As mobile penetration increases in India, it’s inevitable that it spreads economic wellbeing. Now that money transfers, payments and banking can take place over the device, financial services are available to anyone with a mobile. Telecom operators, the Reserve Bank of India (RBI), Mobile Payment Forum of India and the Unique Identification Authority of India have taken several initiatives to expand financial inclusion.
The World Bank estimates that banking penetration among middle and high-income groups is 45% and less than 5% among the low-income segment in emerging markets. A significant section of the target customer base in these markets earns less than $2 a day and can illafford banking services due to minimum deposit requirements and withdrawal rules. As a result, financial institutions have confined services to a small group of high and middle-income users.
Mobile remittances have the potential to act as gateways to the banking system for the underbaked and unbanked segments, which make up a huge 70% of the world’s population. Remittance services via mobiles, banks and other financial institutions can attract new customers to related financial products — such as deposits, loans and insurance — thereby deepening the financial access in an economy.
For economies, this creates a powerful engine for growth, drawing cash into bank accounts where it can provide low-cost funds for lending and investment. For instance, mBanking solution in Kenya, which has a low penetration of banking services, paved the way to a staggering 21% of its GDP getting transferred through mobile services.
Mobile financial services in an emerging market context such as India encompass areas such as mobile banking , mobile payments and mobile money, where the user has a mobile wallet holding an electronic ‘stored value’. The services value chain is complex, incorporating wholesale arrangements between mobile operators and financial service providers on the one side and the retail distribution network that serves customers, on the other.
A critical area of mobile financial services is remittances. Driven by regulatory and competitive pressures, several business models for mobile remittances have emerged in the world. The three prevalent business models are:
The remittance services provider (RSP) dominated model: Many RSPs (a bank or a money transfer operator) can adopt a direct-to-consumer model, using the telecom operator’s network for transport. The remittance service extends a mobile money account facility to consumers, which is used to transact remittances over the phone. While banked consumers benefit from more convenient access points, the mobile phone here becomes a channel for the hitherto unbanked users to gain and use a bank account.
The operator-dominated model: In the operator-led model, customers do not deal with a bank. Rather than deposit and withdraw money from a bank account, customers exchange their cash for money stored in a mobile money account on the telecom operator’s server, which is not linked to any bank account in the individual’s name. Customers can send the money to others or use it to store funds for future use. They can also convert it back to cash at any participating retail agent. The network operator performs a role similar to a bank in the bankled model — designing remittance products, contracting retail agents directly or through intermediaries, and maintaining customers’ virtual accounts.
The partnership model: Mobile network operators forge partnerships with banks or RSPs to efficiently handle cash management and disbursement. Banks exploit the distribution reach of mobile networks to market services among underpenetrated customer segments while mobile network operators benefit from the banks’ domain expertise.
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