Wednesday, April 2, 2014

Poor need Mobile Payments and Banking

   The Government, RBI and many Banks seem to be confuse  Mobile Banking” with “Mobile Access” to ones Bank Account. The latter requires one to have a pre-existing bank account in a specific bank branch. In the old days, one had to physically go to this bank branch to deposit or withdraw money or to deposit a check. One could and still can issue a check in another person’s name which she can physically deposit in her bank account.  “Mobile Access” (internet access) makes it possible for the account holder to use a mobile phone (internet connection) to check bank balances, transfer funds between different accounts in the same bank (eg saving, checking, credit card) and from ones accounts to another person with an account in the same bank.  Where a system of “Bank correspondents” exists one can use the services of a correspondent who visits you to deposit cash or check or withdraw cash from your account through a physical transfer to/from him cum a digital transaction through his  mobile/ internet  connection to the correspondent’s account at the bank.

    True “Mobile Banking” is an entirely different animal altogether. It is like a super charged prepaid mobile card in which the balance in your pre-paid card acts effectively as a “mobile wallet” from which you can make and receive payments from any other mobile phone. As it stands, anyone can pay cash to charge the pre-paid card of any other person’s mobile phone.  However, the outstanding balance on the pre-paid card cannot be withdrawn or used for any other purpose than making phone calls. A “mobile payments system” would allow everyone to use the balance on her mobile pre-paid to make payments to any other person’s mobile for purchase of any good or service.  Mobile companies have the accounting and software systems to quickly and cheaply convert everyone’s mobile phone into such a mobile wallet and thus create a "Mobile payments system". In fact with sufficient competition they may (if allowed) even start offering a small interest rate on your outstanding balance or offer limited credit facilities for a fee and thus convert it into a true “mobile banking” system.  RBI regulations on “payments systems” and banking however, forbid cell phone companies from offering any such payments or banking services.

The idea took root when I first read about how South African government had started using mobile phones to deliver pensions to retired government servants in rural and remote areas of the country.  A mobile payments and money transfer service called “MPesa” was launched by SafariCom in Kenya in 2007. Since then I have a strongly argued for allowing true “mobile banking” with clear upper limits on deposit & credit balances and transaction amounts, coupled with less stringent/costly regulations. At that time less than 50% of Indian’s had bank accounts, though the percentage has inched up towards 60% (according to official sources, a NGO survey puts it at less than 47%). Most of those without access are either the urban poor, intimidated by the banking system, or the rural poor & middle class who do not have the time, or find it too costly, to access bank services. In contrast an estimated 80% of Indian’s already own mobile phones and the coverage is projected to approach 100% within the next 5 years.  Thus the quickest and cheapest way to make modern payments and banking systems available to the poor and lower middle class, is by allowing true “mobile payments and banking” services.

The stability of a country’s “payments systems,” and “banking system” are critically important to the health of the “financial system” and the modern economy. The RBI therefore has stringent regulations on all payments and credit intermediaries and particularly on banks through which most of these activities take place.  The RBI however has traditionally insisted that any other financial intermediary that undertakes these transactions must meet the same regulatory standards.  One has argued that, the by limiting the set of transactions to a small set of well understood and transparent one and by putting absolute values (for e.g. maximum balances of Rs 10,000 and aggregate transaction of Rs. 50,000/annum and credit to the average daily balance) one can limit the systemic risk allowing a reduction in regulatory requirements such as capital adequacy norms, SLR, CRR etc).

Even within the current system, RBIs regulations were much more stringent than in neighboring Pakistan.  With the result that, use of mobiles for internet transactions has spread much more quickly than in India. It is hoped by many analysts and observers, that the highly unsatisfactory state of affairs, will be corrected through implementation of the relevant recommendations of the Nachiket More committee on inclusive banking. At best this will give the poor a "mobile payment" systems. We will still however be some way from true, “Mobile Banking.”

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