Telcos agree on mobile banking through SMSs
MUMBAI: Mobile companies have been persuaded by the Narendra Modi government to share a slice of their infrastructure to pave the way for basic banking services through cellphones.
Fund transfer, balance inquiry in savings account, change of PIN, mini statement, cheque book request, etc, will be possible with simple text messages from ordinary handsets and without accessing the internet.
In the past two months, ten telecom companies have signed pacts with National Payments Corporation of India (NPCI), the payments gateway backed by the government, to facilitate the service. It will operate on Unstructured Supplementary Service Data (USSD) channel of the telcos — a simple interactive text messaging system that even allows credit and debit card transactions. However, the current plan is to restrict USSD to basic banking services, including low-value bill payments.
"The primary reason for the delay in setting up this infrastructure was the apprehension of telcos that their business will be affected if they provide the USSD channel to the banking system. But Trai (Telecom Regulatory Authority of India) was justified in indicating that the communication channel should not be restricted...The service is available to anyone having a mobile phone or bank account," AP Hota, MD & CEO of NPCI told ET.
Each transaction will cost the user Rs 1.50. According to Rajan S Mathews, director general of GSM industry body COAI, telcos were hesitant to sign on as they felt USSD is an outdated technology which cannot support volumes. "Also, we didn't want to be reduced to dumb pipes... The initial interconnect charges which we were offered were very low. Then, Trai intervened and the charges were raised. Now, it is ensured that the charges will cover our costs... the banks will be mainly responsible for the quality of service, customer care, etc. We just provide access... This has been signed under request of Trai," he said.
The USSD system can widen the scope of mobile banking transactions from "wallet services" provided by telecom firms through a separate entity. While under wallet services, subscribers can carry out transactions like prepaid mobile charges, utility bill payments and money transfers among other things, the USSD enables inter-bank transactions. For instance, a subscriber of telco 'A' with an account in Bank 'B' can transfer money to a subscriber of telco 'C' having an account with bank 'D'. Here, telcos access NPCI's centralised system which is linked to banks.
A senior banker ET spoke to said that mobile banking can be a more effective way to push financial inclusion than setting up ATMs in remote locations. While the USSD also enables card transactions (a service that can dramatically improve volumes), any such move could be resisted by telecom firms — some of which have plans to apply to Reserve Bank of India for payment bank licence.
READ ALSO: Mobile wallet a distant dream in India
In fact, even the restricted menu of basic banking services did not go down well with telcos. "It was virtually thrust upon us. They have been promoting this, trying to ride the new government's focus on financial inclusion," said an official of a telecom company who did not wish to be identified.
READ ALSO: Modi govt to take leaf out of MP CM rural banking book
Prime Minister Modi is expected to make a formal announcement to inaugurate the USSD-based service this week.
Since customers of wallet companies would also have access to the centralised service of NPCI, telcos possibly fear that some subscribers may shift to the new service if it catches on.
MUMBAI: Mobile companies have been persuaded by the Narendra Modi government to share a slice of their infrastructure to pave the way for basic banking services through cellphones.
Fund transfer, balance inquiry in savings account, change of PIN, mini statement, cheque book request, etc, will be possible with simple text messages from ordinary handsets and without accessing the internet.
In the past two months, ten telecom companies have signed pacts with National Payments Corporation of India (NPCI), the payments gateway backed by the government, to facilitate the service. It will operate on Unstructured Supplementary Service Data (USSD) channel of the telcos — a simple interactive text messaging system that even allows credit and debit card transactions. However, the current plan is to restrict USSD to basic banking services, including low-value bill payments.
"The primary reason for the delay in setting up this infrastructure was the apprehension of telcos that their business will be affected if they provide the USSD channel to the banking system. But Trai (Telecom Regulatory Authority of India) was justified in indicating that the communication channel should not be restricted...The service is available to anyone having a mobile phone or bank account," AP Hota, MD & CEO of NPCI told ET.
Each transaction will cost the user Rs 1.50. According to Rajan S Mathews, director general of GSM industry body COAI, telcos were hesitant to sign on as they felt USSD is an outdated technology which cannot support volumes. "Also, we didn't want to be reduced to dumb pipes... The initial interconnect charges which we were offered were very low. Then, Trai intervened and the charges were raised. Now, it is ensured that the charges will cover our costs... the banks will be mainly responsible for the quality of service, customer care, etc. We just provide access... This has been signed under request of Trai," he said.
The USSD system can widen the scope of mobile banking transactions from "wallet services" provided by telecom firms through a separate entity. While under wallet services, subscribers can carry out transactions like prepaid mobile charges, utility bill payments and money transfers among other things, the USSD enables inter-bank transactions. For instance, a subscriber of telco 'A' with an account in Bank 'B' can transfer money to a subscriber of telco 'C' having an account with bank 'D'. Here, telcos access NPCI's centralised system which is linked to banks.
A senior banker ET spoke to said that mobile banking can be a more effective way to push financial inclusion than setting up ATMs in remote locations. While the USSD also enables card transactions (a service that can dramatically improve volumes), any such move could be resisted by telecom firms — some of which have plans to apply to Reserve Bank of India for payment bank licence.
READ ALSO: Mobile wallet a distant dream in India
In fact, even the restricted menu of basic banking services did not go down well with telcos. "It was virtually thrust upon us. They have been promoting this, trying to ride the new government's focus on financial inclusion," said an official of a telecom company who did not wish to be identified.
READ ALSO: Modi govt to take leaf out of MP CM rural banking book
Prime Minister Modi is expected to make a formal announcement to inaugurate the USSD-based service this week.
Since customers of wallet companies would also have access to the centralised service of NPCI, telcos possibly fear that some subscribers may shift to the new service if it catches on.
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