Mobile Banking by Business Correspondents in India

Transcription

1 german cooperation DEUTSCHE ZUSAMMENARBEIT ` Mobile Banking by Business Correspondents in India A Landscape Study

2 german cooperation DEUTSCHE ZUSAMMENARBEIT Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH GIZ NABARD Rural Financial Institutions Programme ContACt Dr Detlev Holloh A-2/18, 4th Floor, Safdarjung Enclave, New Delhi / INDIA Phone: Telefax: Author M/s Indev Advisors Responsible Abhishek Lahiri Editor Nitin Jindal Technical Inputs/ review Sunil Aggarwal, Abhishek Lahiri Art Director Anshul Sharma/Artworkstudios.in New Delhi, October, 2014 Disclaimer The opinions and analyses expressed in this report do not necessarily reflect the views and official policies of the GIZ NABARD Rural Financial Institutions Programme.

3 Mobile Banking by Business Correspondents in India A Landscape Study

4 Preface phone subscribers in the country exceed 870 million which is Mobile clearly indicative of the power of mobile communication. It is the cheapest mode of communication which has helped even the poor people to own a mobile phone. The banking industry has embarked upon big plans to leverage it to provide banking services on the move and to expand banking to every nook and corner of the country. Banks have also realized its potential to significantly reduce the cost of banking transactions. It is a win-win situation for all the stakeholders and therefore it is bound to be the mode of banking for the bulk of banks customers in the times to come. Most of the commercial banks have already launched mobile banking. The number of transactions has been growing rapidly. The instant transfer of funds across banks through Immediate Payment System (IMPS) platform of National Pay- ment Corporation of India (NPCI) has further given it a fillip. It is now high time for the rural and cooperative banks to join the bandwagon lest they may miss the opportunity. With a view to examine the scope of introducing mobile banking in the rural/cooperative banking sector and understand the associated challenges, GIZ NA- BARD RFIP commissioned the services of a consulting firm to study the Mobile Banking environment in India and explore suitable options for rural/cooperative banks. The agency submitted its report in early 2014 after which some of these mobile based service providers made presentation to NABARD. The report provides a summary of the salient features of the mobile banking (m-banking) market in India. It also documents some key initiatives taken in the sector and recommends initiatives that need further study and deep dive analysis. M banking transactions Month No. of Transactions Amount (Rs in lacs) December ,92,790 2,26,130 June ,28,715 3,98,532 Growth 20% 76% * Inter-bank + Intra-bank Source: National Payment Corporation of India

5 Rural Financial Institutions Programme 5 The report further contains details of learnings from the study of initiatives recommended in first phase. It captures details of requirements, technology, operational and financial considerations of such solutions and initiatives for feeding into the design of new pilot projects with RRBs and Cooperative Banks. Methodology The findings are based on the data gathered from a variety of sources including field visits to customer service providers/outlets, meetings with technology providers and BC companies, meetings with bank officials, meetings with NPCI along with a structured Request for Information (RFI) that was used to collate information regarding the solutions implemented and technology platforms used by the shortlisted vendors. The report has the following key sections: Section 1 Market Landscape: It covers the status of the market in terms of prominence visà-vis other forms of banking, growth rate, key players, customer preference regarding type of transaction, regulations, settlement systems, and available technology. Section 2 discusses the various models in mobile banking Section 3 Initiative Profiles: It contains profile of a few key initiatives in this market and discusses key factors for success. Section 4 Recommendations for deeper study of 4 Mobile Banking successful initiatives existing in the domain, with a view to outline potential steps to be taken to support mobile-banking initiatives of Regional Rural Banks (RRBs)/Cooperative Banks. Section 5 contains a summary of the shortlisted initiatives Annexure 1 details the implementation process for a mobile banking solution Disclaimer: The information in the report is based on market information as provided by the institutions participating in the RFI (request for information). GIZ is not responsible for any error/ discrepancy in the data.

6 Contents 1. MARKET LANDSCAPE Overview M-Banking Size and Growth Types of Transactions Key Banking Players Key Stakeholders in M-Banking Ecosystem High Potential Market Size of M-Banking Regulations Settlement Systems M-Banking User Technology MODELS IN MOBILE BANKING Self and Assisted Transactions Remittances Multiple Mobile Modes Mobile Banking Models Initiative Profiles Fino / Alpha Payment Service Oxigen Eko Mobile Kisan Credit Card (mkcc) Indusind Cash-In-Mobile Federal Bank Imps... 32

7 3.7 Sbi and Bsnl Mobile Banking Airtel Money Idea Mycash Vodafone M-Pesa Ifmr Mobile Banking Basix Sub-K: Itzcash Yes Money Recommendations Analysis Of Selected Initiatives Eko Mobile Kisan Credit Card (mkcc) Imps Initiatives Group Basix Sub-K Abbreviations...47 Annexure 1: Implementation Process Determining Scope of the Initiative Selecting the Technology Solution Technology Readiness Architecture Definition Mobile Banking Transactions Selection of Technology Platform Summary by Vendor/Asp Preparing Project Cost Estimates Various Cost Heads Summary by Vendor/Asp Defining Operating Procedures Training & Support Settlement Marketing & Customer Awareness Annexure 2: Rbi Master Circular Links...66

8 8 Rural Financial Institutions Programme 1. MARKET LANDSCAPE 1.1 Overview Inclusion can be defined as the process of ensuring access to appropriate financial products and services Financial needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players. Multiple steps including nationalization of banks, priority sector lending requirements for banks, lead bank scheme, establishment of Regional Rural Banks (RRBs), service area approach, self-help groupbank linkage programme etc. have been taken by the Reserve Bank of India (RBI) over the years to increase access to the poorer segments of society. Despite all these efforts, a significant proportion of the households, especially in rural areas, still remained outside the coverage of the formal banking system. An estimated 40% of Indians lack access even to the simplest kind of formal financial services. Recognizing the importance of making banking available to a greater number of people in the country, Financial Inclusion was first studied and recommendations sought through the Khan Commission 1, set up by the Reserve Bank of India in The findings were incorporated into the mid-term review of policy ( ). Since then, the RBI has been taking up various measures to increase Financial Inclusion. Some of these measures include: Allowing banks to offer basic no-frills accounts that have nil or very low minimum balance requirements; Relaxation of Know-Your-Customer (KYC) norms for BSBDA (Basic Savings Bank Deposit account) 2 ; Permitting banks to engage Business Correspondents (BCs) as intermediaries to provide financial services; Encouraging the use of technology to provide banking services in remote and rural areas in a secure, viable manner; and Advising banks to introduce a GCC (General purpose Credit Card) or KCC (Kisan Credit Card) facility at their rural and semi-urban branches for helping the poor and the disadvantaged with access to easy entrepreneurial credit. The all-india CRISIL Inclusix score 2011 (comprehensive index for measuring the progress of Financial Inclusion in the country, down to the district-level) is 40.1 (on a scale of 100) up from 35.4 in All the existing No-frills accounts opened pursuant to guidelines issued vide circular UBD.BPD.Cir.No.19/ / dated November 24, 2005 and converted into BSBDA in compliance with the guidelines issued in circular UBD.BPD.Cir.No.5/ / dated August 17, 2012 as well as fresh accounts opened under the said circular should be treated as BSBDA (source: RBI) 3

9 Rural Financial Institutions Programme 9 In this context, the study has looked at mobile banking (m-banking) to understand its potential to drive Financial Inclusion. Mobile banking is the provision and availing of banking and financial services through the use of mobile phones or mobile telecommunication devices. The key stakeholders in the provision of mobile banking are the banks, mobile network operators, agent aggregators, agent networks and technology providers. The access mechanism of m-banking is through USSD (Unstructured Supplementary Service Data), SMS, or data services applications on phones. In some cases, IVR (interactive voice response) is also used to provide m-banking solutions to the existing and new bank customers. All financial services transactions that are conducted using the mobile phone are considered to be m-banking transactions. These include retrieval of account statements, money deposit and withdrawals, fund transfer (inter and intra bank), mobile and DTH recharge, cash-in and cash-out at ATMs, payment at retail counters, bill payment etc. Across the world, m-banking is becoming prominent as a major channel for provision of banking services to consumers. In Kenya, m-banking contributes to a third of the GDP. 4 Mobile banking across the world is either bank led or non-bank led. By bank-led mobile banking, it 4

10 10 Rural Financial Institutions Programme is meant that the provision of financial services is done directly by the banks through technology platforms or agent networks owned by a third party or built on its own. On the other hand, nonbank led mobile banking is wherein the lead is taken by a non-bank entity, such as a Mobile Network Operator (MNO), and the bank acts as the third party provider of financial services. The regulatory environment in India favours a bank-led m-banking environment. Former Reserve Bank of India Governor, Dr. D. Subbarao sums this up in a speech where he says, Mobile payment systems can provide only a remittance facility; they cannot provide other benefits under Financial Inclusion such as overdrafts, credit and micro-insurance. Also, banks are heavily regulated and this allows us to address concerns about kyc /AML (Anti Money laundering) as also customer service. With mobile payment companies, we have neither similar regulatory authority nor comfort. 5 Over the last one decade, m-banking has gained greater prominence in the banking sector in India. From only about 5% of banked population being registered for m-banking in 2000, it has become close to 20% in This is driven by the fact that an increasing number of banks are offering m-banking solutions to their customers. Yet, as a percentage of overall transactions, cash still leads the lot with 67% transactions in the country being in cash. M-banking is widely perceived as the next big driver of banking penetration in the country. The reason for this is the growing penetration of mobile phones. Mobile phone penetration is about 70% across India and 40% in rural areas. While only about 23% of villages in the country have bank branches, about 38% of villages have access to mobile phone technology. In addition, for the people without a bank account, 42% of the corresponding households have a mobile phone. At the same time, the cost of banking through a mobile phone is much cheaper than that through bank branches or ATMs. 6 For the banks, the cost of m- banking is Rs. 1 to Rs per transaction far below the transaction cost of Rs. 45 to Rs at a branch or even the transaction cost of Rs. 15 to Rs. 20 at an ATM, and half the transaction cost of Rs. 3 for internet banking. As a result of all these factors, mobile banking has the potential to finally bring about Financial Inclusion in India. As a result, mobile banking initiatives can also be categorized as: 1. Additional Channel Category: These are initiatives that are aimed primarily at making an additional transaction channel available to existing bank customers. For example, the mobile network operator-led banking initiatives focus on allied commercial services such as remittances, merchant payments and recharges. These initiatives offer limited services to the unbanked customer segments. 2. Unbanked Customers Category: These are initiatives that are aimed primarily at unbanked (and/ or under-banked) customers who do not have access to formal branch-based banking services. For example, the mobile banking initiatives of different banks Business Correspondent companies fall into this category. 3. Hybrid Category: These are initiatives that combine both models mentioned above. These initiatives provide basic financial services targeted at the unbanked (and/or under banked) customers, and at the same time, they also act as an additional transaction channel for existing banking customers. In a later section, different initiative profiles are de

11 Rural Financial Institutions Programme 11 scribed, and also classified among the 3 above categories. 1.2 M-banking Size and Growth Average size of monthly m-banking transactions, in terms of value and volume, has grown at a very high rate over the last 3-4 years. Interestingly, the value per transaction has more than doubled over the last 4 years 7. This shows that the consumer confidence in these transactions is increasing over time. This is also a reflection of the relaxation of the RBI on the transaction limits set for some types of transactions such as fund transfer. The total volume of transactions per year has gone up by 9 times from 5million transactions in 2010 to 45 million transactions in Similarly, the total value of transactions per year has gone up by almost 10 times from INR 4.5 billion in 2010 to INR 42 billion in According to estimates from a study by the Boston Consulting Group, the value of mobile banking transactions is expected to reach INR 17,500 billion by Types of Transactions The Indian m-banking sector is still in its nascent stage, and so even though the value per transaction has increased significantly, it is still quite low. About 90% of all m-banking transactions in India are for making bill payments and mobile top-ups. The remaining are for inter-bank and intra-bank fund transfers. 10 It is, therefore, interesting to see that although m-banking is bank-driven in India, direct banking products such as fund transfers, withdrawals, deposits, etc. form only a small part of this segment. This implies that although the value and volume of transactions are going up, branchless banking is Trend in Mobile Banking in India Source: RBI No. of users (million) Volume (million) Value (billion INR ) No. of users (million) Volume (million) Value (billion INR ) still a distant dream. A typical consumer continues to go to an ATM or a bank branch to conduct core banking transactions. The cost benefits from mobile banking, therefore, do not accrue to the banking sector. Yet, these transactions that form a majority of the m-banking sector will go a long way in familiarizing a consumer to the m-banking system. Figure 2 below shows a grid of penetration versus type of transaction. The Y-axis is m-banking penetration (high or low), and the X-axis is the type of transaction undertaken (indirect banking transactions such as mobile recharge or core banking transactions such as fund transfers). India currently is in the low penetration, indirect banking transaction quadrant. If the banking industry is to reap the benefits of increased m-banking, the country must move towards the upper right hand quadrant of high banking penetration and direct banking transaction quadrant. The exact trajectory of the shift will be determined by the type 7 Reserve Bank of India data 8 Reserve Bank of India data

12 12 Rural Financial Institutions Programme of products offered by different m-banking initiatives and their strategy to reach out to more and more customers. 1.4 Key Banking Players Figure 3 Top 5 Banks (M banking clients) Figs in Lac Figure 2 Penetration rate High Low SBI ICICI BANK HDFC BANK AXIS BANK YES BANK Indirect banking products Mobile/DTH recharge, bill payments Banking products Core banking Deposits, Withdrawls, fund transfer Figure 3 shows that State Bank of India (SBI) is the largest provider of m-banking services in terms of number of transactions about 60% of m-banking transactions in April 2013 were through SBI. ICICI Bank and Axis Bank are the next big banks catering to m-banking. In terms of total value, the market is led by ICICI Bank, SBI and HDFC Bank respectively. It is interesting to see that the value per transaction is higher for private banks than for the public sector bank, SBI. HDFC Bank has the highest value per transaction followed by Citibank and ICICI Bank Key Stakeholders in M-banking Ecosystem The key stakeholders in the provision of m-banking solutions are outlined below: Banks: As mentioned before, the mobile banking industry in India is bank-led. Mobile banking offers various benefits to banks, easy access to customers, low cost provision of banking services, additional customer base from tapping into the un-banked population (as scale of operations grows at a lower cost, profits can increase). Mobile Network Operators: MNOs (Mobile Network Operators) provide the important channel for extending m-banking services to customers. While MNOs receive their fees for use of their connectivity by the clients, they also benefit from the provision of this service since customers make use of mobile payment platforms to recharge their phones. In fact, as quoted above, mobile recharges (and DTH) constitute the majority of the existing m-banking transactions. Their job is to ensure that customers have easy access to mobile banking service offered by banks. Agent aggregators and agent networks: The agent aggregators own/ manage an agent/ Business Correspondent network that helps to digitize 11 Reserve Bank of India data 12 Value per transaction (in INR) HDFC 15k, CITI 5k, ICICI 3k, Axis 1.5k, SBI 0.5k

13 Rural Financial Institutions Programme 13 Figure 4 Deposit accounts per 1,00,000 adults (2010) India South Africa Brazil Poland Turkey Malaysia US Ireland Austria UK Belgium some of the transactions that happen as part of m- banking services. They receive commissions for being the intermediary linking banks to customers. In India, the BC (Business Correspondent) companies play this role. Technology Solution Providers: These are the providers of m-banking technology solutions to banks and other participants in m-banking. While in some cases, the technology providers may be inhouse, in most cases they are third parties. Maintenance and operations, again, may be carried out inhouse or externally. In some cases, the Technology Solution Providers may also be agent aggregators. They receive a fee for the technology services they provide. Customer: Customer is the end-user of the m- banking product. This includes not just existing customers but also new customers who have been acquired as result of the provision of m-banking. They get increased access to financial services and mobile payment solutions. 1.6 High Potential Market Size of M-banking M-banking, an already high growth market, is expected to be growing even faster in future. This is driven by low banking penetration and increasing access to mobile phones. i. Low banking penetration especially in rural India: As is visible in Figure 4, the number of deposit accounts (rural + urban) per 1,00,000 adults is only about 750, the lowest amongst other countries. India has 145 million households outside the organized banking system. Out of the 600,000 villages in India, only 183,000 are covered through formal banking as of March % of the population does not have access to formal banking services. According to a study by Indian Bank, the top six metros (Mumbai, Chennai, New Delhi, Kolkata, Bangalore and Hyderabad) alone contribute 45 per cent to total deposit and 56 per cent to credit, indicating

14 14 Rural Financial Institutions Programme lower penetration of banking services in the remaining non-metro parts of the country. Hence, in order to increase banking penetration, the banks must evolve a way to provide easy access for banking services to rural India. This mechanism must not only be easily accessible but also user friendly as a large proportion of Indian adults in rural India are illiterate. ii. Mobile penetration is growing: As visible in Figure 5, mobile penetration in the country is at about 70%, with rural mobile penetration being about 40%. 14 In the National Telecom Policy 2012, the Government of India clearly mentions its mandate regarding increasing mobile penetration. It clearly states its goal to Increase rural tele-density from the current level of around 39 to 70 by the year 2017 and 100 by the year Figure 6 on the next page shows mobile penetration by state based on data from TRAI. iii. M-banking is a quick and cost effective channel to bank the rural un-banked popula- Figure 5 Mobile penetration (%) tion: As can be seen from Figure 7 below, a greater percentage of villages has access to mobile phones than they have to bank branches (40% versus 25%) 16. So, the existing options that banks have to increase banking penetration are: (a) Eexpansion of existing network of branches/ ATMs, % % villages with access to: (2012) Bank branches Mobile phone access (b) Eexpansion of the Business Correspondent CSP 17 model without m-banking, and (c) Eexpansion of the Business Correspondent CSP model with m-banking. 80% 60% 40% 20% 0% 2010 All India Rural According to different studies, it could easily take more than two decades for bank branches to reach the entire 1.2 billion people. 18 In addition, the cost of transaction on a mobile phone is estimated to be one-fortieth of the transaction cost at a bank branch and one-tenth the cost of a transaction through an ATM 19. Thus, the first option of expansion of existing network of branches / ATMs is not feasible or viable for banks in the context of Financial Inclusion they 13 Looking Forward, Looking Back, KPMG 14 Telecom & Regulatory Authority of India, Aranca Research 15 National Telecom Policy Looking forward, Looking back, KPMG; Centre for Development of Telematics 17 CSP customer service point 18

15 Rural Financial Institutions Programme 15 Figure 6

16 16 Rural Financial Institutions Programme have to adopt a BC (Business Correspondent) CSP model. Why M-banking BC CSP model? In the case of M-banking, the bank does not need to invest in physical space, human resources and intranet technology to link all its branches/ ATMs. The cost of the mobile network is anyways borne by the MNO, so the only cost that the bank needs to bear is the cost of setting up a system and managing it, which could also be outsourced to system providers. Therefore, M-banking is a cost effective and quick way to provide banking services to the unbanked. The other option to the BC CSP model with M- banking is the BC CSP model without M-banking i.e. the BC model with hand-held PoS (Point of Sale) devices that are not mobile phones. While this BC model with hand-held PoS device makes it easy to cater to a high transaction base since the POS device can process high number of transactions quickly, the cost of additional infrastructure (POS devices) makes this model costlier than the BC model with m-banking, especially if the transaction volumes are low which is the case in most Financial Inclusion scenarios 20. Mobile phones offer a cost advantage from a device perspective they are not an additional cost since most people already have a mobile phone or at least have access to a mobile phone. In contrast, the POS cost ranges from INR 25,000 to 40,000 per device and the overall total cost of ownership, including software licensing and maintenance, can be expensive, particularly if POS deployment runs into the thousands. From a management/back office platform perspective, costs can range from INR 1.5 crore upward depending on what systems are already in place and whether systems need to be Card Association certified. Thus, the option of the BC CSP model with m- banking is clearly the most feasible and viable option available in the context of Financial Inclusion. Also type of transactions through M-banking need to be considered which show that a majority of transactions are currently related to non-core banking products, thereby not necessarily leading to cost effectiveness for the bank. A shift to transactions involving core banking products is, therefore, necessary to ensure that banks reap the benefits of M-banking. This is needed for banks to further push and promote M-banking and thereby create a virtuous cycle that is sustainable and profitable. 1.7 Regulations Approval for m-banking services in India was given by the RBI in Wary of how the market would respond, the RBI chose to regulate it considerably. For example, in 2008 end-to-end encryption of messages was a compulsory requirement for all transactions. Similarly, the daily cap on transaction limits for funds transfer and for purchase of goods and services was INR 5,000. As the market progressed and showed good signs in terms of it being a reliable channel of banking, the RBI started relaxing its rules. i. Daily cap transaction limits for funds transfer and for purchase of goods and services was raised from INR 5k and INR 10k respectively to INR 50k and then eventually removed in Dec ii. Transactions up to INR 5,000 can be facilitated without end-to-end encryption of messages, from RBI circulars

17 Rural Financial Institutions Programme 17 being a requirement for all transactions irrespective of value. iii. Ceiling on cash-outs to the recipients through ATMs or BCs was raised to INR 10,000 per transaction subject to the existing cap of INR 25,000 per month per customer. iv. RBI has given a push to Financial Inclusion by enabling walk-in customers not having a bank account (e.g., migrant workers) to transfer funds to a bank account subject to a transaction limit of INR 5k and a monthly cap of INR 25k per remitter. The fourth relaxation is a landmark in terms of increasing Financial Inclusion. Very often, migrants working in cities do not have any identity proof for place of residence. As a result, they are unable to create a bank account. This makes it difficult for them to remit money back to their family in villages. They rely on cash transfers through friends or relatives or informal money lenders. The relaxation regarding the requirement for a bank account makes it possible for them to transfer funds to a bank account without opening a bank account of their own. The recent mobile wallet scheme launched by OxiCash goes a step further and allows for wallet to wallet transfers. The RBI says in its July 2013 operative guidelines to banks on mobile banking transactions, The rapid growth of mobile users in India, through wider coverage of mobile phone networks, has made this medium an important platform for extending banking services to every segment of banking clientele in general and the unbanked segment in particular. 22 Clearly, the RBI is proactive about m-banking and has been taking steps to encourage growth of this new channel for banking. 1.8 Settlement Systems Settlement systems are those systems that facilitate fund transfer transactions between banks. This is the back-end system that ensures that a fund transfer initiated by a consumer is completed accurately. This fund transfer may have been initiated in person by visiting a bank branch or on the internet or via the m-banking system. i. Iinterbank Mobile Payment Service (IMPS) 23 : This is also known as Immediate Payment Service (IMPS) and is an interbank electronic instant mobile money transfer service through mobile phones. It is facilitated by National Payments Corporation of India (NPCI). There is no minimum transaction limit and the upper limit may be determined by the bank within the limit set by the RBI. This system operates 24x7x365 and settlements are in real-time. To avail of this facility, the remitter is required to register his/ her mobile number and generate a MMID (Mobile Money Identifier) with his bank (provided the bank is registered on the IMPS system). IMPS enables easy interoperability of mobile banking transactions between different banks including Regional Rural Banks and Cooperative Banks. Box 1 gives a detailed description of IMPS. The various types of fund transfers using IMPS are given below: 1) IMPS Person to Person (P2P) IMPS P2P is a service used to transfer funds between two individuals having accounts in the same bank or different banks which are members of the IMPS network. Following are the details that are used while making payments using IMPS P2P service: a) Beneficiary Mobile No. (10 Digits) b) Beneficiary Mobile Money Identifier (MMID) (7Digits) 22 Master Circular Mobile Banking Transactions in India Operative Guidelines for Banks, July

18 18 Rural Financial Institutions Programme c) Amount d) Mobile Personal Identification Number (MPIN) e) Remarks (Optional -50 Characters) IMPS P2P offers immediate debit to the remitter account and immediate credit to beneficiary account. 2) IMPS Person to Account (P2A) IMPS P2A is a service launched by NPCI to boost IMPS adoption this service uses the IFSC code and Beneficiary Account Number which is already popular with RTGS/NEFT transactions. In IMPS P2A, remitter needs to enter Beneficiary Account Number and IFSC code instead of Mobile Number and MMID. Following are the details to be used while making payments using IMPS P2A service: a) Beneficiary Account No. b) Beneficiary IFSC (11 Digits) c) Amount d) MPIN (Password) e) Remarks (Optional - 50 Characters) 3) Person to Merchant (P2M) A service is available to IMPS customers for making payments to a Merchant/Entity for goods or services. Customer s account gets debited and the Merchant s account gets credited. The service is very convenient for making payments for: Premium collection by customers/agents DTH/Mobile top-ups Any bill payments College/Institution fee payments IMPS P2M has two types of transactions: a) Customer Initiated Transactions -Push Based (P2M-Push) b) Merchant Initiated Transactions - Pull Based (P2M-Pull) In P2M -Push transactions, the customer initiates the transaction from his/her mobile phone for a credit to the merchant s account for the goods or services

19 Rural Financial Institutions Programme 19 offered by the merchant. Customer s account would be debited when the customer initiates a transaction from his mobile banking application/or through any other channel for payment to an entity/merchant who is the beneficiary and the beneficiary s account would be credited. P2M-Pull transaction is initiated at a merchant s application (merchant POS, mobile POS, website, IVR) by a customer for the goods or services offered by the merchant. The customer s account would be debited after the customer has initiated the transaction at the merchant s application for a payment to a corporate/merchant for goods or services offered by the merchant. 4) NUUP (National Unified USSD Platform) Also noteworthy is the National Unified USSD Platform. NUUP has great potential to bring together the different stakeholders in the mobile banking landscape to one single national platform making it easy for users to transact. This platform lends the benefits of scale and familiarity to banks and customers. Though in May 2013, mobile network operators posed a roadblock to this service. They refused the 25 paise per transaction revenue sharing offer by NPCI. 24 While negotiations may be long-drawn, it is expected that the mobile network operators and NPCI would come to an agreement finally subsequent to that, there should be great traction happening for IMPS. ii. Nnational Electronic Fund Transfer (NEFT) 25 : This is a nation-wide payment system facilitating one-to-one fund transfers. It is facilitated by the RBI. NEFT works in hourly batches with 12 settlements from 8am to 7pm on weekdays and 6 settlements from 8am to 1pm on Saturdays. There is no lower or upper limit to the transaction amount and a small fee is charged from the RBI website

20 20 Rural Financial Institutions Programme customer for these transactions, depending on its size and whether it is an intra-bank or interbank transaction. For cash based remittances, the upper limit is INR 50,000 per transaction. To avail of NEFT, a bank branch must be registered on the system. Without registration, no IFS Code (Indian Financial System Code) is provided to the consumer, a pre-requisite to make a NEFT transaction. iii. Rreal Time Gross Settlement (RTGS) 26 : This is the continuous (real-time) settlement of fund transfers individually on an order by order basis, without netting. The minimum amount to be remitted is INR 2 lakh per transaction, with no maximum amount limit. The transaction window is 9am to 4:30pm on weekdays and 9am to 1:30pm on Saturdays. A fee is charged for the transaction (INR 25 is charged for transactions worth INR 2-5 lakhs and INR 50 for transactions above 5 lakhs.) 1.9 M-Banking User Technology The user technology is very important in ensuring adoption of the m-banking service and its continued use. Depending on the consumer segment being targeted and the banking services being offered, 26 RBI website

21 Rural Financial Institutions Programme 21 the choice of technology is made. For rural m-banking in India, for example, one would use an easy and inexpensive technology such as SMS or USSD 27. Yet, due to security concerns regarding these two tech- nologies, the bank needs to be careful about the type of products being offered on it. Box 2 gives a brief overview of the 4 different types of technologies. 27 a protocol used by GSM cellular telephones to communicate with the service provider s computers. USSD stands for Unstructured Supplementary Services Data. A gateway is the collection of hardware and software required to interconnect two or more disparate networks, including performing protocol conversion

22 22 Rural Financial Institutions Programme 2. Models in Mobile Banking telecom operators, and BC companies have deployed a variety of mobilebased banking solutions in the market. Banks, These solutions and mobile banking initiatives address multiple objectives at the same time. Mobile banking solutions a) provide an additional channel for existing bank customers, b) further the goal of Financial Inclusion, c) offer a substitute for a bank account and d) enable branch-free banking. Many public sector banks and private sector banks offer mobile banking solutions to its existing customers. For e.g. ICICI Bank 28 allows its customers to conduct bank account, credit card, demat account, loan, shopping and other transactions over mobile channels. ICICI Bank also has multiple mobile modes in which the customer can interact and transact with the bank imobile - an app, USSD, SMS and WAP. The business services/ menu options available to ICICI Bank customers vary based on the mode/channel selected. Similarly, Andhra Bank 29, a medium sized public sector bank also offers banking facilities on mobile channels to its existing customers. It includes balance enquiry, mini statements, intra and interbank transactions, mobile recharges, temple donations and a few other services. Andhra Bank customers are able to register for the mobile banking service without even visiting a branch they may do so at an ATM using their ATM/Debit Card. Andhra Bank also offers two mobile modes for the customer to access mobile banking facilities App and SMS. While mobile phones and channels offer convenient and ubiquitous access to banking facilities for urban or affluent customers of the bank, these devices and channels are also being used as an innovative and perhaps the only platform to reach and provide banking services to the rural, poor and unbanked populations. Pallavan Grama Bank 30 headquartered in Salem, Tamil Nadu is an example of one such mobile banking innovation. The mkcc 31 program jointly developed by Pallavan Grama Bank, Indian Bank, and PayMate (the mobile platform/service provider) and sponsored by National Bank for Agriculture and Rural Development (NABARD), provides basic banking services such as deposits, withdrawals, and money transfers to over 7,000 farmers in the villages of Villu

23 Rural Financial Institutions Programme 23 puram, Tamil Nadu in a secure and reliable manner. The farmers transact over their mobile phones for money transfers and visit the BC network of Pallavan Grama Bank for cash deposits and withdrawals. Sub-K 32, part of the BASIX Group, is another example of a company that has leveraged mobile technologies to benefit residents of rural, urban and semiurban areas. It provides access to digitized services that includes banking services, savings, NREGA and other government payments, money transfers, utility payments, prepaid mobile top-ups, enabled through a network of outlets operated by Sub-K agents. Sub-K works with a variety of banks including large public-sector banks (Syndicate Bank) as well as smaller banks (Ratnakar Bank). In addition to bank-led mobile banking initiatives and solutions, telecom and payments companies also offer a substitute to bank accounts - wallets bundled with a wide range of services. These services are available over both mobile and non-mobile channels to customers. Oxigen Wallet 33 from Oxigen and Airtel Money from Airtel are examples of such products. These pre-paid virtual wallets can be used for a variety of services that include instant money transfers, mobile and DTH recharges, travel related payments, utility bill payments and movie ticket purchases. Both the wallets support IMPS transactions. While Airtel Money 34 is exclusive to Airtel customers, the Oxigen Wallet is available to all mobile service providers customers. Both these wallet providers also offer a variation of the wallet service with a linked bank account that supports cash withdrawals. Oxigen Wallet offers the product SBI MobiCash 35 in partnership with SBI, and Airtel Money Super 36 offers a bank account with Axis Bank. Partnership models with banks from companies like Eko 37 provide financial services via mobile phones and neighbourhood shops to customers. Eko provides extension counters to banks for money transfers and enables full and no KYC transactions for low income households. As a BC of SBI, Yes Bank and ICICI Bank, Eko enables branch-free banking using low cost cell phones and a network of retail distribution agents. In addition to its wallet service, Oxigen also provides a similar partnership model with SBI and Yes Bank. 2.1 Self and Assisted Transactions Mobile banking services are made available to customers in two modes a) self-initiated transactions and b) assisted transactions. In self-initiated transactions, the customer performs the banking or non-banking transaction himself/herself. This is typically done on a mobile phone over SMS, IVR, USSD, WAP or App. Additionally, some providers also allow customers to transact over the internet. Assisted transactions are typically done by a BC agent on behalf of the customer either through a mobile phone, POS over GPRS or an internet terminal. Account opening, cash-in and cash-out transactions require the intervention of a BC network/ agent. Other services, such as money transfers and mobile recharges are done by the customer using his/her mobile phone. Among the initiatives surveyed, Pallavan Grama Bank - PayMate mkcc supported self-initiated transactions. The other initiatives that support

24 24 Rural Financial Institutions Programme this model include SBI MobiCash Oxigen and Airtel Money, both being wallet based services. Sub-K and Eko have a fully assisted model. Oxigen supports both self and assisted models, depending on the type of service offered. 2.2 Remittances There are multiple modes in which remittances are supported. A couple of the initiatives surveyed, Eko and Oxigen had exclusive remittance counters on behalf of banks such as SBI, yes Bank and ICICI Bank. At these remittance counters, customers can transfer money to any bank account (intra-bank and inter-bank). For intra-bank transfers the bank s portal is used, whereas for inter-bank transfers the vendor s platform/wallet service is used. Both IFSC and IMPS transactions are supported, provided the remitting bank/wallet service and the recipient bank are on the IMPS network. Pallavan Grama Bank PayMate and Sub-K 38 only support intra-bank transfers with the former facilitating self-initiated transactions and the latter operating in an assisted model. Airtel Money and SBI MobiCash Oxigen support both IFSC and IMPS transactions. 2.3 Multiple Mobile Modes Customers can use a variety of mobile modes SMS, IVR, USSD, WAP and App to carry out transactions on their mobile phones. Not all mobile banking initiatives and vendors support all the modes. A brief comparison of the various modes is given below: - SMS is supported on all phones - IVR is also supported on all phones - UuSSD is carrier specific, and the bank will need to tie up separately with telecom operators - WAP requires a GPRS connection - App requires a GPRS connection with a compatible handset Of the vendors surveyed, Pallavan Grama Bank PayMate is an example of an IVR based implementation. Sub-K s implementation is App based and Airtel Money is based on USSD. All vendors supported SMS. 2.4 Mobile Banking Models This section describes the various models available for mobile banking. Based on the objectives of the mobile banking initiative, the bank may consider one of the mobile banking models given below. New Channel: In this model, the mobile banking platform is used to provide an additional channel for customers to transact with the bank. The traditional channels to service the customers continue to exist, and the mobile channel offers added convenience to existing customers. Along with a new channel, the Mobile Banking Models Provide an additional channel for existing bank customers Further the goal of Financial Inclusion Objectives Offer a substitute for a bank account New Channel Wallets FI Focused Partnership Enable branch-free banking 38 Sub-K recently has started offering remittance services for Bank of India using internet kiosks.

25 Rural Financial Institutions Programme 25 bank also offers new services (often non-banking) from the mobile platform vendor to its customers. This model also helps in reducing the reliance of the customer on traditional channels and promotes branch-free banking. ICICI Bank and Andhra Bank are two cases of banks making its facilities available to existing customers over mobile channels. Out of the initiatives surveyed as part of this study, only Pallavan Grama Bank PayMate followed this model. It provided a mobile channel/platform to its mkcc customers. Wallets: In this model, the bank account is replaced by a wallet from a non-banking institution. The wallet service provider offers both banking and nonbanking services to customers. Wallet service providers offer both no-kyc and full-kyc models, with the full-kyc model supporting and linking a bank account from a partner bank with the wallet. Airtel Money and SBI MobiCash Oxigen support this model. Airtel Money has both the no-kyc and full-kyc options with the full-kyc option being supported by Axis Bank. Similarly, Oxigen provides two versions of its wallet model, SBI MobiCash Easy and SBI MobiCash. SBI MobiCash links an existing SBI account with the Oxigen wallet, whereas SBI Mobi- Cash Easy is open to all customers and does not require a SBI account. Airtel Money is limited to Airtel customers. The customers of the bank transact using their mobile phones and rely on either the bank or vendor outlets for cash-in/out. FI Focused: In this model, the bank uses the mobile banking platform to provide banking services to the rural, poor and unbanked segments. At the same time, it relies on a BC network to facilitate account opening, cash deposits and cash withdrawals. This is an assisted model, with the customer relying on the BC agent to perform most of the transactions. The focus here is on providing basic banking services to the unbanked. Remittances are normally restricted to intra-bank transfers. The BC agent transacts the business either on a mobile phone or using a POS device. Sub-K and Pallavan Grama Bank PayMate have adopted this model. In the case of Sub-K, the BC agent network is supported by Sub-K, whereas in the Pallavan Grama Bank PayMate mkcc initiative the BC agent network is managed by the bank. Partnership: In the partnership model, the mobile banking service provider has a multi-level partnership in place with the bank. These partnerships are not exclusive the bank may tie-up with more than one vendor, and the vendor may have relationships with more than one bank depending on geographic coverage or other considerations. Eko has tie ups with SBI, ICICI Bank and yes Bank. Oxigen has tie-ups with SBI and yes Bank. The vendor may provide remittance only counters to facilitate BSBD account openings and transactions, and provide non-banking services. Oxigen also provides its wallet service to SBI besides the remittance and kiosk banking operations. The vendor provides both the technology platform and the BC agent network. This is an assisted model and the BC agent often transacts using an internet terminal, even though the vendors support transactions using a mobile phone or a POS device. The findings in this section are based on discussions with the technology vendors. The banks perspectives have not been captured due to time / accessibility constraints.

26 26 Rural Financial Institutions Programme 3. INITIATIVE PROFILES In select a few initiatives that can be studied this section, the profile of the initiatives in the m-banking segment is given so as to in greater detail. The profiling of the initiatives is along 2 high level dimensions / themes. i. Spread of the initiative: This is defined as the reach of the initiative and potential for improved reach in the future. This can be measured by the following metrics: a. Geographical reach whether the initiative has reached a reasonable spread across the country or not. b. Penetration in rural India what percentage of users are rural. c. Availability of reliable distribution network (such as Business Correspondents) whether the initiative includes a partnership with a reliable BC or distributor or has its own BCs, making the service available at close proximity to users. d. Scalability and long term sustainability whether initiative has been able to raise external funding, or generates enough income for long term sustainability / scalability, and if future prospects for scalability / long term sustainability are good from the perspective of enabling Financial Inclusion. e. Ability to work with multiple banks whether the system is or can be made operationally compatible with multiple banks, especially RRBs and Cooperative Banks. ii. Adoption and usage of the initiative: This is defined as the ease of adoption of the initiative and the potential for its repeated use. It can be measured by the following metrics: a. Ease of use of technology whether the technology is easy to use or involves a complex understanding of the solution. b. Speed of transfers whether transactions are instantaneous, and whether they are available round the clock, irrespective of holidays or strikes. c. Branding whether the initiative itself is a known brand or has the backing of a bank/ MNO that has a significant brand name. d. Existence of user fees whether there is a user fee and how much that is. e. Transaction security whether the transaction is secure. Early detection of fraud and insulating risk situations so that such events do not become systemic. f. Pertinent product offering whether the product offering/ transactions allowed match the demand from users. The list of initiatives looked at is given below: 1. FINO / Alpha Payment Service 2. Oxigen 3. EKO 4. Mobile Kisan Credit Card 5. IndusInd Cash-in-Mobile 6. Federal Bank IMPS 7. SBI and BSNL mobile banking 8. Airtel Money 9. IDEA MyCash

27 Rural Financial Institutions Programme Vodafone M-PESA 11. IFMR Mobile Banking 12. BASIX Sub-K 13. ITZ Cash Card 14. YES Money A description of each initiative based on the dimensions / themes and metrics (as mentioned on the previous page) is provided from the next page onwards. Within each initiative profile, the initiative has also been broadly categorized into one of 3 categories (previously mentioned and described on page 7): Additional Channel Category, Unbanked Customers Category, and Hybrid Category. It must however be noted that these initiatives can be categorized in different ways the primary and most relevant categorization has been mentioned above and noted in the different initiative profiles. 3.1 FINO / Alpha Payment Service FINO is the largest BC company in India operating across 28,000 transaction points and 50,000 villages. FINO is primarily dependent on the handheld POS device model. The company has been operating since 2007 and has been successful in scaling up with 65 million+ customers. FINO had acquired Nokia Money (the mobile money services company of Nokia) in India for an undisclosed amount in June 2012, following which it had formed a new entity called Alpha Payment Services India Private Limited (APSIPL). Alpha is one of the players in mobile wallet / digital wallet space. Customers can avail a bouquet of services like bill payments, mobile and DTH connection recharge, money transfer to family and friends. They Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Currently present in 10 states with Union Bank Money to cater to retail customers and Alpha Money to cater to enterprises with customized payment solutions. 2. Penetration in rural India: Alpha solutions are currently focused and targeted at the urban population and not the rural population. 3. Availability of reliable distribution network: FINO network of 28,000 transaction points, with 65 million customers. However, Alpha seems to be operating independently of FINO. 4. Scalability and long term sustainability: FINO being one of the old players in M banking space understands the ecosystem technically better. It has a pan-india presence and robust distribution network. 5. Ability to work with multiple banks: Currently working with Union Bank. Has not yet shown the desire and ability to work with multiple banks. 1. Ease of use of technology: Available in multiple languages including English and Hindi through SMS, IVR and mobile apps. 2. Speed of transfers: Transfers money to any bank account via NEFT and IMPS. 3. Branding: Subsidiary of FINO which has a presence in almost every state of India. FINO was formed by ICICI Bank and it managed to attract big investors such as Intel Capital, International Finance Corporation, some of the Indian public sector banks, LIC and Blackstone Private Equity (Rs.150 Crores). It has a good brand name across sectors due to its ability to provide customized technology solutions. 4. Existence of user fees: Service fee is between Rs. 50 Rs. 100 a transaction. No registration charges at this stage but they will consider introducing registration fee when critical mass is reached. 5. Transaction security: Two-factor authentication for every financial transaction, Server encrypted communication. 6. Pertinent product offering: Enables remittances by workers to their families, besides offering an integrated platform for different consumer services such as mobile recharge, ticketing and utility payments, money transfer services between bank accounts or mobile phones, mobile and DTH recharge, ATM cash withdrawals, offline and online merchant payments and bill payments.

28 28 Rural Financial Institutions Programme can also benefit from cash withdrawal facilities through ATM or agent network. Apart from retail products, Alpha also offers customized payment solutions to enterprises to aid them in their cash management. Alpha can be categorized as an Additional Channel Category initiative. 3.2 Oxigen Oxigen started operations in 2005 and offers products and services in the virtual payments and distribution space through Point of Sale Terminals, Web, IVR and mobile based technologies. Their overseas partner is Blue Label Telecom, South Africa, who is a market leader in distribution of physical and virtual prepaid airtime. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Seamlessly networked environment through a rapidly expanding retail network of above 150,000 Oxigen touch points with 35 million transactions a month. 2. Rural penetration: Urban, semi-urban and rural reach 3. Availability of reliable distribution network: Electronic delivery and distribution of prepaid and Transaction/ Payment Management Services through kirana / grocery stores. 4. Scalability and long term sustainability: Citibank Venture Capital International made investments to help the company grow (2006), followed by Microsoft Corp. (2008) which built a strategic business and equity alliance with Oxigen. Oxigen retailers can be appointed as Customer Service Points, Oxigen being Business Correspondent of State Bank of India, and carry out banking transactions directly on SBI s core banking platform. This has potential to be scaled up in rural areas. 5. Ability to work with multiple banks: Currently provides merchant services to the customers of a wide array of banks such as ICICI Bank, Corporation bank, Citibank, Federal Bank, SBI, ING Vysya Bank, Axis Bank, HDFC Bank. In addition, Oxigen has enabled IMPS-based money transfers. Any IMPS-based service can be implemented for integration with multiple banks. 1. Ease of use of technology: Service is enabled for NPCI including IMPS P2P, IMPS P2A, IMPS P2M and Aadhaar ekyc and Authentication services. Easy registration through web, WAP, SMS and will shortly be available through IVR. Oxigen Wallet gets created free of cost for any mobile number in India by sending SMS, registering through computer or cell phones. 2. Speed of transfers: Available 24x7x Branding: Though its direct banking offerings are relatively new, it has strong brand equity in the market with its wide variety of partnerships to offer different products (outside of m-banking). Its founder is known as being a pioneer in setting up India s first telecom network with Essar Group. 4. Transaction security: Central Oxigen Wallet data server maintained in a safe and secure environment with SSL encrypted transaction. A 12-digit e-wallet ID and 6 digit numeric password is delivered to the subscriber as an SMS. 5. user fees: Services usage are free of cost including Money transfer service, whereas transaction charge is applicable for Mobile Wallet top-up. 6. Pertinence of products: Provides deposit, withdrawal, transfers (wallet to wallet and wallet to account, India s first non-bank mobile payment wallet service provider wherein transfers can be made without a bank account). Recently R.B.I has authorised Oxigen as one of the pilot entities for PPI. Cash out transaction using PPI through Aadhaar is being tested through Oxigen.

29 Rural Financial Institutions Programme EKO Founded in 2007, EKO provides a low cost infrastructure powered by innovation and technology to enable instant, secure and convenient financial transactions. It leverages existing retail shops, telecom connectivity and banking infrastructure to extend branchless banking services to the common man. eko can be categorized as an Unbanked Customers Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Delhi-NCR, Bihar, Jharkhand and Uttar Pradesh (UP) on its own, and also has support through affiliate networks of partner banks in Maharashtra, Gujarat and UP. 2. Penetration in Rural India: Rural and urban. Most customers earn below Rs. 8,000 per month. 3. Availability of reliable distribution network: 1,800 outlets. It identifies retail outlets that become part of their infrastructure based on parameters like location, reputation, kind of services provided, financial ability and literacy. 4. Ability to work with multiple banks: It provides m-banking solutions to ICICI, Yes Bank and SBI as a BC and Technology Service Provider. Also provides cash management services to Saija Finance, an MFI based out of Patna. 1. Ease of use of technology: Multi-modal approach (USSD, SMS, IVR and Application) hence works on all types of phones. Performing transaction requires only numeric literacy. 2. Branding: backed by SBI and ICICI bank that are the largest public sector bank and largest private sector bank respectively in the country. It has created a brand for itself on its own over the last 6 years (has processed in excess of Rs. 1,800 Crore worth of transactions for over 12 lakh customers). It does low-cost campaigns through street plays, comics etc. to acquire new customers. 3. Existence of user fees: Minimal fee (up to about Rs. 100 for opening accounts). 4. Transaction security: Uses a two factor strong authentication to complete the transaction. It has created and patented a low cost One Time Password (OTP) generator called OkeKey. 5. Product offering: Banking (accounts, deposit, withdrawal), money transfers, payments to end users. Also provides institutional products - core banking platform to affiliate partners and cash management services (to institutions such as government, MFIs, etc.).

30 30 Rural Financial Institutions Programme 3.4 Mobile Kisan Credit Card (MKCC) This pilot project is India s first Mobile Money credit delivery solution for farmers. This was launched in October This is a partnership amongst Pallavan Grama Bank, PayMate Technologies and NAB- ARD. MKCC can be categorized as a Hybrid Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: 8,000 enrolled but only 3,700 have a PIN (October 2012) in 15 districts in Tamil Nadu. 2. Penetration in Rural India: 100% Rural. Farmers with Kisan Credit Card accounts in Pallavan Grama Bank (PGB), a RRB by Indian Bank. 3. Availability of reliable distribution network: Farmers need to register for the KCC in the Pallavan Grama Bank and then a Business Correspondent (BC) is assigned to them. 4. Scalability and sustainability: Branch managers drive scale for a specific rural bank. PayMate plans to introduce this solution to other rural banks across India. If this solution can be implemented successfully with multiple rural banks, there is a lot of potential for scalability and sustainability. 5. Ability to work with multiple banks: PayMate has plans to extend to other banks. 1. Ease of use of technology: Easy to use IVR/ SMS based technology. 2. Branding: Started on a 3 year pilot basis by PayMate India in collaboration with Pallavan Grama Bank, Indian Bank, and NABARD. 3. Speed of transaction: Immediate. 4. user fees: Rs.15 per transaction, no registration fee. 5. Transaction security: The transactions are performed through a combination of secured SIM card and PIN, using an Interactive Voice Recording (IVR)/ SMS system. 6. Product pertinence: Pertinent to the farmer s payments, transfers, mobile/ DTH recharge.

31 Rural Financial Institutions Programme IndusInd Cash-in- Mobile This service was launched in August 2011 for customers of IndusInd Bank. This product is available at select few ATMs of IndusInd Bank across the country. This service allows cash withdrawal from these ATMs without an ATM debit card as long as the customer has his / her registered phone. IndusInd Cash-in-Mobile can be categorized as an Additional Channel initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Reach: Limited to IndusInd account holders, and limited to select few ATMs only. 2. Penetration in Rural India: Mostly urban. 3. Availability of reliable distribution network: 852 ATMs across 320 locations out of which a select few allow this service. 4. Scalability and long term sustainability: Since this solution requires ATMs in the mix, the scalability and long term sustainability in remote, rural areas is low. 4. Ability to work with multiple banks: This service is exclusively for IndusInd bank ATMs but works with multiple banks through the ATM network. 1. Ease of use of technology: Transaction is initiated either at an IndusInd ATM or IndusMobile application (requires a GSM mobile phone with SMS/ GPRS connectivity), with the rest of the transaction notification happening through SMS. 2. Speed of transfers: Immediate service as long as ATM is available. Beneficiary need not be an account holder with IndusInd Bank. 3. Existence of user fees: Mobile Banking facility free to all its customers, though operator charges apply. 4. Transaction security: Secured by a transaction PIN that is sent to the beneficiary s mobile phone as an SMS.

32 32 Rural Financial Institutions Programme 3.6 Federal Bank IMPS Federal Bank launched an IMPS based mobile payment service for auto drivers in Kochi in March This can be categorized as a Hybrid Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Only launched in Kochi in March 2013 with 150 auto drivers - Irikkur in Kannur district and Chandigarh. 2. Penetration in Rural India: Mostly urban. 3. Availability of reliable distribution network: Presently this service is available for auto drivers only but soon the bank will also extend these services to chemists, general stores and churches. 4. Ability to work with multiple banks: Currently, service is exclusively for Federal Bank account holders. However, since it is an IMPS service, it can be implemented for integration with multiple banks. 1. Ease of use of technology: Cashless mobile-based payment system (IMPS), or by sending an SMS. Service is enabled for IMPS P2M. 2. Speed of transfers: Immediate transfer of funds regardless of whether it is an odd amount, e.g. Re SBI and BSNL Mobile Banking In July 2012, SBI and BSNL jointly offered a USSD based mobile banking solution. This can be categorized as an Additional channel category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Available to all BSNL, pre-paid and post-paid customers, having an SBI account. Launched in July Penetration in rural India: BSNL is especially popular with people in remote and rural areas of the country, lending itself well to the potential of targeting Financial Inclusion. SBI also is especially popular in remote and rural areas, again lending itself well to the potential of targeting Financial Inclusion. 3. Availability of reliable distribution network: BSNL has a customer base of 95 million as of June 2011 with market share of 13.5% of mobile telephony in the country. 4. Scalability and long term sustainability: High prospects due to the combined scale of reach of both BSNL and SBI. Limiting factor is the execution of the initiative and the mobile / financial literacy of people. 5. Ability to work with multiple banks: Since IMPS has been enabled, the system can easily integrate with multiple banks. 1. Ease of use of technology: USSD based SMS system is the backbone technology used, making it an easy to access service (except on CDMA phones). Service has been enabled for IMPS P2P, IMPS P2A and IMPS P2M. 2. Speed of transfers: Immediate as it uses IMPS. 3. Branding: BSNL and SBI are both trusted companies in their own industries. 4. Existence of user fees: Rs.15 per month for unlimited transactions. 5. Transaction security: Every transaction is protected by an MPIN. 6. Pertinent product offering: Offers a range of banking and non-banking products such as Money Transfer, Mobile to Mobile Fund Transfer, Balance Inquiry, Mobile Top-Up/Recharge, Mini Statement, Cheque book issuance, Prepaid Mobile Recharge and Post-paid Bill payment.

33 Rural Financial Institutions Programme Airtel Money Following the launch of this mobile wallet service by the mobile operator, Airtel in Chennai and National Capital Region in 2011, the service was extended to many more cities in February This can be categorized as a Hybrid Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Available across 300+ towns / cities with more than 18,000+ merchants who accept payments via Airtel money across the country. 2. Penetration in rural India: Mostly urban. 3. Availability of reliable distribution network: Airtel Retail is acting as a Business Correspondent to load money in Airtel wallet. Availability is in the top 4 remittance corridors involving Delhi and Mumbai on the sending side and Bihar and East UP on the receiving side. 4. Ability to work with multiple banks: Airtel Money is operational with only Axis Bank at this point. No other bank partnerships have been announced by Airtel. 1. Branding: Airtel is one of the trusted brands with wide subscriber presence all over India (28% of total market). 2. Existence of user fees: Rs. 10 per transaction. 3. Transaction security: It is safe as every transaction uses very high encryption standard that adheres to highest banking security standards and PIN. 4. Pertinent product offering: It is a Mobile Commerce service that allows users to access services that include: Transfer money from mobile phone to another mobile phone, top up a mobile phone, access and manage Bank Account, pay for your utility bills / groceries / other goods. Airtel s flagship m-banking offering, Airtel money has been piloted in urban slums of Mumbai where it acts as BC for Axis Bank, where Swadhaar (leading Mumbai based MFI) acted as merchant. The clients of Swadhaar repay their loan instalment by using Airtel money services. This the clients do at a nearby Airtel outlet. This program has enabled Swadhaar clients to do utility payments, airtime recharge, and P2P, P2B transactions. More than 18,000 clients have been acquire by use of Airtel Money program.

34 34 Rural Financial Institutions Programme 3.9 IDEA MyCash Launched in March 2011 by IDEA Cellular and Axis Bank, this mobile banking service allows the consumer to avail banking services such as cash deposit, cash withdrawal, balance enquiry and cash transfers. This can be categorized as a Hybrid Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Started remittance service between Dharavi and Allahabad in March 2011 now it has presence in 22 cities with a focused presence in 4 circles: Mumbai, Delhi, UP East and Bihar i.e. the remittance corridors. 2. Penetration in rural India: Rural and urban. There is deep penetration in B-Class towns and rural areas. 3. Availability of reliable distribution network: IDEA My Cash service is provided through 1,570 retailer outlets. IDEA Cellular acts as a Business Correspondent with its network of 10 lakh Point-of-Sale outlets across the country. 4. Scalability and long term sustainability: Currently has 36,000 customers. About 40% of these 36,000 customers are transacting. There are 10 million people in the target group of people having household incomes between Rs. 3,000 and Rs.15,000 with mobile penetration of 65%, who remit Rs. 2,000 per month to their household in a separate location; this makes it a market of Rs. 30 Billion annually. 5. Ability to work with multiple banks: Works only with Axis Bank. Has no current plans to work with other banks. IDEA representatives stated in a meeting that integration of their technology platform with other banks would be difficult. 1. Ease of use of technology: Customer needs to open a no-frills bank account of Axis Bank at Idea s outlet, and KYC norms are relaxed for prepaid customers on the mobile network. IDEA MyCash is working on NEFT Transfers and stated that they may also work on IMPS Transfer. 2. Branding: MyCash is backed by IDEA and IDEA is backed by Aditya Birla Group. Axis Bank is also the 3rd largest private bank of India. 3. Existence of user fees: Rs.5 per transaction. 4. Transaction security: It is a P2P (Person-to-Person remittance). Money Transfer process happens for Idea subscribers, and gets verified by nodal Axis Bank or Idea POS.

35 Rural Financial Institutions Programme Vodafone M-PESA ICICI Bank and Vodafone launched M-PESA mobile wallet in April M-PESA was a huge success story in Kenya and other countries in terms of providing mobile based financial services. Vodafone M-PESA can be categorized as a Hybrid Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Launched in Kolkata, West Bengal, Bihar and Jharkhand. 2. Penetration in rural India: Primarily urban and semi-urban. 3. Availability of reliable distribution network: 7,800 M-PESA agents help promote the service and assist users in eastern areas of India. 4. Scalability and long term sustainability: Vodafone has plans to scale up the initiative based on success in these areas. 5. Ability to work with multiple banks: Works only with ICICI Bank. No plans to work with multiple banks. Vodafone M-PESA representatives stated in a meeting that while integrating their technology platform with multiple banks is not impossible, it would take a significant amount of effort and time to do it. The focus though will be to provide wallet based service. 1. Speed of transfers: Transaction happens through SMS instantaneously. 2. Branding: Has a great brand from being a huge success story in Kenya. 3. Existence of user fees: Rs. 100 activation charge on M-PESA, and a fee of Rs depending upon the value of transaction on different activity are charged. 4. Transaction security: Secured by 4 digit MPIN.

36 36 Rural Financial Institutions Programme 3.11 IFMR Mobile Banking To explore the challenges in adoption of Mobile Financial Services (MFS) among the rural population, a pilot was conducted by Pudhuaaru KGFS & Qarth Technologies (an IMPS based mobile payment start-up). The objective of the pilot was to understand the challenges in adoption of MFS, getting Pudhuaaru KGFS customers to make loan repayments via a customized banking application and understanding other use cases for MFS among the rural population. The pilot was started off with 5 Pudhuaaru KGFS customers being enrolled for mobile banking with their nearest bank. The customers were small shop owners two general merchants, a tailor, a fertilizer shop and a brick maker with an average loan instalment ranging from INR 700 (weekly payment) to INR 5,000 (monthly payment). The results were extremely encouraging: within the first 100 days, the customers conducted 2,982 IMPS transactions over a net sum of INR 1.43 Lakhs. Further enhancements and modifications have since happened now there is a web app on the mobile phone combined with a biometrics reader that enables m-banking for IFMR customers through IFMR agents. IFMR has also implemented an IVR based application to provide customer service.e.g. a call centre that calls back customers after a missed call. The IFMR mobile banking initiative can be categorized as an Additional Channel initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Operates only in Tamil Nadu; 60,000 savings accounts, Rs. 1 Crore of deposits, Rs Crore worth loan disbursements. 2. Penetration in rural India: Customers are 100% rural. 3. Availability of reliable distribution network: IFMR agents are used to reach out to customers. The cash is digitized by them using an Android enabled mobile phone. 4. Scalability and long term sustainability: Scalability is low since the IFMR operations are limited to Tamil Nadu. The system would need to work with multiple rural banks in order to have potential for scalability currently that is not possible. 5. Ability to work with multiple banks: Works only with Axis Bank. In-house developed system at IFMR. No such plans to implement the system outside IFMR at other banks / financial institutions. 1. Ease of use of Technology: Customer only needs a simple phone but phone characteristics also determine whether it will work with the system. 2. Transaction security: Biometric authentication is used to ensure transaction security. 3. Pertinent product offering: National pension scheme, savings accounts, insurance collection, loan repayment.

37 Rural Financial Institutions Programme BASIX Sub-K Sub-K is an arm of the BASIX group, working as a Business Correspondence Agent attempting to show a sustainable model for Financial Inclusion. In addition to enabling banking services for the Bottom-of-Pyramid customers, it is building a oneway link for the Government to make benefits (like NREGA payments) reach citizens. Sub-K is supported by Pass through Funding (PTF) facility to subsidize operating expenses under a project supported by Gates Foundation through Shore Bank International. Sub-K has developed and patented a technology platform for connecting over mobile / internet communication channels and interfacing Application Programming Interfaces (APIs) that link Core Banking Systems (CBS) of banks and servers of other Service Providers. As on August 31, 2014, Sub K has a savings customer base of 639,040 served through 2,588 BC outlets. 2.8 million banking transactions worth Rs. 288 million have been enabled through this channel. Sub-K can be categorized as an Unbanked Customers Category initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Presence in 25 states and 253 Districts. 2. Penetration in rural India: 310,000 customers in rural areas. Service is targeted at rural customers and the Bottom-of-Pyramid population. 3. Availability of reliable distribution network: 2,588 BC outlets across the country. Syndicate Bank 1202, Axis Bank Scalability and long term sustainability: Received $1.5 Million equity from Michael and Susan Dell Foundation in Received $3 Million Pass Through Funding from Gates Foundation in Receives ~Rs. 5,000/- per BC outlet per month from the bank plus transaction fees. The potential for long term sustainability is high as long as the banks agree to pay the monthly fee per outlet, and in recent months, the banks seem to have got convinced about the model after a lot of initial scepticism. The scalability potential is also high as the system seems amenable to easily integrate with multiple banks systems. 5. Ability to work with multiple banks: Works with 9 banks: Syndicate, Axis, ING Vysya, RBL, Karnataka Bank, Bank of India, KBS bank, Coastal Local Area Bank, SocGen. Four other banks are in pipeline. 1. Ease of use of technology: Patented technology, ViTranSP, for connecting over mobile / internet communication channels and interfacing Application Programming Interfaces (APIs) that link Core Banking Systems (CBS) of banks and servers of other Service Providers. Provides support for SMS, IVR, and Biometric POS devices. Supports online transactions by integrating with Bank s CBS/Switch (can deploy intermediate system customized for Grameen Banks / Rural Banks if needed). Supports both Micro ATM POS and Web based transactions. Provides support for payments of co-operatives. 2. Speed of transfers: Transaction takes 90 seconds to complete as it happens through CBS. 4. Branding: Syndicate Bank, Axis Bank, ING Vysya Bank, Ratnakar Bank and Bank of India are the banking partners. 5. Existence of user fees: 1.5% for remittance. 6. Transaction security: Patented technology, ViTranSP, is ISO 9001: 2008 awarded, and transaction is secured through Customer Finger Print Authentication either centrally at ViTranSP or UIDAI or at Bank specified location. Service providers through API links. 7. Pertinent product offering: Offering includes core banking products such as savings account deposits, withdrawals, mini statement, funds transfer, and Recurring Deposit / Fixed Deposit. Offering also includes other non-core banking products such as mobile topups, DTH top-ups, NREGS / Pensions, Utility payments, and Ticketing.

38 38 Rural Financial Institutions Programme 3.13 ItzCash Founded in 2006, ItzCash is a provider of special purpose, customized prepaid solutions. ItzCash is the first prepaid player to introduce payments on mobile, internet and IVRS through a Multi Service Pre-paid Card Company.ItzCash is also the first non-bank entity which has been issued the Certificate of Authorization by RBI under the Payment and Settlement Act. ItzCash is the strategic partner of both Visa and MasterCard International. ItzCash is a RBI authorized Prepaid Payments Instrument Issuer (PPI) and joined Immediate Payment Service (IMPS) on 18th July With this, ItzCash customers are now empowered to send and receive funds from customers of any IMPS P2P enabled bank using IMPS. In addition to this, the account holder of any IMPS P2A enabled bank can receive the money via IMPS from ItzCash customers. ItzCash can be categorized as an Additional Channel initiative. Themes Spread of the initiative Adoption and Usage of the initiative Factors 1. Geographical reach: Presence in 2,500+ Tier I and II towns in the country. 2. Penetration in rural India: Primarily urban. 3. Availability of reliable distribution network: Over 60,000 franchisees (ItzCash World Outlets) and 250,000+ retailers. 3. Scalability and long term sustainability: Private equity investors like Matrix partners, Intel Capital and Light speed Ventures have invested in ItzCash Card. However, the scalability and long term sustainability of the model for rural areas specifically is suspect since ItzCash has not yet ventured into rural areas. 4. Ability to work with multiple banks: Since IMPS has been enabled; the potential is there for the system to easily integrate with multiple banks. 1. Ease of use of Technology: Provides support for Web POS, IVRS, Over the Counter and Online Payment Gateway for a cash based transaction. Service has been enabled for IMPS P2P, IMPS P2A and IMPS P2M. 2. Branding: Promoted by Essel Group, also promoters of the Zee network. Counts as its shareholders, private equity investors like Matrix partners, Intel Capital and Light speed Ventures. Also strategic partnership with both Visa and MasterCard. 3. Existence of user fees: Rs. 10 extra for Railway ticket booking, and Rs for the registration charges.

39 Rural Financial Institutions Programme YES Money On April 11th 2011, yes Bank launched yes Money which is targeted at enabling urban migrant workers to transfer money to their families across India through Yes Bank s Business Correspondent Model. Of the total transactions made through yes Money, 48% are done either before or after banking hours. This shows the increasing comfort of BOP (Bottom of Pyramid) customers with technology-based innovations. yes Money has been the largest contributor to the NPCI IMPS volume adding more than twice of all other banks put together. yes Money is a Hybrid Category initiative. Themes Factors 1. Geographical reach: Presence in 168 cities covering all states with 12,000 outlets spread across the country. Spread of the initiative 2. Penetration in rural India: Started for the urban poor population for transfer and payment purposes. 3. Availability of reliable distribution network: 12,000 BC outlets with eko and Oxigen who act as yes Bank s Business Correspondents. 4. Ability to work with multiple banks: Has partnered with 68 banks in reaching out to over 68,000 of their branches with 38 banks on board supporting IMPS payments. 1. Speed of transfers: Only 4 second transaction time with 24*7 availability. Service has been enabled for IMPS P2P, IMPS P2A and IMPS P2M. 2. Branding: yes Bank is the 4th largest private bank of India and won NASSCOM s award for social innovation in May Adoption and Usage of the initiative 3 Existence of user fees: Rs. 25 registration charges and Rs for transaction charges for up to Rs. 25, Transaction security: Transaction is secured by the core banking system and also secured by MPIN. 5. Pertinent product offering: In addition to yes Money, there are yes SAHAJ (the rural micro-atm service), and yes LEAP (Livelihood Enhancement Action Program) which provides credit, saving and insurance facilities to Self Help Groups.

40 40 Rural Financial Institutions Programme 4. RECOMMENDATIONS The list of initiatives looked at is given in the table below along with the relevant category: Having studied the 14 profiled initiatives in detail, the process of shortlisting of initiatives for a further deep dive analysis and case study documentation was done in the following step-by-step manner: Step 1: Select the initiatives that have the potential to work with multiple RRBs and Cooperative Banks. Step 2: Select the initiatives that have the greatest potential for Financial Inclusion and replicability/scalability in rural areas. Step 3: Look at the other profiling parameters / theme metrics to further eliminate or select Table 1: Initial List of Initiatives S. No. Initiative Category 1. FINO / Alpha Payment Additional Channel Service 2. Oxigen Hybrid 3. eko Unbanked Customers 4. Mobile Kisan Credit Card Hybrid (MKCC) 5. IndusInd Cash-in-Mobile Additional Channel 6. Federal Bank IMPS Hybrid 7. SBI - BSNL Mobile Banking Additional Channel 8. Airtel Money Hybrid 9. IDEA MyCash Hybrid 10. Vodafone M-PESA Hybrid 11. IFMR Mobile Banking Additional Channel 12. BASIX Sub-K Unbanked Customers 13. ITZ Cash Card Additional Channel 14. yes Money Hybrid Table 2: Final Selection of Initiatives Sl. No. Initiative Category Can work with multiple RRBs and Cooperative Banks (Yes / No) 1. eko Unbanked Customers Yes Yes 2. IMPS Initiatives Group Hybrid / Additional Channel Yes Yes (including Oxigen, SBI - BSNL and YES Money) 3. Mobile Kisan Credit Card Hybrid Yes Yes (MKCC) 4. BASIX Sub-K Unbanked Customers Yes Yes Has high potential impact for Financial Inclusion in rural areas (Yes / No)

41 Rural Financial Institutions Programme 41 the initiatives as required to come up with the final shortlist. In addition, since IMPS has such high potential for being an enabling and catalysing factor for mobile banking in rural areas across multiple banks including RRBs and Cooperative Banks, it is recommended to have detailed discussions with NPCI before carrying out deep-dive analysis and case study documentation. These discussions with NPCI should be targeted towards understanding how NABARD could potentially collaborate with NPCI for supporting mobile banking initiatives with RRBs and Cooperative Banks. Table 2 shows the final selected list of initiatives for further deep-dive analysis. It was recommended that the 4 short-listed initiatives (IMPS Group, EKO, MKCC and BASIX Sub-K) be selected for Stage 2 of further deep dive analysis and case study documentation, from the perspective of understanding and defining how NABARD can provide support to mobile banking initiatives that work with RRBs and Cooperative Banks. Once the deep dive analysis and case study documentation is completed, it would be possible to define and recommend the way forward for NABARD with respect to mobile banking initiatives.

42 42 Rural Financial Institutions Programme 5. analysis of Selected Initiatives section contains a high level summary of the mobile banking initiatives This surveyed in this study. 5.1 EKO (Eko India Financial Services Private Limited) About Eko Eko has developed a technology platform that enables financial institutions and service providers like banks, BCs (Business Correspondents), MFIs (Micro Finance Institutions) or Mobile Money Operators (MMO) to run Agent Banking/ Business Correspondent/ Mobile Money operations. Eko also works as a National Business Correspondent to State Bank of India, ICICI Bank and Yes Bank. As a Business Correspondent (BC), Eko selects and manages agents, also known as Customer Service Points (CSPs), who provide the following basic financial services to customers: a) Account opening b) Deposit/Withdrawal c) Money Transfer/ Money Remittances d) Mobile/DTH Recharge e) Bill Payments On the user interface, Eko has developed a solution that enables customers to do secure financial transactions on a mobile phone simply through missed calls i.e. dialling of numbers, which works beautifully across languages and literacy levels, with SMS and IVR as backup options. It is the most secure, usable and universal solution that works on all mobile phones, including ultra low-cost phones, across device manufacturers, operating systems and mobile network operators. For authentication, Eko has indigenously developed a low-cost and ultra-usable strong 2-factor authentication solution wherein the customer uses her one-time-password to convert her mpin into a single-use ciphered code (OkeKey) having the same number of digits as the mpin. The customer uses this ciphered code for authentication rather than providing her mpin in clear-text form. This authentication mechanism secures the financial transactions on even basic mobile phones that do not have the capability to install applications. Eko s 2-factor authentication has been branded as OkeKey Eko India Financial Services Private Limited About Eko s Platform Our core banking and transaction processing platform, SimpliBank TM has been developed to configure miniaturized versions of existing products including savings, credit and insurance to suit localized settings. The platform enables financial institutions to provide the following services: 1. Mobile Banking Customers are empowered to do any financial transactions like balance check,

43 Rural Financial Institutions Programme 43 mini-statement, opening RD/FD, Mobile/DTH recharge, ticket booking, bill payments, etc. from their mobile handsets. 2. Agent-assisted banking (for PACS) Appointed agents can do the transactions like account opening, cash deposits and withdrawals, remittances, etc. (including the transactions mentioned in mobile banking) on behalf of customers from their own mobile handsets as well. Apart from SimpliBank, Eko has additionally developed a comprehensive Agent & Merchant management platform - Connect TM. Connect has tools for comprehensive catchment planning which takes as inputs various demographic and location specific data and geo-tags locations where the service providers such as banks should have their agent and merchant locations. Partners using Eko s on-the-cloud platform 1. Banks SBI, ICICI Bank & IndusInd Bank 2. MFIs Cashpor, Samutkarsh, Satin Credit Care, Gram Mahila Sansthan, Shikhar 3. Accounts opened 2 lakhs plus 4. Number of Agents 1,500 plus Eko s BC Operations 1. National BC to 3 Banks SBI, ICICI Bank and Yes Bank 2. Number of Agents 1,500 plus 3. Geographies - Delhi-NCR, Mumbai, Hyderabad, Bihar, Uttar Pradesh, Haryana and Punjab 4. Transactions - ` 6,000 crores value processed over more than 3 crore transactions Examples of Eko s innovative projects: Mobile Mapped Savings account for Cashpor (MFIs) customers Cashpor is an MFI (Micro Finance Institution) which extends micro-credit to women custom-

44 44 Rural Financial Institutions Programme ers in rural parts of Uttar Pradesh. In addition to credit, it also wanted to provide savings services to its customers. In July 2011, Grameen Foundation worked with Cashpor to provide mobile mapped savings account to its customers. The loan officers who would go to collect repayments for the loans would also enable savings transaction for its customers via Eko s Technology. Using these Eko s services, customers have started saving for their future expenditures like marriage, education, business, etc. In this project, Eko acts as a Technology Service Provider to Cashpor, which acts as BC (Business Correspondent) to ICICI Bank and IndusInd Bank. Cashpor has provided no-frills savings accounts to more than 2 lakh customers, 80% of these accounts are active on a monthly basis, and customers have graduated to maintain healthy balances. Direct Benefit Transfer to mobile mapped no-frill accounts of ASHA workers: ASHA (Accredited Social Health Activists) are the community workers reaching out to mothers and newborns in rural India with Home Based Post Natal Care and other health services under the National Rural Health Mission. The State Health Society Bihar (SHSB) gives incentives to ASHAs for their services in the form of cheque. The physical distribution and collection of cheques to these ASHA workers would lead to delay of payments resulting in lack of motivation and commitment amongst workers. The Norway India Partnership Initiative (UNOPS- NIPI Programs) designed a solution for this problem by leveraging Eko s mobile banking technology wherein the State Health Society Bihar (SHSB) would directly push money into ASHA s mobile mapped bank accounts via Eko. ASHAs would then go to their nearby Eko CSPs and withdraw cash from their accounts using their mobile phone and OkeKey. This project was piloted in Sheikhpura district of Bihar. More than ` 5 Crore of incentives have been given to 750 ASHA workers for 12 months. Changing from manual reporting to digital reporting and from cash/ cheque transaction to MMT improves transparency and accountability, and at the same time allows for tracking of payments and monitoring of activities/ distribution of funds at the various levels. 5.2 Mobile Kisan Credit Card (mkcc) Pallavan Gramin bank with its HO at Salem, Tamil Nadu, has 150 branches with all the branches being 100% CBS compliant. The bank has a total of 10 lakh customers with approximately 42,000 farmers having a KCC account. Of these customers, around 8,000 are customers on mkcc. In October 2011, NABARD launched a pilot project on Mobile Enabled KCC in Villupuram district of Tamil Nadu, for farmers having KCC (Kisan Credit Card) accounts with Pallavan Grama Bank. The project which initially started in Villupuram district has been extended to all the 15 districts of the Bank. As on August 2013, 8,550 farmers are registered and 3,896 farmer mobiles have been activated on the mkcc platform. A total of 322 merchants and two sugar mills are registered as merchants. The project uses mobile based technology that enables the farmers to carry out transactions like purchase of agricultural inputs in a cashless manner. This service eliminates the need for direct cash transactions, allowing the farmers use their mkcc loans for purchasing goods for their agricultural needs. It also saves on transit time to banks and is also safe since it doesn t use physical money. The farmers receive instant reports of all transactions and available funds by SMS. PayMate is the technology service provider for the Pallavan Grama Bank mkcc initiative. PayMate s mobile payment platform lets a user link his/her mobile phone to a bank account, credit card or a prepaid account - turning the mobile phone into a

45 Rural Financial Institutions Programme 45 secure payment tool to be used anytime, anywhere. PayMate has an ecosystem of over 15,000 merchants offering mobile payments to their customers. PayMate has tie-ups with over 30 banks in India, and offers a remote payment collection solution via mobile. The mkcc solution is based on SMS and IVR transaction platform which is connected with the bank s CBS. It is a completely hosted solution. PayMate charges on an annual basis per farmer, along with a transaction charge. Farmers can register for mkcc at the bank and are given options to avail the withdrawal or purchase service. New KCC customers are automatically enrolled in mkcc. To purchase seeds, fertilizers and other agricultural items, the farmer tells the shopkeeper about his requirements and confirms his mobile number. The merchant initiates a call to the toll free number and completes the transaction by inputting the customer s mobile number, amount and authenticates with the PIN. An automated voice response seeks the customer s 4-digit PIN number. The account is checked for available balance and the account is debited. Similarly, farmers can also avail cash through the BC network of the bank. As part of its Financial Inclusion program, Pallavan Grama Bank has set up its own network of BC agents. These BC agents are recruited, trained and managed by Pallavan Grama Bank itself. For transactions through the BC, PayMate technology is not used. POS devices that connect to the CBS over mobile channels are used. These outlets can also be used for account opening, deposit and statements. Old age pensions are also distributed via these kiosks. Currently, only intra-bank transfers are supported on mkcc. Though the PayMate platform offers a wallet service, fund transfers are not supported. The platform is also not connected to IMPS. With other banks, where remittance transactions are available, PayMate supports IMPS transactions if both the remitting/beneficiary banks are on NPCI. Non-banking services will soon be introduced to the mkcc customers. PayMate uses a self-transaction model with the customer transacting using his/her mobile phone. The IVR channel is used. The customer seeks assistance only for cash transactions. 5.3 Oxigen Oxigen is India s largest payments solution provider. Oxigen is in the business of service aggregation and distribution, mobile and online payment processing and provides money transfer services. The business was built to service the telecom/dth operators, utility providers and other such providers, pan India, with an objective to provide ease of access to the people to pay for multiple services at their neighbourhood retail stores. Oxigen has the largest retail footprint of approximately 1,50,000 touch points at small retail outlets and modern retail chain stores. It sees more than 35 million transactions per month. Oxigen empowers many large format retail chains, bank portals, telecom and bank led mobile wallets as well as government portals, to enable their customers to get access to merchant payments easily. Oxigen continues to work on Financial Inclusion and is a Business Correspondent to India s premier banks namely SBI, ICICI Bank, Federal Bank and RBL Bank enabling banking services (such as account opening, deposits/withdrawals) and money transfers. In partnership with banks, Oxigen currently offers the following services to the public: Wallets m commerce led merchant services: Federal Bank Money transfers SBI, ICICI Bank, RBL Bank BC services (account opening, cash-in/cash-out) SBI

46 46 Rural Financial Institutions Programme Money transfers and BC services are assisted models supported by Oxigen for various banks. The inter-bank instant money transfers are supported by the Oxigen wallet service through National Payment Corporation of India and it is the first non-bank to have direct connectivity to NPCI. In its role as BC, the remittance kiosks are set up as extension of banking services at these kiosks near the bank branches. The kiosks support intra-bank and inter-bank transfers (NEFT and IMPS), account opening, cash deposit/withdrawal, account statements and non-banking services such as mobile recharges and utility bill payments. Oxigen has recently signed up with RBL bank as BC to facilitate remittance services. The outlets can provide remittance service to both banked and unbanked customers facilitating money transfers to any bank. Following services are offered at the RBL Bank Oxigen outlets: Money remittance to any bank account using the IFSC code and bank account number Customer registration on the platform and addition of beneficiary details KYC verification is done for remittances through RBL Bank. In addition to services in partnership with banks, Oxigen has now entered the B2C space. An exciting mobile app and all new responsive website which allows people to send money through facebook, twitter, whatsapp etc., recharge Mobile/DTH/Datacard and pay for movie/rail tickets. With a strong innovation team, Oxigen s proprietary technology and application are available for retailers, merchants and consumers, on any preference of access. Oxigen services can be accessed from Web, Point of Sale devices, SMS and through mobile wallet application on iphone, Android and Windows Phone. The Oxigen platform supports a hosted model with IMPS connectivity. Oxigen can provide connectivity to and from NPCI in a hosted model as Application Service Provider. Oxigen s technology partner is Mpower. Through Mpower, banks can get single point integration of NPCI connectivity for IMPS and Aadhaar Based Payment transactions, ekyc services and deliver mobile banking application with seamless delivery of mass market services like recharges/bill Payments etc. 5.4 BASIX Sub-K Sub K itransactions Limited, (Sub K) is a subsidiary of BASIX group, working as a Business Correspondent for several banks and service providers in India. Sub K started its operations in Ananthapur district of Andhra Pradesh in October 2010 by setting up Business Corresponding agents network for Syndicate Bank, a public sector bank headquartered in Bangalore. Since then Sub K has built business relationships with 8 more banks - Axis Bank Limited, ING Vysya Bank Limited, Bank of India, Ratnakar Bank Limited, Karnataka Bank, Coastal Local Area Bank, KBS Local Area Bank and Societe Generale. Apart from providing BCSA (Business Corresponding Sub Agents) network for various banks, Sub K also offers Technology Support Partnership (TSP) to various banks providing solutions for Financial Inclusion Service with interfacing Core Banking Solution. Sub K has developed mobile enabled technologies using GPRS modes with online end-to-end solutions with minimal failure rate (<0.5%), resulting in least reconciliations. Sub K has patented its technology ViTranSP (Virtual Transactions Service Provider). A strong team of IT professionals develop and supports the technology function. Sub K has proven its technology and operating model with over 2,500 BCSA for various banks and offering savings and other banking services for the past 3.5 years across 24 states in the country. Sub K has attracted investment ($ 1.5 million) from Michael and Susan Dell Foundation and Technical

47 Rural Financial Institutions Programme 47 Assistance from Enclude (formerly Shore Bank International) with pass through funding (financial support) from Bill and Melinda Gates Foundation under Branchless Banking Network programme. Sub K has a unique approach of choosing village entrepreneurs who meet the criteria of stable place, assured availability, all time cash balance in the cash box and high credibility in the village to represent the bank. Further, such entrepreneurs see the Financial Inclusion services as addon services and not as standalone services in terms of income expectations. This makes it easier to penetrate into rural households and also proves to be a viable choice. Apart from banking services, BCSA also offer other consumer payment services like mobile recharge and DTH topup. Sub K is committed to make this approach sustainable to address the challenge of Financial Inclusion in India. As on August 31, 2014, Sub K has a savings customer base of 630,040 served through 2,588 BC outlets million banking transactions worth Rs. 280 million have been enabled through this channel. 95% of BC outlets and 58% accounts are reported active on a 90 days cycle. Remittance business has been launched in August in partnership with RBL Bank. Sub-K has been selected for India Development Marketplace 2014 of the World Bank for expansion in NE region. Sub-K has also been awarded Skoch order of merit certificate in July Sub K has put up SOPs (Standard Operating Procedures) and high powered Management Information System in place for effective management of the business. It has got the technology with ability to talk to Core Banking Solution (CBS) and do real time transactions.

48 48 Rural Financial Institutions Programme Abbreviations AML BC ASP CBS CDMA GPRS GSM Hosted Solution IDS IMPS IRDA ISO IVR KYC MMID MNO mpin MPFI M-Wallet NON BANKING ENTITIES NEFT NFC NPCI NUUP OTP PCI-DSS PIN PPI RFID RTGS SIM SMS USSD WAP Anti-Money Laundering Business Correspondent Application Service Provider CORE Banking Solution Code Division Multiple Access General Packet Radio Service Global System for Mobile Software as a Service (SaaS) solution Intruder Detection System Immediate Payment System Infrared Data Association International Standards Organization Interactive voice response (IVR) is a technology that allows a computer to interact with humans through the use of voice and DTMF tones input via keypad Know Your Customer Mobile Money Identification Number (MMID) Mobile Network Operator Mobile Personal Identification Number Mobile Payment Forum of India Mobile Wallet Non-Banking Finance Companies & others National Electronic Funds Transfer Near Field Communication National Payment Corporation of India Ltd. National Unified USSD Platform One Time Password Payment Card Industry Data Security Standard Personal Identification Number Pre-Paid Payment Instrument Radio Frequency Identification Real Time Gross Settlement Subscriber Identity Module Short Messaging Service Unstructured Supplementary Service Data Wireless Application Protocol

49 Rural Financial Institutions Programme 49 Annexure 1: Implementation Process annexure discusses the implementation process to be followed by RRBs This and Cooperative Banks for rolling out the mobile banking initiative. It consists of the following four parts: a. Determining Scope of the Initiative discusses how the bank can finalize the scope of the initiative and define the requirements. b. Selecting the Technology Solution - discusses the pre-requisites, technology architecture, processes, and key selection parameters along with a comparison of short-listed vendors. c. Preparing Cost Estimates - discusses the costing models and cost heads along with indicative pricing from vendors and TCO calculations. d. Defining Operating Procedures - discusses training and support, settlement and marketing aspects of the project. 1 Determining Scope of the Initiative To decide the scope of the mobile banking initiative, the bank may address the following information areas: a. FI Initiative Is the bank planning to promote a specific product or service with the mobile banking solution? Is this an attempt to drive FI programs of the bank? b. Scope of Banking Transactions Determine the scope of banking services that will be made available to customers through the mobile banking solution: o Account Opening o Deposits o Withdrawals o Balance Enquiry o Transfers/Remittances o Government Transfers

50 50 Rural Financial Institutions Programme c. Non-Banking Services Determine whether any of the following non-banking transactions will be made available to customers through the mobile banking solution: o Mobile and DTH recharges o Utility bill payments o Ticket bookings d. Cash Deposits and Withdrawals Determine how cash deposits and withdrawals will be handled for mobile banking customers. Can the customers visit the branches for deposits/withdrawals? Will they have access to the ATM network? Will a BC network be made available? e. BC Network Does the bank currently have a BC network, either directly or through retail agents? What business is currently delivered through the BC network? Can some of this infrastructure be used for the mobile banking solution? If cash deposits/withdrawals cannot be serviced through the bank branch would the bank like to set up a BC network? f. Transaction Volumes How many customers are expected to be covered by the mobile banking initiative? Will this base grow annually? How many transactions are expected from each customer annually? What types of transactions? g. Coverage of Customers Which customers will be signed up for mobile banking? Are they in a specific geographic area? Are they in a certain income category? What areas will the pilot cover and how will the initiative be scaled across the bank? What bank infrastructure is currently available to the target group? h. MNO Coverage What is the level of mobile network coverage across the planned deployment areas? Is the signal strength adequate? Are there frequent outages? What kinds of phones are normally used by the target customers? What is their level of literacy? i. CBS Deployment How is the CBS deployed by the bank today? Is it hosted internally or through an ASP? Is the CBS connected to the NFS either directly or through an ASP? Do you have a sponsor bank and what systems of the sponsor bank are currently used? j. Funding Support What funding options and support are available for the mobile banking solution? Is this support for the entire project, per customer, per transaction, per branch, or per annum? With the information gathered above, the bank will be able to make the following decisions: - Select the target group and geographic areas - Select the relevant mobile banking model (see Chapter 2 for details) - Select the right mix of banking and non-banking services - Select the mobile channel and/or operator relevant to the target group - Select the hosting model for the mobile banking solution These inputs are required for defining the technology architecture, selecting the technology solution, and selecting the hosting model and/or the TSP. 2 Selecting the Technology Solution This section discusses the technology behind the mobile banking solution. The bank may use these guidelines to understand the technology prerequisites, architecture, selection parameters and implications. 2.1 Technology Readiness Prior to implementing the mobile banking solution, the bank must ensure that the following technology pre-requisites are taken care of:

51 Rural Financial Institutions Programme 51 Availability of a Core Banking System: The bank must have a CBS installed prior to implementing the mobile banking solution. The mobile banking transactions happen in real-time and the bank must have a banking system that will adequately service this need. The CBS may be hosted directly by the bank, through a sponsor bank, or through an ASP. Connectivity to the NFS: The bank CBS must also be connected to the NPCI/NFS to ensure support for outbound transfers and remittances. If the customers use a network outside the bank or ATMs, for cash transactions, connectivity with NFS is needed. Connectivity to the NFS may be via the bank switch, sponsor bank or through an ASP. 2.2 Architecture Definition The architecture of the mobile banking solution, depicting the various systems and stake holders/ organizations and the interconnectivity between them is shown below. Two models ASP Model and Ownership Model are shown below. Banks may use these as references to prepare the architecture of their mobile banking solutions. a. ASP Model in this model the vendor/asp setsup an instance of the mobile solution for the bank, hosts (either internally or through a 3rd party data centre) and supports the solution. The bank s CBS connects to this mobile banking solution through its switch. The vendor manages the mobile solution on behalf of the bank. b. Ownership Model In this architecture the entire mobile banking solution is owned, hosted (either internally or through a 3rd party data centre) and supported by the bank. The CBS may also be co-hosted along with the mobile banking solution. Figure: Mobile Banking Solution Architecture ASP Model Customer Customer Customer BC Network Other Bank Switches BC Agent BC Agent MNO Gateway NPCI NFS Mobile Banking Platform ASP Bank Switch / ASP / Sponsor Bank Switch Bank CBS Merchant Gateway (Non-Banking)

52 52 Rural Financial Institutions Programme Figure: Mobile Banking Solution Architecture Ownership Model Customer Customer Customer BC Network Other Bank Switches BC Agent BC Agent MNO Gateway NPCI NFS Mobile Banking Platform ASP Bank Switch / ASP / Sponsor Bank Switch Bank CBS Merchant Gateway (Non-Banking) Definitions: 1. Customers - Customers of the bank who transact with the bank either using their mobile phones or through a BC agent. 2. BC Network The network of BC agents/retailers who facilitate cash transactions for the mobile banking customers of the bank. Additionally, the BC agents may also assist customers with transactions that do not involve cash. 3. MNO Gateway The telecom operator s gateway that receives customer transactions initiated by the customer and the BC agent. There may be more than one gateway depending on the mobile mode/channel used by the customer/bc agent. 4. Mobile Banking Platform ASP In the ASP Model, the mobile banking solution is hosted by the service provider/asp and supports both banking and non-banking transactions. In the Ownership Model, this solution is owned and hosted by the bank. However, for non-banking transactions, connectivity to merchant gateways is always through the service provider/asp. 5. Mobile Banking Platform Applies only for the Ownership Model. The mobile banking solution is hosted by the bank and supports banking transactions only. However, for nonbanking transactions, connectivity to merchant gateways is through the service provider/asp. 6. Merchant Gateway the partner s gateway that supports non-banking transactions such as mobile/dth recharges utility bill payments etc. There may be more than one partner. The mobile banking solution provider may provide these services as part of its platform or may connect to a 3rd party provider. 7. Bank Switch the switch through which the

53 Rural Financial Institutions Programme 53 mobile banking solution provider connects with the bank s CBS. The CBS may be connected to the NPCI/NFS through this switch, through the switch of the sponsor bank or an ASP that provides connectivity with NPCI/NFS. 8. Bank CBS Core Banking System of the bank. 9. NPCI NFS the central switch (National Financial Switch) of the NPCI that facilitates interbank connectivity for real-time banking transactions. 10. Other Bank Switches switches that allow connectivity with other bank s CBSs. These switches are also connected with the central NPCI/NFS. 2.3 Mobile Banking Transactions Process flows for the common transactions are given below. The ASP Model is assumed for these transactions. 1. Cash Deposit 2. Cash Withdrawal 3. Remittance/Transfer 4. Balance Enquiry 5. Non-Banking Service CASH DEPOSIT: Cash deposit process through a BC agent Customer 1 Customer 6 Customer BC Network Other Bank Switches BC Agent BC Agent 2 4 MNO Gateway NPCI NFS 5 Mobile Banking Platform ASP Bank Switch / ASP / Sponsor Bank Switch 3 Bank CBS Merchant Gateway (Non-Banking)

54 54 Rural Financial Institutions Programme STEPS: 1. Customer approaches BC agent for a cash deposit transaction and provides identification through a biometric device or PIN 2. BC agent verifies the same with either the mobile banking platform or CBS 3. CBS/mobile banking platform verifies the identity of the customer 4. BC agent initiates a cash deposit transaction into the customer s account (this is usually a transfer from the BC s float account into the customer s account) 5. CBS completes the transaction and confirms 6. Customer hands over cash to the BC agent and gets acknowledgement of the transaction (usually a receipt) and/or a SMS on his/her mobile phone Cash withdrawal : Cash withdrawal process through a BC agent Customer 1 Customer 6 Customer BC Network Other Bank Switches BC Agent BC Agent 2 4 MNO Gateway NPCI NFS 5 Mobile Banking Platform ASP Bank Switch / ASP / Sponsor Bank Switch 3 Bank CBS Merchant Gateway (Non-Banking) STEPS 1. Customer approaches BC agent for a cash withdrawal transaction and provides identification through a biometric device or PIN 2. BC agent verifies the same with either the mobile banking platform or CBS 3. CBS/mobile banking platform verifies the identity of the customer 4. BC agent initiates a cash withdrawal transaction from the customer s account (this is usually a transfer from the customer s account into the BC s float account) 5. CBS verifies customer s balance, completes the transaction and confirms 6. BC agent hands over cash and acknowledgement of the transaction (usually a receipt) to the customer who also receives a SMS on his/ her mobile phone

55 Rural Financial Institutions Programme 55 REMITTANCE/TRANSFER: : Remittance/transfer from the customer s mobile phone Customer Customer Customer BC Agent BC Network BC Agent Other Bank Switches 5 MNO Gateway NPCI NFS 4 Mobile Banking Platform ASP Bank Switch / ASP / Sponsor Bank Switch 2 Bank CBS Merchant Gateway (Non-Banking) STEPS: 1. Customer accesses the mobile banking service through his/her mobile phone and submits identification and PIN 2. CBS/mobile banking platform verifies the identity of the customer 3. Customer initiates a remittance/transfer transaction (either intra or inter-bank) by providing relevant details 4. CBS verifies customer s balance and initiates the transfer/remittance 5. CBS completes the transfer/remittance transaction through the NFS and the beneficiary bank s switch 6. CBS sends confirmation message to the customer s mobile phone indicating a successful transfer/ remittance transaction

56 56 Rural Financial Institutions Programme BALANCE ENQUIRY: Balance enquiry from the customer s mobile phone Customer Customer Customer BC Network 1 3 Other Bank Switches BC Agent BC Agent MNO Gateway NPCI NFS 4 Mobile Banking Platform ASP Bank Switch / ASP / Sponsor Bank Switch 2 Bank CBS Merchant Gateway (Non-Banking) STEPS: 1. Customer accesses the mobile banking service through his/her mobile phone and submits identification and PIN 2. CBS/mobile banking platform verifies the identity of the customer 3. Customer initiates a balance enquiry or mini statement transaction 4. \CBS completes the transaction and sends balance/transaction information to the customer s mobile phone

57 Rural Financial Institutions Programme 57 NON-BANKING SERVICE: : Non-banking transaction from the customer s mobile phone Customer Customer Customer BC Agent BC Network BC Agent Other Bank Switches MNO Gateway NPCI NFS Mobile Banking Platform ASP 5 4 Bank Switch / ASP / Sponsor Bank Switch 2 Bank CBS Merchant Gateway (Non-Banking) STEPS: 1. Customer accesses the mobile banking service through his/her mobile phone and submits identification and PIN 2. \CBS/mobile banking platform verifies the identity of the customer 3. Customer initiates a non-banking transaction (for e.g. mobile recharge) by providing relevant details 4. Mobile banking platform verifies customer s balance and initiates the transaction 5. \Mobile banking platform completes the transaction through the merchant s gateway 6. Mobile banking platform sends confirmation message to the customer s mobile phone indicating a successful transaction

58 58 Rural Financial Institutions Programme 2.4 Selection of Technology Platform The technology platform/solution may be used for various Financial Inclusion and mobile banking initiatives of the bank. Additionally, the solution may also be used to augment the BC (Business Correspondent) models and services that currently support the mobile banking initiatives in delivering basic banking services to the unbanked and rural populations. The technology platform/solution provider is expected to have products, services and capabilities to provide an end-end comprehensive infrastructure to implement mobile banking solutions and services for the bank. The technology solution/platform is expected to integrate with the bank s core banking system and financial switches, with mobile network operators, and with various third party aggregators and service providers for seamless connectivity. Banks may select the technology platform/ solution provider based on the vendor s ability to meet/support the following key selection criteria: 1. Core Functionality In order to provide mobile banking services to customers, the following requirements must be offered/ supported by the mobile banking platform. a. Banking Transactions support for banking transactions such as account opening, cash deposits, cash withdrawals, balance enquiries and statements, and remittances and transfers. b.non-banking Transactions availability of nonbanking transactions such as mobile recharges, DTH recharges, utility bill payments and ticket bookings. Though these are not required for mobile banking, these services will provide added value to customers and will help in revenue generation for the bank/bc agent. c. Assisted and Self Transactions availability of both assisted transaction and self-transaction models. d. BC Network availability of a BC network (and coverage in the bank jurisdiction areas) for cash based transactions and assisted transactions. e. IMPS support for IMPS based transactions and integration with NPCI/NFS. f. AEPS support for Aadhaar enabled payments and integration with UIDAI. 2. Technology Maturity The following features indicate the technical robustness and maturity of the mobile banking platform. a. Multiple Service Delivery Channels availability of multiple service delivery channels (SMS, IVR, USSD, and App etc.) for customers to perform transactions using their mobile phones. b. MNO Carrier Agnosticity - availability of services for customers through any mobile network operator. c. Extendibility and Supportability availability of a partner ecosystem and ability and ease with which the mobile platform/solution can be extended with additional services, functionality, channels and partners. d. Scalability and Replicability robustness of the technology architecture, scalability of the solution and the ease of extending the solution to other participating banks (under the same sponsor bank) within a short period of time. e. Hosted Model support of both ownership and hosted/managed models for the mobile banking platform solution. 3. Vendor Credentials In addition to the functional and technical parameters listed above, evaluation may also be done based on vendor credentials.

59 Rural Financial Institutions Programme 59 a. Product Roadmap future product / services that will be introduced by the mobile banking service provider. b. Costing and Commercials total cost of ownership for the selected technology / service as well as the ability to price based on usage. c. Mobile Banking Service Provider Experience - prior implementation and project experience by the mobile banking service provider. 2.5 Summary by Vendor/ASP The bank may consider the following aspects before technically qualifying a mobile banking solution/vendor: 1. Banking and Non-Banking Transactions most of the solutions/vendors support basic banking transactions such as account openings, deposits, withdrawals, balance enquiries and remittances/transfers. Equally important is support/availability of non-banking transactions. Though these services may not be immediately needed, it will provide added value to customers later and become a revenue source for the bank/bc agent. 2. BC Operations some banking transactions can be fully done by the customer using his/ her mobile phone, while other transactions will need the assistance of an agent. This is especially the case for cash based transactions. A BC agent network may also be needed in areas where literacy levels are low (and the customer is unable to transact independently). Though the mobile banking solution is designed to be set up and operated as an independent system, portions of it will rely on a cash management network through an agent. This need can be serviced by the BC agent/bank teller or ATM. 3. Partner Ecosystem the availability of a wide partner ecosystem with connectivity to multiple banks, switches, merchants, aggregators and gateways will ensure access to and services from a variety of sources. This will help the bank attract and retain customers with a wide bouquet of services. 4. Integration and Standards integration with NPCI/NFS, UIDAI and support for IMPS and Aadhaar-enabled payments and other standards are required for interoperability with other banking and financial services providers. 5. Channel Support while the bank may not need to make its services available on all channels (SMS, IVR, USSD, WAP and App), it is important that the vendor supports most of these channels. The bank may end up choosing a primary and secondary channel based on services to be offered and its target customer group. 6. Hosted Model the mobile banking service provider must have the ability to offer the mobile banking solution in both models ownership and ASP to enable the evolving needs of the bank. The table below provides a high level summary of the various services offered by the vendors analysed.

60 60 Rural Financial Institutions Programme Solution/Service Oxigen Eko Sub-K PayMate 1 Solution only Yes No No Yes 2 Hosted Solution managed by the Bank Yes Yes Yes Yes 3 Application Service Provider Yes a. P2P only Yes Yes Yes Yes 39 b. BC Model only No No No No c. BC + P2P Willing to offer only P2P Yes Yes Yes Yes 40 Willing to take up BC in the District in addition to P2P Offering both BC + P2P as a mandatory composite proposal Yes Yes Yes No No No No No a SMS Banking (simple SMS) Yes Yes Yes Yes b USSD (Unstructured Supplementary Service Data) Yes Yes 41 Yes 42 Yes 43 c IVR Yes Yes Yes 44 Yes d APPLICATION BASED Yes Yes Yes Yes 45 e INTERNET BANKING BASED (WAP) Yes Yes No Yes 46 Note: The bank may also choose a combination of services and/or vendors to suit its requirements. Additionally, a summary of vendors based on availability/support of the various selection parameters are given below. 39 The current solution from PayMate only supports intra-bank transfers. This is a restriction put by the bank. PayMate can, however, support this functionality. 40 PayMate can support if needed. 41 Onus of MNO connectivity with bank. 42 USSD possible at a cost 43 Can support at no cost and with bank taking responsibility for connectivity. 44 At additional cost. 45 At additional cost. 46 Can be supported at no charge

61 Rural Financial Institutions Programme 61 Core Functionality Cost Head Oxigen Eko Sub-K PayMate Banking Transactions Non-Banking Transactions Assisted and Self Transactions BC Network IMPS Account opening, cash deposit, withdrawals, balance enquiry, intra and inter-bank transfers, wallet based services supported. Account opening, cash deposit, withdrawals, balance enquiry, intra and inter-bank transfers. No wallet based services available. Account opening, cash deposit, withdrawals, balance enquiry, intra and inter-bank transfers. No wallet based services available. **** *** *** ** Mobile and DTH recharges, ticket bookings, utility payments, toll recharges, movie tickets. Mobile recharges, insurance payments, utility payments. Mobile and DTH recharges. Account opening, balance enquiry, intra -bank transfers. Wallet based services supported. No cash deposit/withdrawal. No inter-bank transfers. Mobile and DTH recharges, online shopping. **** *** ** **** Supports both self and Only self model. assisted models. Only assisted model (can be customized for self transactions if needed). Only assisted model (can be customized for self transactions if needed). **** ** ** ** Has a BC network. Platform only and platform with BC options are available. Has a BC network. Platform only and platform with BC options are available. Has a BC network. Platform only and platform with BC options are available. **** **** **** *** Inter-bank transfers supported. Oxigen wallet service is connected to IMPS. No wallet service. Supports interbank transfers. IMPS supported if member banks support IMPS. No wallet service. Supports interbank transfers. IMPS supported if member banks support IMPS. **** *** *** ** AEPS Supported. Aadhaar enabled KYC. POS device is UIDAI compliant. Government transfers supported. *** ** **** *** No BC. Only platform is available. Has a wallet service, but no IMPS connectivity. Inter-bank transfers currently not supported. Government transfers. Supported.

62 62 Rural Financial Institutions Programme Technology MATUrity Cost Head Oxigen Eko Sub-K PayMate Multiple Service Delivery Channels MNO Carrier Agnosticity Extendability and Supportability Scalability and Replicability Hosted Model All channels supported. All channels supported. App, SMS and IVR supported. SMS, IVR and App supported. **** **** *** *** Works with all MNOs Works with all MNOs Works with all MNOs Works with all MNOs **** **** **** **** Multiple models supported. Wide ecosystem. Connectivity with IMPS. Multiple model s supported. No wallet service. Limited ecosystem. Relies on 3rd party vendor for recharges. Only banking transactions. Relies on 3rd party vendors for non-banking. Limited partners. **** ** ** *** Supports high transaction volumes. Supports multiple banks. Supports 3 banks. Transaction volumes low. Transaction volumes low. Supports 5-6 banks. **** ** ** **** Ownership and hosted models supported. Only hosted model available. Only hosted model available. **** ** ** *** Wallet service not remittance focused. No assisted models. Wide merchant network online focused. Supports high transaction volumes. Supports multiple banks. Hosted model supported (ownership model can be supported if required). 3 Preparing Project Cost Estimates Banks may estimate the total cost of the mobile banking technology solution by estimating the costs of the individual components in three broad areas a) Acquisition or initial set up costs to acquire the solution, b) Commissioning costs to configure and connect the solution to banking systems and payment switches and gateways, and c) Operating costs involved in transacting and supporting day to day mobile banking transactions. There are two primary models for implementing a mobile banking solution at the bank: a. Ownership Model in this model, the entire solution is purchased, owned, hosted (either internally or through a 3rd party data centre) and supported by the bank. b. Pay-per-use (ASP) Model in this model, the vendor / ASP (contracted by the bank) sets up an instance of the mobile solution for the bank, hosts (either internally or through a 3rd party data centre) and supports the solution. The bank does not incur any capital expenses and pays the vendor/asp an annual fee and/or transaction fees depending on usage. Please note there may be initial set-up and connectivity costs that the bank has to incur (even though the solution is owned by the vendor) and there may be a minimum threshold defined by the

63 Rural Financial Institutions Programme 63 vendor for number of transactions or customers. Additionally, there may also be revenue sharing on commission costs between the vendor and the bank. Considering the technology, financial, and personnel constraints faced by RRBs and Cooperative Banks, the Pay-per-use (ASP) Model is recommended as the model for implementation of the mobile banking solution. 3.1 Various Cost Heads 1. Acquisition Costs This is the cost incurred by the bank to acquire the mobile banking solution, whether owned by the bank or not. Please note these costs are typically borne by the bank, even though the solution may be owned and supported by the vendor (in a payper-use model). It includes the following items: a. Customization Charges These charges are for customizing the mobile banking platform for specific use of the bank. The product typically will have multiple features/functionality and a standard supported by the vendor, may charge a fee to support the additional channel. b. Development of Additional Modules Usually, all the functionality required by the bank to support mobile banking is available from the vendor out-of-the-box. In case there are unique requirements/scenarios of the bank, which are not supported by the platform/solution, then the vendor may charge additional fees to develop this additional functionality. The fees are based on actual time and effort expended by the vendor on the development of additional functionality.c. Purchase of BC Outlet/POS/Mobile Devices As part of the mobile banking initiative, the bank may also make available a network of agents (either directly or through a BC) to its customers to facilitate cash deposits/withdrawals. Additionally, the customers may also choose to transact through these agents/outlets in an assisted fashion, instead of transacting directly from their mobile phones. The device charges vary depending on how the vendor supports this functionality some vendors have a kiosk based approach and will require a wired internet terminal, other vendors may have a POS device, and a few vendors will support such transactions over mobile phones. The hardware type and charges also vary depending on whether Aadhaar compliance is needed or not. 2. Commissioning Costs This is also a one-time cost and will cover configuration and connectivity to external systems such as CBS and NPCI. It also includes the installation of the solution and associated training for the bank. It includes the following items: a. Connectivity with CBS The vendor will need to connect its platform with the CBS of the bank, the sponsor bank or the CBS ASP (if the bank has an ASP model for CBS). These charges are borne by the bank and will include the development and configuration of the required interfaces between the mobile solution platform and the CBS. Some vendors include this cost as part of the initial customization cost. This is a one-time cost. b. Connectivity with NPCI/NFS Connectivity with NPCI/NFS is a pre-requisite for the implementation of a mobile banking solution that supports IMPS. If connectivity between the CBS (or the sponsor bank CBS or the ASP CBS) and NPCI/NFS exists, then there is no additional cost. Else, the vendor of the mobile banking solution may assist in setting up this connectivity between the CBS and NPCI/ NFS. This is a one-time cost. Alternately, the bank may choose a 3rd party ASP to manage the connectivity between its CBS and NPCI/NFS. In this case, the ASP may charge annual fees for connectivity with the NPCI/NFS. c. Connectivity to Merchants/Aggregators/Gate-

64 64 Rural Financial Institutions Programme ways Usually, the vendor makes available all the merchants, aggregators and gateways that are currently connected to its mobile banking platform/solution. This list is very comprehensive and will suffice the needs of most of the banks. However, if there are specific entities that the bank needs to connect to, due to special requirements of its business, then the vendor may charge for connectivity to these additional systems/merchants. d. Training This is the cost of training the bank personnel on the mobile banking platform/solution and includes administration of the system, user and account set up, support for business transactions, reconciliation, reporting, error handling and technical support. Some of the vendors do this training free of charge and others charge on actuals. The training is usually conducted for a couple of days. 3. Operating Costs These fees are charged by the vendor on a pay-peruse model. The bank will pay for each customer and/ or transaction. The transaction may involve a fixed cost and a variable cost (such as telecom charges) and will vary from vendor to vendor. Some vendors may also have an annual fee in-addition to a pertransaction fee. It includes the following items: a. Fixed Fees These charges apply on an annual or monthly basis, either based on the number of customers or a flat charge. The vendor thus ensures that a guaranteed minimum amount is paid by the bank either on an annual/monthly basis. b. Lock-in Period Along with the fixed fees or minimum guarantees, vendors may also indicate a lock-in period. The vendor may specify a contract for a minimum number of years, or hold the rates valid for a specified period. c. Transaction Fees These charges are applicable per transaction. Transactions are charged at a flat rate (regardless of banking or non-banking transactions) or at a variable rate based on type of transaction (transfer, deposit, withdrawal or enquiry) depending on the vendor. Some vendors also charge a channel charge (depending on whether the transaction is done over SMS, IVR, USSD etc.) to cover telecom charges. d. Commissions and Revenue Share In addition to transaction charges, a few vendors also charge a portion of commission revenues for remittance/money transfer transactions. For e.g. if the customer pays a commission of INR 50 for a remittance transaction, the vendor will split 50% of this commission. Similarly, the vendor will also part with the merchant commissions that it receives (especially for mobile and DTH recharges) with the bank, based on a similar sharing arrangement. Some vendors do not have a revenue sharing arrangement at all, and let the bank decide the quantum of commissions to charge/receive. e. Support Fees Most of the vendors do not charge any support fees. This support is primarily for the bank and covers technical support, business transaction support, reversals, reconciliation and other end of period processing support. This is usually unlimited and is bundled into the transaction charges. Vendors do not directly support the end customer. But if the bank so desires, some of the vendors may also offer such support to the banks customers for an additional fee. User interface (UI) to support business requirements of a variety of banks and situations. The customization of the platform/solution will involve selecting the right set of services/functionality for the bank, and also changing the UI to suit the bank s requirements and include its logo. f. Channel Support Charges The mobile platform/solution is typically available on all channels, viz. SMS, IVR, USSD, WAP and Apps. The vendors do not charge separately for

65 Rural Financial Institutions Programme 65 each channel. Some of the vendors do not support all the channels, and if the bank opts for a channel outside of the channels g. Telecom Fees Vendors also charge telecom charges to the bank. This may be based on each transaction (see c. above), or may be on actual charges. For IVR based transactions, the vendor may charge rentals for toll-free numbers. Some vendors bundle this with the transaction charges. Additionally, the leased line charges for connectivity between the CBS and the mobile banking solution are passed on to the bank. 3.2 Summary by Vendor/ASP The bank may consider the TCO (Total Cost of Ownership) of each of the alternative solutions before selecting the appropriate solution for implementation. TCO is defined below: Total Cost of Ownership (TCO) The total cost of ownership (over an appropriate number of years, say 3 years or 5 years) of the solution based on all the cost components (i.e. customization charges, connectivity charges to CBS and NPCI, on-boarding charges for new merchants/partners, transaction charges, transaction volumes, minimum volumes/billing indicated by the vendor). The TCO will need to take into account the following factors: 1. Estimated volumes determine the number of customers, expected transaction volumes, growth in business along with current and future services to be offered to bank customers. This will help in estimating fixed and variable costs. 2. Minimum guarantees evaluate the minimum monthly/annual payments to the vendor. Vendors may quote a fixed annual price, minimum transactions and/or customers, or minimum annual/ monthly billing. Additionally, there may also be a minimum vendor lock-in period. Transaction pricing may be graded based on volumes. 3. Revenue sharing consider if the vendor has a revenue share arrangement with the bank. Some vendors may split a percentage of fees charged to the customer for banking transactions. For nonbanking transactions, vendors may be willing to split merchant commissions with the bank. 4. Vendor ecosystem look at the partner ecosystem that the vendor exposes to the bank. Vendors offer connectivity to a variety of partners, merchants, aggregators and gateways and access to these partners are typically free. If most of the partners of the bank are outside of this network, then connectivity charges may apply. 4 Defining Operating Procedures 4.1 Training & Support The bank may ask the technology service provider to provide comprehensive training and support on different aspects of the solution as listed below. Training A well-defined training plan for all bank staff involved covering topics such as product overview, architecture, transactions, channels, reconciliation, settlement, and administration is needed. In addition, full training on product features, technology, architecture, admin consoles, deployment and usage is required to be provided to the bank personnel who are involved in day to day operations and support of the mobile banking solution. User manuals, documentation supporting the high level and also low level architecture of the implementation components along with deployment diagrams and configurations are to be provided for reference. Data flow diagrams will be highly useful for the staff to comprehend various flows and transactions easily.

66 66 Rural Financial Institutions Programme Process A detailed document depicting the administration, reconciliation and settlement, implementation, configuration and standard operating procedures for various modules are to be provided by the technology service provider. Support On going technical support for the software technology implementation are to be provided by the technology service provider. The support can be by way of a dedicated call centre to providing support via telephone, or chat. In addition to technology support, the technology service provider must also provide business support for various banking transactions supported by the product. 4.2 Settlement Based on the entities such as BC, agents and interbank transactions involved, a well-defined settlement process between the various stakeholders should be in place. The settlement cycle (end of day, weekly, monthly) has to be agreed upon by all the parties. An end of day transaction report with details of transactions assists in arriving at the settlement amounts between the entities. While much of the settlement happens in real time as the transaction debit and credit are performed in real time, a need for the end of day settlement does arise for unwarranted or failed transactions. There also has to be a mechanism for reversals and charge backs. BCs and its agents may also have float/pool accounts with the bank that are used to settle transactions among its various operators. 4.3 Marketing & Customer Awareness The bank must take care of creating customer awareness and generate enough demand for the new solution/services through the bank branches and other targeted campaigns. Incentives for customers to sign up for the new service may also be defined.

67 Rural Financial Institutions Programme 67 Annexure 2: RBI Master Circular links Master Circular Mobile Banking Tansactions in India Operative Guidelines for Banks RBI/ /116 DPSS.CO.PD. Mobile Banking.No./ / Financial Inclusion- Access to Banking Services Basic Savings Bank Deposit Account (BSBDA) FAQs RBI/ /264RPCD.RRB.RCB.AML.BC.No. 36/ / Financial Inclusion by Extension of Banking Services Use of Business Correspondents (BCs) RBI/ /217 DBOD.No.BL.BC.43 / / Scaling up of the Business Correspondent (BC) Model Issues in Cash Management Financial Inclusion by Extension of Banking Services Use of Business Correspondents RBI/ /653 DBOD.No.BAPD.BC.122/ /

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