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29 X PARIPEX - INDIAN JOURNAL OF RESEARCH
Research Paper
Mobile Banking in Rural India: Roadmap to
Financial Inclusion
* Ms.Rati Dhillon
Commerce
t
* Assistant Professor, Department of Commerce, Bharati College, University of Delhi
Keywords : Digital Inclusion, Banking, Mobile Banking, Rural, Financial Inclusion
ABSTRACT
The concept of digital inclusion in the banking industry has become a parlance in the worldwide. The term digital inclusion
provides the people the skills of basic technology to participate in the knowledge economy that lead to an enhanced
performance of macro-economic. The study deals with the mobile banking in India. This study in detail discusses about the
mobile banking, the emergence of mobile banking and present scenario in India, mobile banking in rural areas of India, how
mobile banking helps in achieving fnancial inclusion. Further it will also discuss how mobile banking helps in overcoming the
fnancial challenges with the analysis of scope of mobile banking in the near future.
Introduction to Mobile Banking
According to Tiwari and Buse (2007) mobile banking is also
referred as m-banking, SMS banking and so on. Mobile bank-
ing is the term used for performing account transactions, bal-
ance checks, credit applications, payments and more through
a mobile device like tablet computer like iPad or mobile
phone. Mobile banking is a provision offered by fnancial and
banking institutions that help users avail their services with
the help of devices like mobile phones and other devices. The
scope of offered services encompasses facilities to conduct
stock and bank market transactions, to access customized
information and administer the accounts. Mobile banking is
performed through mobile internet or short message service
(SMS). Mobile banking gives an opportunity for banks to re-
tain their technology-savvy, existing customer base by offer-
ing innovative and value-added services to attract the poten-
tial customers. Mobile banking provides account information
like alerts on accounts activity and access to loan and card
statements, payments and transfers such as mobile recharg-
ing, international and domestic funds transfer and commer-
cial payment processing, support services such as exchange
of data messages, ATM location, cheque book requests and
email, investments such as personalized alerts on security
prices, portfolio management services and real time stock
quotes and content services such as location based services
and loyalty related services (Corporate Essvale (2011)
Barnes (2012) asserts that mobile banking is a channel
whereby the user, interacts with a bank through a mobile
device like mobile phone or PDA. There are many different
categories of fnancial transaction offered by mobile banking.
For example, amount or money can be stored in a mobile
phone or handset and then spend accordingly. It is also used
to transmit and receive remittance, or to pay bills and make
purchases (Sullivan, 2007). Mobile banking helps custom-
ers to access their bank accounts through mobile phone to
conduct traditional and more advanced fnancial transactions
(Kim et al, 2009)
Mobile banking emergence and present scenario in India
Siau et al (2001) point out that the telecommunication com-
panies and fnancial institutions worldwide are facing a new
loop on the information-telecommunication technology con-
vergence spiral. Mobile banking has emerged as a new
application of the next mobile commerce or electronic com-
merce. The adoption of mobile commerce strongly relies on
the user infrastructure that is user-accessible mobile devices
and on the mobile telecommunication networks. Lan et al
(2000), Kiesnoki (2000) and Guardini et al (2000) refer that
commerce applications encompassing mobile banking, can
be implemented successfully with an integrated underlying
infrastructure. Mobile banking enables the technologies fall
into four categories that is embedded systems, network, da-
tabases and security.
Mobile banking is enjoying a tremendous growth in India. It
has successfully crossed the stage of introduction. The ser-
vice of mobile banking is being channeled from metropolitan
cities to urban areas and then to the rural areas. The effec-
tiveness and popularity of mobile banking mainly rely on the
banking system in India and their connection with supporting
and regulatory system. There are lots of supporting factors
which support the mobile banking in India. First of all being
so much benefcial, Indian banks are taking initiative and also
encourage the people to register and use the services of mo-
bile banking. Customers are also adopting the mobile banking
services and customers are also getting lots of benefts. The
countrys regulatory system is also serious about the success
of the mobile banking services. Reserve bank of India framed
the formal guidelines for the mobile banking. The awareness
of people, security guidelines of the reserve bank of India
(RBI) and efforts of banks will shape the robust framework for
the Indian mobile banking. The RBI and others banks have
published the guidelines to use the mobile banking services.
All these efforts will surely make the path for successful mo-
bile banking in the rural India (Gupta and Mittal).
Mobile banking in rural areas of India
According to Unnithan and Swatman (2001) mobile phones
have become a signifcant communication tool for every per-
son throughout the world. In rural India, where the mobile us-
ers far exceed the fxed line subscribers due to better mobile
infrastructure when compared to fxed line infrastructure has
made the mobile banking much better in offering services.
Various players in providing services of banking, service
providers, fnancial institutions, and operators and so on are
therefore expecting a potential growth in Indian mobile bank-
ing. The actual usages of mobile banking do not match the
number of mobile users in the country. Mas (2008), Banzal
(2010) and Lyman et al (2008) describe that in rural India, the
various issues in the services of mobile banking such as in-
teroperability due to a large number of different mobile phone
devices and lack of mobile banking standards of technology,
Security of fnancial transaction at the data encryption level
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and physical level that is security of mobile device (Lyman et
al, 2008; Sharma and Singh, 2009 and Banzal, 2010)
Sharma and Singh (2009) refer that mobile banking has not
accepted widely but there is an essential growth found in the
recent years after the emergence of the mobile network. Mo-
bile banking is particularly valuable for rural regions due to
the lack of delivery, alternatives relies on overcoming sever-
al impediments. The most pressing of these is satisfying the
prerequisite of mobile network and the coverage of electricity.
The concerns of physical security are more acute in rural ar-
eas particularly with branchless banking models which use
agents. RBI has adopted the bank led model in which the
mobile banking is promoted with the help of business cor-
respondents of the banks. Indian banks offer many facilities
through mobile banking such as get automatic updates on bill
payments, check account balance, electronic fund transfer,
and get automatic updates, scheduled payments and so on.
Role of mobile banking in achieving fnancial inclusion
Rao et al (2009) refers that fnancial inclusion is the process
of assuring access to proper fnancial goods and services
needed by the vulnerable groups like low-income groups and
weaker sections at an affordable cost in a transparent and
fair manner by mainstream institutional players. Financial in-
clusion has become one of the main aspects in terms of in-
clusive development and growth. A broad vision is developed
for fnancial inclusion, where payments can be made easily
through a mobile device or an electronic network. This vision-
ing is used to bridge distances, contain settlement risks, close
information gaps and reduce the transaction costs. Alam et
al (2010) refers that mobile banking has a great potential to
extend the fnancial services distribution to poor people as it
lowers the delivery cost, encompassing costs both to banks
for maintaining, building channels, for delivery and to users
who access services.
According to Gupta and Mittal the provision of mobile banking
to under-banked or unbanked population could be the quick-
est way to achieve the objective of the fnancial inclusion. The
aim of the fnancial inclusion is to extend the fnancial services
scope of the organized fnancial system to involve within its
ambit people with low income. On the demand side, mobile
banking will make the banking services and products and im-
mediately accessible. On the supply side, mobile banking it
will be cost effective; it will save costs of providing physical
access that is mortar and bricks and become an economic
proposition for banks to handle transactions based on small
value made by the low-income citizens. Ivatury and Mas
(2010) refer that concentrating on smaller banks and MFIs
(Micro Finance Institutions) face a much higher cost-of-deliv-
ery due to values of smaller transaction and the likely more
dispersed and remote location of at least some of their con-
sumers.
Lymen et al (2008) and Yu (2009) point out that fnancial in-
clusion refers to the delivery of fnancial services at an af-
fordable cost to the most sections of the low-income groups.
The customers can store, enter, process, transmit and display
information through mobile banking. Mobile banking as the
channel of branch banking will be more helpful to rural cus-
tomers in saving the travelling encompassing precious time
and money to visit the distant branches for money transaction
and it is an appropriate delivery door-step banking model.
Thus it is concluded that mobile banking helps to achieve the
fnancial inclusion.
Mobile banking and Financial Inclusion in Rural India
Yu (2009) points out that mobile banking is a substitute for
the mortar and brick structure of the bank branches and
raising branch density in the rural areas of India. It helped to
overcome the supply side of the fnancial inclusion barriers.
The mobile banking in rural areas of India facilitates fnan-
cial service delivery such as withdrawals, saving mobiliza-
tion, remittances, credit disbursements and repayments, bill
payments, fund transfers and so on through banking facilita-
tors or banking correspondents. The banking facilitators are
encouraged to raise their earning capacity through multiple
transaction rather than limited transactions with the help of
mobile devices or hand-held devices. Mobile banking is suc-
cessful in handling the business transactions of large number
of under-banked and disadvantaged rural customers. The
mobile banking also supports the inclusive rural banking but
also reduces the cost of services or transaction for the rural
customers and banks.
Mobile money acts as an innovative tool for the inclusive f-
nancial services in rural areas. There a difference between
the mobile money and mobile banking. All transactions such
as mobile banking can be undertaken with the support of mo-
bile money without having bank accounts. Rural customers
may avail the mobile money facilities without the bank ac-
counts. Money is stored in the upgraded mobile phone under
the system of mobile money but it does not earn the interest
rate of saving account in the bank. The operation of micro
credit disbursement and saving mobilization cannot be under-
taken with the support of the mobile money system. The rural
population which uses the services of mobile money cannot
be covered under the concept of fnancial inclusion (Banzal,
2010).
Sharma and Singh (2009) describe that recognizing its poten-
tial in order to achieve the fnancial inclusion faster, reserve
bank of India has issued guidelines for functioning mobile
telephony-based fnancial services. The RBI has issued the
guidelines for mobile banking transactions. Some impor-
tant guidelines are only banks which are supervised and li-
censed in India and infrastructure in India encompassing core
banking solution are only allowed to offer services of mobile
banking, services are restricted only to the bank customers
or/and holders of credit/debit cards issued as per the extant
RBI guidelines, only Indian rupee based domestic services
are provided, the guidelines issued by reserve bank on anti
money laundering and know your customer and combating
the fnancing of terrorism from time to time will be applicable
to the mobile based banking services, cross border outward
and inward transfers is strictly prohibited.
Challenges and Scope of Mobile Banking
According to Yu (2009) security experts state that mobile
banking is safer than computer banking since very few Tro-
jans and viruses exist for phones and that does not mean mo-
bile banking is vulnerable to security threats, but mobile users
are particularly susceptible to a publishing-like scam referred
as smishing, it occurs when a mobile banking customer re-
ceives a fake text message asking the details of bank account
from a hacker acting like a fnancial institution. It is the biggest
problem in the mobile banking services. Mobile banking is
not available on all devices. Some banks do not offer mobile
banking at all. Others require to use a custom application of
mobile banking which is applicable to smart phones alone like
RIM blackberry and Apple iphone. Third party mobile bank-
ing application or software is not always supported. More ad-
vanced features cannot be seen in normal phones.
Kumbhar (2011) refers that mobile banking is cost effective
and it is a simple way to provide banking to the non-banked
customers in India. At present it is not accepted by common
customers in India due to the following reasons. Less infor-
mation technology literacy is adversely affecting the use of
mobile phone as an electronic device for banking. Some cus-
tomers use cell phones for communication purpose alone.
Most of rural peoples do not have an idea about mobile bank-
ing and how it is applied and used. It is identifed that only 3
percent of existing customers are using the services of mobile
banking in urban areas and they do not have any clear idea
about advantages of mobile banking. Good quality and con-
tinuity of cellular service connectivity is not available in the
rural areas. Security and trust are the most signifcant aspects
of any banking service, but people have more doubts about
its trustworthiness and security.
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31 X PARIPEX - INDIAN JOURNAL OF RESEARCH
Mobile banking provides a limited range of services and it
does not provide a deposit facility which is an important ser-
vice for the users. If customers want to deposit their money
then they have to go to the bank branch. Refund service is
very poor in the mobile banking. If user made some wrong
transaction and sent money to the wrong bank account by
mistake then the bank do not refund that money immediately.
For refunding it takes a maximum of ffteen days. Breakdown
of mobile banking create inconvenience for the users. Lan-
guage used in the mobile banking software is also one of the
barriers, all software is using English as common language
but less literate and rural people are unable to use this soft-
ware because of poor knowledge about English (Kumbhar
2011).
Telecommunication service in India points out that mobile or
cellular phone service is growing tremendously in the last fve
years. According to the TRAIs report on Indian telecommu-
nication industry, the wireless phone connections decreased
in the last few years and connections of mobile phone were
increased very fast. At present, sixteen cellular service pro-
viders are providing mobile service in India and there were
621.28 million phone connections in India and in these 584.32
million were cellular phone connections (Bangens and Soder-
burg, 2008).
Conclusion and recommendations
It is concluded that mobile banking gives an opportunity for
the banks to retain their technology-savvy, existing customer
base by offering innovative and value-added services to at-
tract the potential customers. Mobile banking provides invest-
ments such as personalized alerts on security prices, portfolio
management services and real time stock quotes, account
information like alerts on accounts activity and access to loan
and card statements, payments and transfers such as mo-
bile recharging, support services such as exchange of data
messages, international and domestic funds transfer and
commercial payment processing, ATM location, cheque book
requests and email and content services such as location
based services and loyalty related services. The aim of the
fnancial inclusion is to extend the fnancial services scope of
the organized fnancial system to involve within its ambit peo-
ple with low incomes. On the demand side, mobile banking
will make banking services and products and it is immediately
accessible. On the supply side, mobile banking it will be cost
effective; it will save costs of providing physical access that
is mortar and bricks and become an economic proposition
for banks in order to handle the transactions based on small
value made by the low-income citizens. The major challenges
associated with the mobile banking are the security issues.
It is recommended that when downloading the mobile bank-
ing applications they must be downloaded from reputable
stores or sites after reviewing the feedback from other cus-
tomers. The users must closely review application requests
for permission, install mobile security software and regularly
have to update the security patches in order to detect the vi-
ruses. They must keep the software and operating system
up-to-date by installing updates when available. Further they
must setup a personal frewall to protect the mobile device
from unauthorized electronic access. The frewall can be set
on various levels by permitting varying degrees of limited ac-
cess. By doing so the challenges associated with security in
mobile banking could be overcome and the users can enjoy
the benefts of mobile banking services to the fullest.
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