done only in India‟s national currency, the rupee. While this may not be a threat in the beginning, this may pose a constraint for interoperability between Indian mobile payments and the world. Also, it excludes providers from the lucrative remittance market in India and limits areas from which mobile operators can be profitable.


iii) Existing Account Holders: The guidelines also state that only those having a valid bank account would be allowed mobile banking. This limits the full potential of mobile banking to extend micro-credit and bring banking to the large number of unbanked customers in India.

(b) Demographic Challenges: India has 18 official languages which are spoken across the country. The state governments also are dictated to correspond in their regional language for official purposes. Additionally, two-thirds of the population in India is illiterate, creating difficulties in deployment of mobile banking solutions. For a pan-Indian mobile banking solution, this will be cumbersome to overcome.

3.7 Recommendations Study shows „mobile handset operability‟ is an important issue in mobile banking, due to availability of various handset models (supporting different type of technology) in the market. To resolve it service providers i.e. banks must coordinate with mobile handset manufacturers so that all handsets irrespective of manufacturer and technology (GSM or CDMA) become compatible with single mobile banking technology. Majority customers perceived „privacy and security‟ a critical issue. Here banks are advised to educate customers on this issue to raise their awareness. Especially for the customers‟ worries like losing money if once mobile handset is lost (substantial number of respondents worried about it). Secondly banks and telecom operators are suggested to draft comprehensive joint policy regarding security & privacy so that customers can be assured at both banks and telecom operator‟s levels while doing mobile banking. „Standardization‟ is another major issue as lack of standardization of mobile banking services in the country resulted in increased complexity while using mobile banking services (especially when using mobile banking services of multiple banks). For resolving this issue banks are advised to developed mobile banking standards in guidance of RBI. Issues of „download & installation of application s/w‟, „Customization‟ (user‟s preferred language) and „telecom service quality‟ were not perceived critical or important. 16

Reason may be that study was conducted in urban area so technological aspect of application s/w, absence of local/preferred language and telecom service quality like network unavailability were not perceived as major issues. But banks are well advised not to overlook above issues as these may be critical in pan India adoption of mobile banking.




Company Description


As mention earlier that in India there are around 77 public and private banks providing their mobile banking service to all the customers. Talking about private bank which provides top service and products, HDFC stand tall in the list. HDFC was incorporated in August 1994 and commenced its operations as a Scheduled Commercial Bank in January 1995. The bank has currently has a nationwide network of 2,776 Branches and 10,583 ATM's in 1,568 Indian towns and cities.

The financial performance of HDFC Bank during the financial year ended March 31, 2012 remained healthy with total net revenues increasing by 17.9% to Rs. 17,540.5 crore from Rs. 14,878.3 crore in the previous financial year. During this financial year, the bank has made further strides in adding more capability to the internet banking platform, launched mobile banking for 2G customers and launched applications for various mobile platforms.

4.1 Strategic Analysis 4.1.1 Business Plan According to HDFC Bank, two years back 40-45% of the banking transactions were happening in the bank branch. This has dropped to 18% now. So, 82% of the banking needs of a HDFC bank customer who has registered for mobile banking are done outside the bank branch. HDFC has 1.2 million mobile banking users. State Bank of India has 5.2 million registered mobile banking users and this is increasing by 2 lakh new mobile banking users per month. Almost 63% of Citibank account holders use the digital medium for banking.

Banks have gradually moved from offering non-financial services to financial services on mobile phones - the evolution curve has been: alerts (on ATM withdrawls, credit card purchases etc), cheque book request, payments (of utility bills), debit and credit statements, fund transfer, opening fixed deposits, cash management at low end (up to Rs 50,000 per day) etc. In future more services will be added.

The Reserve Bank of India has allowed use of 'semi closed wallet' by mobile companies. Via semi closed wallet accounts, people can send and spend money through the mobile network, but can't withdraw cash. Airtel, Vodafone and Idea are offering such services.


To expand mobile banking reach, HDFC Bank has started Hindi mobile banking service and a 'net safe light' virtual card - both were started last month. The latter helps a user to store a limited value on his mobile. Say a credit card limit is Rs 2 lakh but a user wants to buy books online worth Rs 2,000. He can create a new limit on his card using net safe light and use the code generated for online shopping. This creates a security layer for the user - he uses the card for online payments without worrying about it being misused as the limit is only Rs 2,000.

4.1.2 Critical Analysis Now as I have analyzed the current Indian Mobile banking system then according to it SWOT analysis of this industry will be as follows: Strengths


1. Mobile as a technology provides all the 1. Lack of awareness about the new support required to leverage Banking transactions.

channel among the mobile users. 2. Security concerns about the new

2. Ease of availability - anytime, anywhere.


3. Rapid growth of Mobile and wireless 3. Mobile Handset Operability market.

4. Application distribution Opportunities


1. Rapid increase in the Mobile user base 1. Regulatory restrictions by TRAI and and





technology even in rural areas makes a

RBI to launch Mobile banking as a separate channel.

bigger market available for mobile 2. Acceptance of new technology by banking to expand. 2. With


users. advancements


Mobile handsets rich features can be embedded in the application. 3. Lowering of Mobile Tarrif rates - GPRS plans, SMS


4.2 Limitations and problems of Mobile Banking

1) Despite a high base of mobile phone users, the smart phone penetration is limited, less than 20%. This restricts use of full scale mobile banking; users can't download banking app on basic phones. They have to depend on SMS, which is cumbersome.

2) A user can have up to nine mobile phone numbers (allowed by TRAI) but only one mobile bank account (says RBI). And the limit of transactions for mobile payments is Rs 50,000 per month.

3) The mobile payments model via telcos makes money on scale. According to Airtel it will take two years to be relevant and five years to make money. Mobile payments today are at the same stage as credit cards 20 years back and ATMs 15 years back.

4) Despite being convenient, the cost of Know Your Customer (KYC) for mobile banking or mobile payments is huge - Rs 400 to Rs 500 per person. This is more than the average revenue per subscriber (ARPU) for telcos.

5) Less than 10,000 outlets today accept Airtel Money or any other mobile payment. There's no incentive for merchants to accept mobile payments as they don't get any commission.



Chapter Conclusion


The Mobile Payment Forum of India (MPFI) has been formed with Institute for Development and Research in Banking Technology (IDRBT) and Rural Technology Business Incubator (RTBI), IIT Madras taking the lead role. It has member s and representatives from the telecommunications industry, financial institutions (banks and microfinance institutions) as well members from the Reserve Bank of India. Three sub- committees have been formed – on technology, on business models and on regulatory issues. The first meeting of MPFI was held in Hyderabad on the 15th of September 2007. The subcommittees are expected to go over their particular concerns in depth and submit a report shortly. Lots of challenges are to be overcome for a successful implementation of mobile payments to be widely accepted as a mode of payment. Businesses, merchants and consumers have to come forward and make value-producing investments. A regulatory framework and widely accepted standards will be the pillars on which mobile payment applications will be built.

Research so far has outlined a diversity of thinking and innovation that exists in the mpayments arena. Numerous solutions have been tried and failed but the future is promising with potential new technology innovations.



Chapter Future Aspects


1. Mobile banking is the future because of its cost effectiveness and ability to reach out to customers in remote areas. It will take 5-6 years for the model to mature.

2. In US, Europe, phones with NFC (near field communication) have entered the market. NFC is a chip embedded in a phone enabling the phone to interact with a point of sales terminal (with this, phone can act as a virtual credit card).

3. Cheque truncation can be done via mobile phones. In US it is called 'Cheque 21' or 21st century cheque payment. Not yet available in India.

4. Banks will be able to approve and give loans via mobile banking within the next five years. This will further reduce the need to go to a branch.



Chapter References

26 Sanjiv Shankaran & Anup Roy, Livemint, September 29, 2010 Mobile Banking Transactions In India – May 2009 To Feb 2011 by Nikhil Pahwa. Original source Reserve Bank of India.


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