Mobile Payments- Building a case for Financial Inclusion

It has been established that there is a positive link between financial inclusion and socio-economic development of a country. Simply because financial inclusion allows access to basic financial instruments, provides access to credit and encourages savings. This in turn allows for greater financial security as well as more productive use of surplus enabling the poor to enhance their societal and economic status.

Developing countries across the globe are challenged with vast majority of financially excluded people making it imperative for governments to lay immense focus on balanced financial inclusion. And India too, being a fast developing nation is no exception. Only 54 percent adults in India have a bank account and less than 10 percent of 6,50,000 Indian villages have a bank branch. Even in urban India, less than 35% of the working population with annual earnings of less than Rs 50,000 held a bank account. Faced with these facts, the Finance Ministry and the Reserve Bank of India have placed a huge emphasis on this initiative. Aadhar (formerly UID), which has moved along swiftly from conception to implementation, is expected to play a key role in enabling financial inclusion.

In contrast, India’s wireless telephone base stands at over 635.51 million, witnessing a growth of 50 percent in the last one year. Therefore mobile phone with its vast network and huge subscriber base has been touted as perhaps the best, if not the only effective solution for achieving complete financial coverage with limited” capital outlays. Key players in the Financial and Telecom industry, having recognised this, are already grappling with the practical aspects of “marrying” financial access with mobile phones.

India has established itself as a global leader in providing technology based solutions and services to corporations world over. But the fact remains that, as a country we are poor exhibitors of technology usage across social strata on a large scale apart from few metros. The concerns for financial inclusion are valid as no nation can progress & develop if majority of its population is under banked or has no access to financial services. The need therefore arises for us to use our technological prowess, in the mobile and financial services space to help achieve financial inclusion through mobile based banking and payment services.

One continent that has several countries is on the fast track for financial inclusion is Africa. A good example there is of the Kenyan market where studies have proved a half percentage increase in their national GDP growth due to mobile money transactions as endorsed by Prof Njuguna Ndung’u, Governor of Central Bank of Kenya. The initiative is driven by innovative mobile network operators as also strong and innovative local banks. Equity Bank is a stand out example of a bank that owes its success to its focussed strategy of banking the unbanked using mobile technology.

Not far behind, Indian policy makers have recognized the importance of mobile banking and payments as the most effective solution for achieving 100% financial inclusion and therefore economic stability and growth.  Observing this huge disparity in the financial system, policy regulator- RBI has brought about certain encouraging policy amendments such as:

Increased limit for person-to-person mobile money transfer to Rs 50,000 per day

Aggressive roll-out of mobile banking services in rural areas to completed by end of 2011

Using Business Correspondents appointed in compliance with RBI guidelines, for extending mobile payments facilities to customers; identify & incorporate newer channels of distribution to help reach the under-banked & unbanked

Launch of instant Interbank Mobile Payment Service (IMPS) to transfer money from bank accounts within the country using mobile phones

These moves by the RBI and the National Payments Corporation of India will create a widely distributed and readily accessible and inter-operable mobile payments network. This will provide the benefits of modern financial services universally for consumers and at the same time provide enormous growth opportunities for the banking and telecom sector. Mobile payments look like a strong opportunity to everybody, and several players are taking bold initiatives to capture it. With India moving ahead with its telecom success, the penetration of mobile telephony is expected to continue to increase at a rapid pace.

Given this, the stakes are high for companies looking for a piece of the mobile-payments market. The global value of goods purchased via mobile devices will more than double to about $200 billion in 2012, compared with just under $100 billion this year, according to a recent study by Juniper Research. In one study of the impact of financial access on poverty in India, economists Robin Burgess and Rohini Pande estimated that every “1 percent increase in the number of rural locations banked per capita reduced rural poverty by 0.42 percent and increased economic productivity by 0.34 percent.” Clearly mobile phones will surely not simply act as a communication device but also become a way to deliver economic convenience to the end customer by achieving the government’s mission of financial Inclusion and penetration of organized banking in the rural India.

I strongly believe that year 2011 can safely be called the year of mobile leading the way for financial inclusion, given the encouraging regulatory framework, onslaught of 3G and now 4G networks, commitment by large banks to capitalize this channel moving from basic user functionality to full range of finance services.                       

By Deepak Chandnani, CEO, Obopay Inc

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