Indian Bank Regulation Throws Roadblocks for Mobile Payments

The Reserve Bank of India (RBI) issued anxiously awaited guidelines on Friday detailing what banks in India must do in order to offer 'mobile banking' services. The RBI had previously issued a moratorium in July on the offering of such services while it finished its recently published guidelines.

Mobile payments companies have been springing up around the globe, including Europe, Africa and Asia, in addition to the American versions. Several companies, including, "mChek, Paymate and Obopay are in the final stages of developing their micro-finance offerings, while fine-tuning their tie-ups with various MFIs to launch mobile-based financial products."

The RBI draws a distinction between 'mobile banking' services that are being offered including "balance enquiry, stop payment instruction of cheques,
transactions enquiry, location of the nearest ATM/branch etc...Acceptance of transfer of funds instruction for credit to beneficiaries of same/or another bank in favor of pre-registered beneficiaries" For the purposes of its guidelines, "“mobile banking transactions” is undertaking banking transactions using mobile phones by bank customers that involve credit/debit to their accounts. It also covers accessing the bank accounts by customers for non-monetary transactions like balance enquiry etc. "

The Hoops & Limits

The RBI created a number of hoops that must be jumped through in order to begin offering 'mobile transaction' services:

• Only banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer mobile banking services....Only banks who have implemented core banking solutions would be permitted to provide mobile banking services. This means that mobile banking operators outside the country of India will be unable to provide services to specific banks. Rather, they are likely to be forced to white-label or license their applications to the banks before the services may be offered. FURTHER, the service provider must actually be a bank regulated within the country of India rather than just an external service provider.
• The services shall be restricted only to customers of banks and holders of debit/credit cards issued as per the extant Reserve Bank of India guidelines. In other words, if you don't have an India-based account, you are out of luck.
• Use of mobile banking services for cross border transfers is strictly prohibited. This requirement will limit the attractiveness of the Indian market. Companies outside the country wanted to get into the remittance game of Indians working abroad and sending money home. The inability to offer cross-border accounts from banks in the US to banks in India limits the transaction volume.
• Banks shall put in place a system of document based registration with mandatory physical presence of their customers, before commencing mobile banking service. This will limit the use of the Internet to sign up customers for 'mobile banking' services.
• It is necessary that the mobile banking servers at the bank’s end or at the mobile banking service provider’s end, if any, should be certified by an, accredited external agency. This simply creates an added level of bureaucracy within the Indian government, and additional costs for the mobile banking service provider.
• A per transaction limit of Rs. 2500/- shall be imposed on all Mobile Banking transactions. Subject to an overall cap of Rs. 5000/- per day, per customer. In other words, <$100 per day per customer overall.

RBI Says 'Jump'

The RBI has set up obstacles to international services to provide mobile banking solutions, requiring payer and payee have Indian accounts at Indian banks, and the money is moved by an Indian-based service, prohibiting cross-border transactions. Combined with the transaction limit, the speed and size of the Indian-based market is likely to be hindered.