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Mobile banking needs regulatory framework for growth

Mobile commerce and mobile banking have the ability to get every user into the banking system provided there is a regulatory framework and clear guidelines for banks, mobile operators and end-users

The Reserve Bank of India (RBI) has been trying to push mobile banking in a big way across the country as a medium for financial inclusion. However, due to lack of a regulatory framework, clear guidelines and security, bankers are treading with caution. They feel that in case of a fraudulent activity in any mobile banking transaction, they would be held accountable.

“The issue lies as to where the banks’, customers’ and mobile operators’ jurisdiction starts and ends,” said a senior official from the Indian Banks’ Association (IBA).

While banks agree that they are the channels through which mobile banking transactions would take place, mobile companies prefer to call themselves as facilitators.

“There are too many things which have to come into place for this kind of service (mobile banking). It’s not only the mobile service providers but also the banks (who have to take responsibility in case of any illegal activity). As of now, what we really are doing is providing a medium for these transactions,” an official from Vodafone said.

Besides the illegal activity issue, mobile banking does not provide facilities like ‘stop payment’ as banks are unable to cancel a transaction after approving the same.

Given the convenience and the number of mobile phone users in India, mobile banking is bound to pick up. The central bank has been very active in trying to take advantage of the reach and penetration of mobiles in the county. Last month, the RBI increased the amount of money that can be transacted through mobile phones to Rs50,000 every day, up from Rs5,000 per day.

Speaking at the India Telecom 2009 conference, RBI’s deputy governor Dr KC Chakrabarty had said, “While e-commerce has skipped the majority of the population due to the cost of setting up of such channels, mobile commerce (m-commerce) has the capability to be inclusive due to the widespread use of mobile phones.”

In India, out of the 32 banks which have been given approval to provide mobile banking facilities, only 21 have started providing these services. However, there is not much activity in this space, resulting in low transaction volumes, Dr Chakrabarty added. According to the deputy governor, the reason for low uptake of mobile banking facilities is the requirement of end-to-end encryption that makes implementation expensive.

Echoing the same view, German scientist Karsten Nohl, a security researcher at the University of Virginia, said hackers can easily intercept the wireless network of GSM operators in less than a second. In an interview to CIOL, he said that SMS applications used for banking and financial services are also vulnerable to this breach of security and current security solutions available for mobile phones are not capable of detecting such security leaks. During his research, Mr Nohl found that devices to decrypt an encryption code are present in India and people are unethically and illegally bugging phones of subscribers.

With the alarming status of security measures for mobile banking, many bankers think that they would be made liable for any illegal activity or financial loss to the m-commerce consumer. “Since we are the channels through which the transactions take place, we will have to take up the responsibility,” an official from Axis Bank said.

More so, the fears of bankers may well be justified. According to a senior official from the National Payment Corporation of India (NCPI), banks would have to pay for any faulty transactions and money theft through cell phones. NCPI, a newly established company promoted by Indian banks, is building a robust and state-of-the-art national level retail electronic payment system infrastructure in the country. “NPCI would soon be building a central infrastructure for mobile payments which will monitor intra-banking (activities),” said AP Hota, chief executive officer, NCPI.

The other issue banks face in providing mobile banking is that they are required to tie up with individual service providers for enabling such services. Banks face difficulties in entering into such partnerships. Again, mobile service providers do not open up channels for facilitating mobile banking services by banks.

“The successful partnering of banks and mobile service providers would also need the resolution of the issue related to customer ownership,” the deputy governor of RBI had said.

Currently, there are three modes of transactions—Short Messaging Service (SMS), client applications and mobile web. Banks are offering mobile banking tie-ups with various mobile providers to offer the back-end solutions. PayMate is a service provider offering back-end solutions to 24 leading banks and has seen a nearly 100% rise in subscribers since its inception.

In India, SMS transactions are the most popular for conducting basic bank transactions. According to Ajay Adiseshann, founder and managing director, PayMate, “All basic banking transactions such as balance information, cheque book request, etc, can be accomplished via SMS or on mobile-based applications that some banks use.” 

Due to the use of a two-factor authentication process of mobile number and mPIN authentication over Interactive Voice Response (IVR), the risks involved in using mobile banking are lower than other modes of transactions. In mobile banking, there is enhanced risk control. When a consumer enrols for this facility he provides the mobile number through which the transactions have to be carried out.

According to a research report by Juniper Research, by 2014, the international mobile money transfer market will be worth in excess of $65 billion. The growth will be driven by migrant workers based in developed countries, rising global unemployment and increased immigration controls by governments. By 2010, mobile money transfers will see massive expansion in African countries, India and the rest of Asia, the report added.

The number of telephone subscribers in India increased to 543.2 million at the end of November from 525.65 million in October 2009, thereby registering a growth rate of 3.34%. With this, the overall tele-density in the country had reached 46.32, said Telecom Regulatory Authority of India (TRAI), in its latest report. When you compare this figure with the total number of bank customers across the country, there is a wide gap.

With initiatives like boosting financial inclusion, the government is trying to lower the gap. Planning commission deputy chairman Montek Singh Ahluwalia, had said that under financial inclusion, the government is trying to develop a system where people below poverty line or whose income is around Rs600 per month would be given access to financial institutions like banks. This will help them to have less dependency on money lenders, who usually lend at very high interest rates of around 60% per annum, he said.

Mobile phones, with their wider reach and depth, would definitely play a very big role in financial inclusion, provided there is a regulatory framework that can allow secure and safe transactions.

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    Truck manufacturers are hiking prices

    Commercial vehicle makers have hiked or are considering hiking prices of trucks by up to 4% this month to offset rising input costs, even as the segment saw return of demand

    Commercial vehicle makers including Tata Motors Ltd, Volvo Trucks India Ltd and Ashok Leyland Ltd have hiked or are considering hiking prices of trucks by up to 4% this month to offset rising input costs, even as the segment saw return of demand, reports PTI.

    Leading automaker Tata Motors has increased prices of all heavy vehicles (16 tonnes and above) and some models in the lower tonnage (3.5-7 tonnes) by 1% from this month.

    Volvo Trucks India has hiked prices by 3%-4%. "Prices have gone up on account of high input costs, especially steel and rubber," Volvo Trucks India president Somnath Bhattacharjee said at the 10th Auto Expo in New Delhi.

    Mr Bhattacharjee, who is also on the board of the Volvo-Eicher joint venture, added that prices of Eicher products have also been increased by 2% for the same reasons.

    The Hinduja Group-promoted Ashok Leyland said that it will hike prices of its commercial vehicles before March this year.

    Ashok Leyland managing director R Seshasayee said that there has been a surge in demand of commercial vehicles in the last two quarters and the company expected to close this fiscal at total sales of about 62,000-63,000 units.

    Commercial vehicle makers, who last year were forced to shut operations temporarily to cut operating costs, saw sales turn positive in August 2009. Sales jumped over 130% in November last year.

    Prices of steel, a major input, have gone up by about $60-$80 to over $550 a tonne in the past two months due to rise in demand and increase in input costs.

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    ONGC exits Trinidad & Tobago gas block

    ONGC was forced to exit from a gas block in Trinidad & Tobago after its partner Lakshmi N Mittal walked out of the project and its unit OVL would have had to foot the entire $304 million exploration expenditure

    India's State-run Oil and Natural Gas Corp (ONGC) has been forced to exit from a gas block in Trinidad & Tobago after its partner Lakshmi N Mittal walked out of the project, reports PTI.

    ONGC-Mittal Energy Ltd (OEML)—the joint venture of ONGC Videsh Ltd (OVL) and Mittal Investment Sarl (MIS)—had in 2007 won the offshore block North Coast Marine Area-2 (NCMA-2), that is estimated to hold reserves of 2 trillion cubic feet, beating Britain's Centrica Plc.

    But last year, Mittal Investment Sarl (MIS) decided to exit the project possibly because of the global economic downturn.

    "When we had bid for the block in Trinidad & Tobago, we had consciously decided not to take more than 51% stake. After the exit of MIS we had the option of doing the project entirely on our own but that did not fit into our scheme of things," an OVL official said.

    OMEL had 65% interest in the block while Trinidad & Tobago's State-owned oil firm Petrotrin had the remaining. Under the initial agreement, OMEL was required to carry Petrotrin during the exploration phase (OMEL contributing Petrotrin's share of investment).

    After the exit of MIS, OVL—the overseas investment arm of ONGC—would have had to foot the entire $304 million exploration expenditure with Petrotrin not willing to share any risk. "We tried to get an international energy firm as partner but did not succeed so we had no option but to exit the block," the OVL official said.

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