With over 90% of the villages in India without a commercial bank branch, and over 350 Mn rural mobile subscribers, there is a large untapped population to be covered under the financial net, says EY Report, Decoding mobile financial services.
In the recent year, the government has made notable progress in driving financial inclusion in India. Government initiatives like Pradhan Mantri Jan Dhan Yojana led to opening of 125 Mn new bank accounts within a year of launch in 2014. This indicates the appetite that exists. For financial institutions, mobile financial services (MFS) can help serve a vast mass market, which otherwise may be out of reach due to high physical infrastructure costs, the report suggests. For telecommunications providers (telcos), it acts as an additional revenue stream and can help the industry cross-sell services.
Prashant Singhal, EY Global Telecommunications Leader, says, “The area of mobile financial services is at the tip of a digital iceberg. We expect to see the world change the way banking is done in the next two to five years, as both telcos and financial institutions leverage mobile as a platform for growth. Given complementary competencies and infrastructure, they are well-positioned to collaborate, bring synergies and innovation to mobile financial services and meet changing customer demands.”
Key drivers for MFS growth
The necessary building blocks for promoting inclusions and access to financial services have already been initiated by the Government of India. The introduction of payment bank licenses and the Central government’s endeavor are steps in this direction. Interestingly, Indian telecom operators are well positioned to take forward the financial inclusion agenda with their wide reach and prior experience in mobile money services.
The m-commerce boom in India is another driver for MFS growth. It is expected that the m-commerce market in India is poised to grow by 55% from US$2 Bn in 2015 to US$19 Bn by 2019.
Additionally, cashless transactions are increasingly replacing cash based payments, typically in business-to-business (B2B) and business-to-consumer (B2C) transactions, which is an advantage.
In essence, MFS has the potential to create value across multiple fronts of the financial services ecosystem. Given the prevalence of mobile phones—particularly smartphones, the transformational impact of MFS on mobile payments, microfinance, and banking services can be a real differentiator in unlocking economic and social benefits in India.
Serving the next segment of unbanked people
Economies such as India, the Philippines and Colombia lead the list of countries with the highest number of unbanked people that have the potential to be served by mobile financial services. According to the report, with the financially excluded population of 47% in India, 68.7% in Philippines and 61% in Colombia, the opportunity for MFS is substantial. Given the mobile penetration in these regions – India (75%), Philippines (111%) and Colombia (113%), the mobile platform can be an enabler for driving financial inclusion.
Securing mobile financial services
Although innovation is leading to an upswing of innovative MFS business models, their uptake and sustainability is greatly impacted by the rise of cyber security concerns in the digital age. Globally, organizations have faced serious financial damages and dent in reputation as a result of the growing cyber-attacks. Companies not only risk losing their customer base but may also be affected by regulatory levies for noncompliance to protect customer data.
“In view of changing consumer preferences and needs, organizations need to be able to create a balance between the user convenience and security aspects of mobile financial services. To this end, security measures such as tokenization and biometric authentication are likely to have a strong impact on the digital payment industry. Robust know-your-customer, anti-money laundering and transaction authentication procedures will remain a key focus to combat cyber threats,” says Singhal.