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Wednesday, January 26, 2011

Affordable Financial Services on Mobile

India's telecom regulator Trai wants to fix tariffs for banking and other financial services on mobile phones to ensure that this facility is affordable to the masses.

At present, market forces determine telecom tariffs in India, with very little intervention from Trai or the government. The regulator is of the opinion that 'the proposed framework for delivery of basic financial services is intended to promote financial inclusion, including transfer of funds under various government schemes and programmes targeted to poor people', which calls for regulating tariffs for such services.

"Tariff regulation would be crucial if adoption of mobile banking is to be encouraged especially among the unbanked segments of the population. In such a situation cost effectiveness of delivery of basic financial services through mobile phones becomes an important consideration. Every effort should be made to keep the provisioning of the services affordable for the target beneficiaries," the regulator said when launching a consultation process to gauge the industry's reaction to this proposal.

The consultation process will also enable the regulator to fianlise its recommendations on other policy issues that are vital for framing guidelines for mobile banking services.

Trai has also sought the industry's response on a recent government panel report, which had said that customers wanting to operate their accounts through cellphones must shell out a 2% commission to the bank.

The inter-ministerial group constituted to frame rules for banking services on cellular handsets had also said that that banks in turn must pay the telco a minimum of 2.25 per transaction or 1.4% of the total amount, while adding that the commission be gradually reduced to 1% over the 5 years. If the telco were to set up mini ATMs, and if the transactions were to happen through these, then banks must pay the mobile phone company a minimum of 3 per transaction or 2.25% of the amount, the report had added.

Earlier this month, the country's two leading cellphone companies announced separate tie-ups with the largest banks here to provide financial services on handsets. Bharti Airtel , the country's largest mobile phone company by both customers and revenues had formed a 49:51 joint venture with State Bank of India to provide mobile-banking and other financial services, and Vodafone Essar Ltd , majority owned by UK's Vodafone, unveiled a similar deal, by entering into a JV with ICICI Bank , India's largest private sector bank.

Other mobile service providers are also slated to announce similar tie-ups with banks over the next couple of months.

SBI-Airtel is targeting to get two million such accounts on a yearly basis which would be easily scaled up to five million accounts a year owing to the bank's wide reach and Airtel's 1.5 million touch points, Bhatt added. Similarly, ICICI said it plans to take use the strength of Vodafone, which also has over 1.5 million retail points, for acquiring customers and servicing them.

India has over 700 million mobile connections with a penetration of more than 60%. In comparison, a significant majority of the country's population does not have access to banking services. Latest estimates by the Central Bank say that only 50,000 of the 600,000 villages in the country have access to finance.
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