NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, October 10, 2013

With 840 million phones potentially competing against less than 85,000 bank branches, there is no doubt over mobile banking’s potential to accelerate financial inclusion. With more than 70 banks now offering m-banking services, in tie-ups with telcos, there are signs of a spurt in mobile banking transactions in 2013.

Yet, the penetration is abysmal compared against the base of 840 million mobile subscribers and a $100 billion dollar payments market composed of equal parts of Direct Benefits Transfers and migrant remittances. The slow uptake has been partly due to an impasse between banks and telcos on mutual accountability to customers, sharing of costs and liabilities, and the pricing of m-banking transactions.

Trai’s recent consultation paper on Unstructured Supplementary Service Data (USSD) based mobile banking for financial inclusion, signals an intent to settle two contentious issues; namely, whose service is it and who pays whom. Referring particularly to the inter-ministerial group for ‘Delivering Basic Financial Services on Mobile Phones’, the note argues that USSD is the most feasible and cost effective mode for financial service transactions on mobile phones. It also indicates that USSD access should be a telco’s service to phone users, and should come with appropriate Quality of Service standards and a regulated tariff.