Mobile banking (also known as M-Banking, m banking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone.
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Mobile banking today (2007) is most often performed via SMS or the Mobile Internet but can also use special programs, called clients, downloaded to the mobile device.
This topic attempts a critical review of the banking performance and policy concerning the mobile banking in globalizing India since the early 2009s when economic reforms were formally introduced.
With an explicit accent upon participating in the global market sphere, the government policies have reoriented focus on enhancing exports, competitiveness and efforts to be part of global value chains or global service.
A mobile banking conceptual model
In one academic model mobile banking is defined as:
“Mobile Banking refers to provision and an ailment of banking- and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and access to customized information.”
According to this model Mobile Banking can be said to consist of three inter-related concepts:
ï®Â  Mobile Accounting
ï®Â  Mobile Brokerage
ï®Â  Mobile Financial Information Services
Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of informational nature are however essential for conducting transactions – for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module.
Mobile phone banking may also be used to help in business situations
Trends in mobile banking
The advent of the Internet has enabled new ways to conduct banking business, resulting in the creation of new institutions, such as online bankers, online brokers and wealth managers. Such institutions still account for a tiny percentage of the industry
Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now  exceeds 2.5 billion (of which more than 2 billion are GSM).
With mobile technology, banks can offer services to their customers such as doing funds transfer while traveling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. Smart phones and 3G connectivity provide some capabilities that older text message-only phones do not.
According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones.
Mobile banking will eventually allow users to make payments at the physical point of sale. “Mobile contact less payments” will make up 10% of the contact less market by 2010. Another study from 2010 by Berg Insight forecasts that the number of mobile banking users in the US will grow from 12 million in 2009 to 86 million in 2015.
The same study also predicts that the European market will grow from 7 million mobile banking users in 2009 to 115 million users in 2015.
Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phones. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where mobile infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where mobile phone penetration is very high (at least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more.
Mobile banking business models
A wide spectrum of Mobile/branchless banking models is evolving. However, no matter what business model, if mobile banking is being used to attract low-income populations in often rural locations, the business model will depend on banking agents, i.e., retail or postal outlets that process financial transactions on behalf Telco’s or banks.
The banking agent is an important part of the mobile banking business model since customer care, service quality, and cash management will depend on them. Many Telco will work through their local airtime resellers. However, banks in Colombia, Brazil, Peru, and other markets also use pharmacies, bakeries, etc.
These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories – Bank Focused, Bank-Led and Non bank-Led.
Bank-focused model
The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Examples range from use of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks’ customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.
Bank-led model
The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees.
This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bank-based alternatives.
The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank
Non-bank-led model
The non-bank-led model is where a bank has a limited role in the day-to-day account management. Typically its role in this model is limited to safe-keeping of funds. Account management functions are conducted by a non-bank (e.g. Telco) who has direct contact with individual customers.
Mobile Banking Services
Mobile banking can offer services such as the following:
Account Information
1.  Mini-statements and checking of account history
2.  Alerts on account activity or passing of set thresholds
3.  Monitoring of term deposits
4.  Access to loan statements
5.  Access to card statements
6.  Mutual funds / equity statements
7.  Insurance policy management
8.  Pension plan management
9.  Status on cheque, stop payment on cheque
10. Ordering cheque books
11. Balance checking in the account
12. Recent transactions
13. Due date of payment (functionality for stop, change and deleting of payments)
14. PIN provision, Change of PIN and reminder over the Internet
15. Blocking of (lost, stolen) cards
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Payments, Deposits, Withdrawals, and Transfers
1.  Domestic and international fund transfers
2.  Micro-payment handling
3.  Mobile recharging
4.  Commercial payment processing
5.  Bill payment processing
6.  Peer to Peer payments
7.  Withdrawal at banking agent
8.  Deposit at banking agent
A specific sequence of SMS messages will enable the system to verify if the client has sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent. When depositing money, the merchant receives cash and the system credits the client’s bank account or mobile wallet. In the same way the client can also withdraw money at the merchant: through exchanging sms to provide authorization, the merchant hands the client cash and debits the merchant’s account.
Investments
1.  Portfolio management services
2.  Real-time stock quotes
3.  Personalized alerts and notifications on security prices
4.  mobile banking
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Support
1.  Status of requests for credit, including mortgage approval, and insurance coverage
2.  Check (cheque) book and card requests
3.  Exchange of data messages and email, including complaint submission and tracking
4.  ATM Location
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Content Services
1.  General information such as weather updates, news
2.  Loyalty-related offers
3.  Location-based services
Based on a survey conducted by Forrester, mobile banking will be attractive mainly to the younger, more “tech-savvy” customer segment. A third of mobile phone users say that they may consider performing some kind of financial transaction through their mobile phone. But most of the users are interested in performing basic transactions such as querying for account balance and making bill payment.
Challenges for a Mobile Banking Solution
Key challenges in developing a sophisticated mobile banking application are:
Handset operability
There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. Some of these devices support Java ME and others support SIM Application Toolkit, a WAP browser, or only SMS.
Initial interoperability issues however have been localized, with countries like India using portals like R-World to enable the limitations of low end java based phones, while focus on areas such as South Africa have defaulted to the USSD as a basis of communication achievable with any phone.
The desire for interoperability is largely dependent on the banks themselves, where installed applications (Java based or native) provide better security, are easier to use and allow development of more complex capabilities similar to those of internet banking while SMS can provide the basics but becomes difficult to operate with more complex transactions.
There is a myth that there is a challenge of interoperability between mobile banking applications due to perceived lack of common technology standards for mobile banking.
In practice it is too early in the service lifecycle for interoperability to be addressed within an individual country, as very few countries have more than one mobile banking service provider. In practice, banking interfaces are well defined and money movements between banks follow the IS0-8583 standard. As mobile banking matures, money movements between service providers will naturally adopt the same standards as in the banking world.
Security
Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks’ IT departments.
The following aspects need to be addressed to offer a secure infrastructure for financial transaction over wireless network:
1.  Physical part of the hand-held device. If the bank is offering smart-card based security, the physical security of the device is more important.
2.  Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application.
3.  Authentication of the device with service provider before initiating a transaction. This would ensure that unauthorized devices are not connected to perform financial transactions.
4.  User ID / Password authentication of bank’s customer.
5.  Encryption of the data being transmitted over the air.
6.  Encryption of the data that will be stored in device for later / off-line analysis by the customer.
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One-time password (O T Ps) are the latest tool used by financial and banking service providers in the fight against cyber fraud. Instead of relying on traditional memorized passwords, O T Ps are requested by consumers each time they want to perform transactions using the online or mobile banking interface. When the request is received the password is sent to the consumer’s phone via SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.
Because of the concerns made explicit above, it is extremely important that SMS gateway providers can provide a decent quality of service for banks and financial institutions in regards to SMS services.
Therefore, the provision of service level agreements (S L As) is a requirement for this industry; it is necessary to give the bank customer delivery guarantees of all messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the service parameters in which a messaging solution is guaranteed to perform.
Scalability & Reliability
Another challenge for the C I Os and C T Os of the banks is to scale-up the mobile banking infrastructure to handle exponential growth of the customer base. With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion.
As customers will find mobile banking more and more useful, their expectations from the solution will increase. Banks unable to meet the performance and reliability expectations may lose customer confidence. There are systems such as Mobile Transaction Platform which allow quick and secure mobile enabling of various banking services. Recently in India there has been a phenomenal growth in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking operations.
Application distribution
Due to the nature of the connectivity between bank and its customers, it would be impractical to expect customers to regularly visit banks or connect to a web site for regular upgrade of their mobile banking application. It will be expected that the mobile application itself check the upgrades and updates and download necessary patches (so called “Over The Air” updates). However, there could be many issues to implement this approach such as upgrade / synchronization of other dependent components.
Personalization
It would be expected from the mobile application to support personalization such as:
1.  Preferred Language
2.  Date / Time format
3.  Amount format
4.  Default transactions
5.  Standard Beneficiary list
6.  Alerts
Mobile banking in the world
Mobile banking has come in handy in many parts of the world with little or no Infrastructure development, especially in remote and rural areas. This part of the mobile commerce is also very popular in countries where most of their population is UN banked. In most of these places banks can only be found in big cities and customers have to travel hundreds of miles to the nearest bank.
Countries like Sudan, Ghana and South Africa received this new commerce very well.
In Latin America countries like Uruguay, Paraguay, Argentina, Brazil, Venezuela, Colombia, Guatemala and recently Mexico started with a huge success.
In Colombia was released with Redeban.
In Iran banks like Parsian, Tejarat, Mellat, Saderat, Sepah, edbi and bankmelli offer this service. Guatemala have the support of Banco industrial.
Mexico released the mobile commerce with Omnilife, Bancomer and a private company(MPower Ventures). Kenya’s Safaricom (Part of the Vodafone Group) has had the very popular M-Pesa Service – mainly used to transfer limited amounts of money, but has been increasingly used to pay utility bills. Zain in 2009 launched their own mobile money transfer business known as ZAP in Kenya and other African countries.
By : Dr. R Harilal, Associate Professor, S.V. Veterinary University, Tirupati, Dr. Morusu Siva Sankar, Post Doctoral Fellow, Dept of Commerce,S.V. Uuniversity, Tirupati & Mr. D. Varaprasad Rao Lecturer in Commerce, Govt. Degree College Rapur, Nellore, Published in Banking Finance, January, 2011
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