Why mobile banking for the poor failed in India?

NEW DELHI: With the coming of smartphone technology, for many countries across globe, mobile banking has become a popular and preferred channel of communication with banks. For e.g., the number of mobile banking users in the United States has been projected to increase from 57 million in 2011 to 111 million in 2016. However, that is not the case in India.

Despite the efforts to imitate the success of mobile banking programs like Kenya’s M-Pesa, which made it possible for people living in rural and remote areas to access banking services with feature phones, India is still trying to figure out why it has failed.

According to the Telecom Regulatory Authority of India (TRAI) consultation paper, India’s adoption rates have been pretty poor. In May 2016 only 3.7 million “attempts” at mobile banking transactions were recorded, which is extremely short of traffic expectations based on the 450 million mobile connections in rural India.

The paper points out few causes for this outcome including the prices it allowed carriers to charge for the service.

India’s system uses GSM’s Unstructured Supplementary Service Data (USSD), the side channel for data most often used for “quick codes” to conduct simple transactions. India put a ceiling price of 1.5 rupees (two US cents) on USSD sessions for mobile banking, which is rather higher than the 0.15 rupee average cost of a TXT message in India, where average household incomes in rural areas are about 5,000 rupees a month. Users were even charged for failed transactions.

Another cause that the paper suggests is the imposed limit of five steps on any banking transaction. Though that decision was made in the hope it would simplify matters for semi-literate users, the paper says it did the opposite. Some steps required users to enter up to 29 characters on a feature phone, leading to errors that led to declined transactions that in turn led to users losing interest in the system.

TRAI has now asked stakeholders to figure out repairs. Increasing the number of steps allowed for transactions and reducing the USSD session ceiling feature prominently among ideas suggested as likely to improve adoption, along with monthly subscription options for customers or shifting cost of USSD sessions to banks instead of consumers.

Feedback on the Consultation Paper is welcome until August 31st and will be posted to the TRAI’s site. Comments on comments posted to the site will be allowed for a further two-week period, until September 14th, after which TRAI will recommend and try to implement useful changes.