1. Mobile Money- Financial Inclusion & Financial Integrity Case Study: India Presentation By Radha Somakumar & Thomas Mathew Reserve Bank of India 20-04-2012 1

2. NATIONAL AND SOCIAL OBJECTIVE The process of ensuring access to appropriate financial products and services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost in a fair and transparent manner by mainstream Institutional players. The Committee on Financial Inclusion Chairman: Dr. C. Rangarajan, 2008 Financial Inclusion -Defined

3. 20-04-2012 3 The scene of two INDIAs (760 million adult population) Has enough cash and ID proof to attract banks Banking & FI support Access to payment instruments Physical Commerc e NEFT/RTGS S E- Commerc e M- Commerc e Unbanked 55% Unbanked/Underbanked areas- Has no ID proof- Only payment mode-CASH A day in his Life 2.30 pm Collect cash needs to send home resorts to informal channels 6.30 pm leaves for home-leakages/ attacked-no insurance 12.30 pm Reaches post office to find it closed for lunch 6.30 am Leaves home to collect Government disbursements 8.30 pm Takes money from money lender for further use- debt trap No savings No Investments Financially Excluded Banked 45%

4. No-Frill Accounts (full KYC), Accounts with Introduction & Small Accounts- (relaxed KYC) Overdraft in Saving Bank Accounts Business Correspondent Model KCC / GCC Guidelines Liberalised branch expansion Liberalised policy for ATM Introducing technology products and services Pre-Paid cards, Mobile Banking etc. Financial Literacy Program-Outreach Financial Inclusion-RBIs contribution

5. Identification of various delivery channels-ICT Leveraging on existing technology or big bang approach Extend the existing risk management practices to various delivery channels Acquire all these transactions over the existing settlement networks Aggregate various services as part of their existing cross- selling and co-branding initiatives Fraud prevention and security standards; safeguards against money laundering, KYC issues Ability to leverage their existing reporting, auditing, and campaign management at back end Financial Inclusion-Challenge to banks

6. Number of No-Frill Accounts – 96 million (30, Jan 2012) Number of Business Correspondents- 625 Number of rural bank branches – 23,799 constituting 26.7% of total bank branches Number of ATMs – 90,000+ Number of POS – 6,07,000 Number of Cards – 281.46 million Number of Kisan Credit cards – 21.4 million Number of Mobile phones–930 million Financial Inclusion- Achievement Index-

7. Role of Banks in mobile payments-Mobile Banking RBI has opted for the bank-led model for mobile payments. Mobile Banking Guidelines first issued in October 2008. 65 banks approved under the PSS Act. 47 banks have enabled mobile banking service for their customer. Customers have to approach their bank and register their mobile numbers for availing mobile banking facility. 12.23 million registered customers 20-04-2012 7 FINANCIAL INCLUSION –MOBILE WAY FORWARD

8. 20-04-2012 8 Mobile Banking- Monetary Caps Relaxation in a phased manner. December, 2009- monetary cap on fund transfers was raised from Rs.5000 and Rs.10000 on Person to Person (P2P) and Person to Business (P2B) transfers, respectively, to a uniform Rs.50000. December, 2011- banks free to fix their own limits based on risk perceptions. The limit of Rs.1000 per transaction without end-to-end encryption increased to Rs.5000 per transaction, remains unchanged. FINANCIAL INCLUSION –MOBILE WAY FORWARD

9. Mobile Banking-Mechanism of settlement of funds NEFT system-Deferred payment Funds transfer and settlement are being effected in a batch- mode and not in real time. Interbank Mobile Payment Services (IMPS)-Real time IMPS operated by NPCI, provides a r eal time interbank electronic fund transfers on a 24x7 basis in a secured manner with immediate confirmation features. Transactions routed through a central switch of NPCI. Banks which have been granted approval for mobile banking are permitted to register with NPCI for IMPS. 38 banks are participating Non-financial services, such as, balance enquiry available on a real-time basis. Video on IMPSVideo on IMPS 20-04-2012 9 Financial Inclusion- MOBILE WAY FORWARD

10. The potency of mobile banking as a delivery channel for financial services is unrivalled in India The real success of the bank led model will unfold if; Banks take up mobile banking in a big way and propagating to their existing customers when these 900 million mobile subscribers are brought under the ambit of financial inclusion and provided with bank accounts with mobile as a delivery channel; most importantly, the acceptance ecosystem (banks and merchants) develops parallely, to enable transfer of funds for person to person (P2P) and person to business (P2B) with the use of mobile by debit to such accounts. Collaborative and cooperative tie-ups between mobile operators acting as BCs and banks to take this process forward. Such tie-ups across the spectrum are the need of the hour. NPCI –developing a common Unstructured Supplementary Services Data (USSD) platform –front end consolidation with banks 20-04-2012 10 FINANCIAL INCLUSION –POTENCY OF MOBILE BANKING

11. Role of Non-Banks in mobile payments Non-bank entities permitted to issue prepaid payment instruments which include mobile wallets. Primary guidelines issued in April 2009 and subsequent relaxations/amendments have been carried out. Such entities are authorized under the Payment and Settlement Systems Act 2007, for carrying out this activity. As on date 9 entities approved for the same. Permitted only to issue semi-closed mobile wallets (enable only (P2B) payments, no cash withdrawal is permitted) Mobile wallets can be issued based on the graded KYC recommended in the guidelines. Domestic Money Transfer-Transfer of funds (P2P) permitted from one mobile wallet to another mobile wallet issued by the same entity upto Rs 5000/- and maximum limit of Rs 25,000/-per remitter. 20-04-2012 11 FINANCIAL INCLUSION –MOBILE WAY FORWARD

12. Role of Non-Banks in mobile payments Domestic Money Transfer-Transfer of funds (P2P) permitted from one mobile wallet to a bank account permitted upto Rs 5000/- and maximum limit of Rs 25,000/- per remitter. Funds received from the customers for issue of mobile wallets, an escrow arrangement with a bank is mandatory, whereby the issuers do not have access to the funds collected from the purchasers of such instruments. This also ensures that the card holder has prior claim over other creditors in the event of bankruptcy of the issuer. Such prepaid issuers have been prohibited from entering into any agreement with an agent with an exclusivity clause preventing the agent from doing a similar business with another payment system operator. 20-04-2012 12 FINANCIAL INCLUSION –MOBILE WAY FORWARD

13. Financial Inclusion and KYC/AML/CFT Risk of money laundering associated with mobile money (particularly, prepaid cards - due to easy transportability and the relative ease of moving and potentially accessing monetary value anonymously) is huge. Hence KYC/AML/CFT regulations are very critical Stringent KYC norms would result in new financially excluded groups which are unable to comply with the strict documentation requirements. This could also strengthen the informal, unregulated and undocumented financial services and a cash economy increasing the money laundering and terrorist financing risks Need to strike a fine balance between FI and KYC/AML/CFT aspects. 20-04-2012 13 FINANCIAL INCLUSION –MOBILE WAY FORWARD

14. Risk Based Approach with built in safeguards Our regulations stipulate strict adherence to KYC norms based on FATF recommendations and PML Act. But there are relaxations for small accounts where perceived risks are remarkably less. Accounts with Introduction and Small Accounts are two such initiatives – maximum balance would not exceed INR 50,000/- and maximum credit in a year not to exceed INR 100,000/- Similar caps on mobile money - Domestic Money Transfer- Transfer of funds from one mobile wallet to another mobile wallet by the same entity - upto INR 5000/- and maximum limit of INR 25,000/-per remitter (banks are free to fix their own limits for fund transfer through mobile banking based on risk perceptions). Safe guards such as reporting STRs, full KYC beyond a threshold limit, etc. 20-04-2012 14 FINANCIAL INCLUSION –MOBILE WAY FORWARD

15. Issues Whether one has to create a need or deliver a need? Has mobile phones M- powered people? Has the Indian model been a success? Why despite enabling collaboration between banks and mobile service providers, this model is not scaling up? Whether electronic payments can ensure savings and translate to investments from such accounts? In a society that extensively uses cash, does the use of technology makes money laundering easier? 20-04-2012 15 FINANCIAL INCLUSION –MOBILE WAY FORWARD

16. Thank you. 20-04-2012 16