Banking India's Poor

April 21, 2010

Mobile phones are poised to become the de facto standard for reaching poor, unbanked populations in rural India. These ubiquitous devices also are emerging as the fifth and newest channel for consumers in India's cities (where bank accounts are more common) to access financial institution services. Now it's up to financial institutions in India to drive the market.

"While the urban banking market is dominated by information services, the payment transactions segment has not picked up mainly due to regulatory limitations," explains Rajesh M R, an analyst with the international consultancy Celent. "However, recent relaxation of payment norms by [the Reserve Bank of India, or RBI] has presented a huge opportunity for this segment."

In an effort to boost financial inclusion in India, that nation's Central Bank (the RBI) recently loosened some rules related to mobile payments.

"The rural mobile banking segment is a high growth area, due to the adoption of the business correspondent model and relaxed Know Your Customer norms, but financial literacy remains a big issue for retaining the rural adopters," says Celent Analyst Sreekrishna Sankar.

The two analysts, based in Bangalore, co-authored a report just released by Celent, Mobile Banking in India: Dual Strategy for Rural and Urban Segments.

In India, as elsewhere, banks are searching for ways to grow markets. And there is an overwhelming consensus of opinion (among bankers, policymakers and NGOs) that mobile phones provide almost limitless possibilities.

Today, from the streets of Los Angeles to the rural villages of Vietnam, people are more apt to have mobile telephones that bank accounts. There are more than 1 billion people globally who don't have bank accounts but do own mobile phones, according to several industry reports.

The Celent report examines the urban and rural markets in India, and predicts all top tier banks in the country will be offering mobile banking services by 2011, with substantially huge growth coming from rural markets.

In urban areas, where nearly everyone has a mobile phone, mobile banking provides yet another access channel that can help banks slash operating costs. Celent predicts mobile banking subscribers in urban areas will reach 65 million by 2012, and that transaction growth will be driven in large part by merchant applications (micropayments).

As for rural India, the report predicts government-to-person (G2P) payments will be the key driver for mobile banking adoption.

More than 8,200 federally-insured financial institutions were collecting deposits and/or making loans to the U.S. "banking public" as of March 31, 2009.

_-FDIC