The Inter Bank Mobile Payment Service can revolutionize the way payments are made. With corporates coming in as business correspondents, banks, telecom players and companies can work out a viable model for financial inclusion.

Universal financial inclusion, talked of for decades by policymakers, finally may be coming to fruition. All the requisite pieces have been coming together, some rather rapidly in the past few years, and some of the most dramatic changes to sweep the economy have happened in the payment and settlement system.

For years, India has been seen as lagging behind, with Kenya pointed to as the poster boy of mobile money and financial inclusion, even though India had all the components of a conducive environment — large unbanked population, stable banking system, growing teledensity with a competitive mobile landscape, and significant technological capabilities.

The several regulatory roadblocks here have recently been eased at a sizzling pace — the push on business correspondents, the first step away from the branch model of expansion, has increased with progressive relaxation in guidelines, and last September corporates were allowed to act as BCs for banks, a big breakthrough in providing a comprehensive eco-system for financial inclusion.

Mobile Services Potential

While large multi-player telecom and banking sectors augur well for competition, the flip side is the need for interoperability to allow payments and settlements seamlessly across service providers. This link is in place now with the Inter Bank Mobile Payment Service (IMPS), provided by the National Payments Corporation of India (NPCI), a service that is set to revolutionize the way payments are made across the country.

The speed with which the service has picked up is remarkable — from a pilot project involving four banks last August, to 20 banks and 10 million members now. Since May, merchant payments have been allowed. While this opens possibilities of mobile payments for groceries and vegetables, to begin with, customers will limit these payments to known vendors, such as utility bills.

One of the critical elements in expanding this service is the need to keep the IMPS interchange fees low so that there are no disincentives for low-value transfers — an environment conducive to low-value transactions is the one that will move faster across the population.

For customers, individual banks are allowed to set their own charges, and currently, there are no fees as the market is nascent; despite fast growth, there are just 10 million registrations out of the 350 million bank account holders.

More significantly, this service is open only to those who have bank accounts. So for optimal outreach, banks need to roll out into the unbanked segments across the country and take full advantage of the relaxed BC requirements.

Here the UID is expected to play a crucial role for segments like migrants who have stayed out of the system so far.

Banks also have to raise awareness amongst their own customer base. Axis Bank and ICICI Bank lead with the number of registered customers for IMPS, but all banks need to get into the fast-track mode to allow maximum use across sectors and people. The service needs to be marketed aggressively, with tie-ups with other trusted service providers, like LIC, that can help raise the comfort and trust levels of users.

Non-Bank Model

It has to be said that there is no lack of demand for financial services in India. Banks have typically refrained from innovating for the bottom of the pyramid, deterred by the low values here. On the other hand, mobile operators are in sync with transaction-based business models for low-value transactions that are the need for those out of the formal financial system.

There is, therefore, a perfect synergy here to be exploited and with the RBI pushing for financial inclusion now, it is for the telecom operators, banks, and merchants/companies to work out a sustainable business model.

Meanwhile, the world over, such countries as the Philippines and Indonesia are allowing non-banks into the fray, experimenting with new models for financial inclusion.

Unlike a bank-based model, where customers have a direct contractual relationship with a bank (even though a customer may deal only with BCs), in a non-bank-based model, there is no direct contractual relationship with a bank, and the customer exchanges cash for electronic value recorded in a virtual account on the non-bank's server. Yet, in both cases, banks and non-banks have roles to play.

Regulations for non-bank e-money issuers vary across countries and generally include provisions for ‘fund safeguarding' (maintaining unencumbered liquid assets equal to the amount of issued electronic value), ‘fund isolation' (insulating funds underlying issued e-money from institutional risks of claims by issuer creditors), minimum initial capital requirements, etc.

While so far the RBI has focused on a bank-led approach, it has also maintained that a regulated non-bank model can kick in, if banks fail to deliver on the financial inclusion front. This could well happen someday; after all, despite all the resistance, for-profit companies have been let into what is today the most happening space in finance and banking.

Jan Dhan Yojana

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely Banking Savings & Deposit Accounts, Remittances, Credit, Insurance, and Pension in an affordable manner. In this scheme financial inclusion of every individual who does not have a bank account is to be achieved.

Under the Jan DhanYojna anyone who is an Indian citizen above the age of 10 years and does not have a bank account, can open an account with zero balance. The account can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet, specially designed for the purpose of opening accounts under this scheme. The scheme also provides the facility of accidental insurance cover up to rupees one lac without any charge for the account holder.

The account holders under the Jan Dhan Yojana will be given a RuPay debit card which can be used at all ATMs for cash withdrawals and at most retail outlets for making transactions for purchases.

Under the PMJDY scheme, the account holders will be given worth Rs.30000 insurance coverage if they comply with the certain specification of the scheme which includes opening an account by January 26, 2015, and having accidental insurance coverage of over Rs.200000.

The account holder can take a loan benefit of up to Rs.5000 from the bank after six months after opening the account.

According to the data issued by the finance ministry, till September 2014 around 40 million (4 crores) bank accounts have been opened under the Pradhan Mantri Jan Dhan Yojana since the scheme launched.