Mobile Banking – An Acute Emerging Market Need

India’s Mobile Banking Potential:

A precursor for any open market economy to flourish is the free flow of capital and goods between buyers and sellers. 

Myth and Reality:

Out of 1.2 Billion Indians only 240 million citizens have access to banking services; Whereas 764.76 million people have mobile phones. McKinsey estimates that 180 million1 new job seekers will enter India’s workforce over the next two decades—a potential demographic dividend. 30% of India’s population lives in urban areas. The 4.5 million wealthy households that consume luxury products and services are concentrated mainly in the top 10 cities.The Labor force participation by occupation is Agriculture (52%), Industry (14%) and Services (34%). A vast majority of the population living in Tier-2 / Tier-3 cities are either small business owners, entrepreneurs or self-employed laborers.

The Indian economy depends far less on exports compared to its other brethren’s in Asia. Most of the growth is fueled by domestic consumption.

Bigger Pie / Bigger Slice:

An emerging middle class estimated to be increasing by 20 million a year, with a median age of 26 when weighed against the backdrop of 400 million people in India that do not have a bank account, severely dampens the market potential. One look at how MNC’s have fared over the past decade is ample proof of what went wrong with the rosy projections.

An estimated 37.2 %2 of India’s population falls below the poverty line (BPL). Microfinance was supposed to serve the needs of the poor but went wary with its focus more on credit delivery rather than help people escape poverty.

The banking system can evolve as a key gatekeeper that can bring together missing parties, unleash spending, enhance trade and in the process create new opportunities for livelihood.  

India’s Banking Reach

The number of bank branches in India is 85,3003 of which 32,000 branches are in the rural hinterland where almost 70 per cent of Indians live. Almost 38 per cent of banks have branches in rural India and 40 per cent of the country’s population has bank accounts. The average population per bank branch with above statistics is 13,900.

Last Mile Challenges – High Cost of ATM’s

If current statistics are to be believed India’s ATM density is around 35 ATM’s per million people which is abysmally low compared to the US’s ATM density of 1300. At last count the number of installed ATMs stood at 69,324 (January, 2011).

Setting up an ATM currently costs around Rs.8 lakhs ($18,000), including the VSAT, interiors, signage’s, etc. Rental costs would differ from area to area and would range from Rs.5,000 ($120) a month in small towns to Rs.50,000 ($1200) a month in upmarket areas in metros. The total expenditure per ATM would be around Rs.25 lakh ($56,000) over a 5-7 year period. The cost for a bank to set up say around 1,000 ATMs will be at Rs.100 crore ($22 Million).

In India the ATM network is mainly operated by FSS called FSSNET used to connect ATMs of 32 Nationalized banks. A cost of Rs.20 is incurred per transaction on these platforms deeming them unsuitable for micro-transactions, the lifeblood of rural India.

The economics can deter anyone from reaching out to segments that are deemed unprofitable to serve.

Opportunities – Abound

All is not lost yet, extreme rural poverty has declined from 94 percent in 1985 to 61 percent in 2005, and projections are that it will drop to 26 percent by 2025.

The challenges of serving India’s rural hinterland, where 70% of the population resides, are enormous – poverty, weak infrastructure, illiteracy coupled with the high costs of serving customers in the last mile.

A solution for these challenges is Technology coupled with Innovative Business Models that can bring about both change and create opportunities for businesses. Serving customers at the Bottom of the Pyramid is not going to be easy or promising.

Technology to the Rescue – Mobile Penetration

India has achieved a tele-density of about 65 per cent, thanks to the major contribution from mobile phone services. According to TRAI the total number of Telephone subscribers in India reached 806.13 million5 at the end of January 2011. Tele-density in Urban stood at 150.67% and that in rural at 32.11%.

McKinsey research forecasts that the total number of Internet users will increase more than fivefold, to 450 million, by 2015. Total digital-content consumption will double, to as much as $9.5 billion. Including access charges, revenues from total digital consumption could rise fourfold, to $20 billion—twice the expected growth rate of China


With falling handset prices, strong government support (UID, National Rural Employment Guarantee, Inclusive Banking Policy) and aggressive rollout by mobile service operators the projections will soon be a reality.

However a “cookie-cut” approach to taming this large market will not work. What is needed is a localized offering developed from ground up that can cater to the diverse and heterogeneous Indian market.

Payment Networks:

International Payment Networks like VISA and MasterCard are both present and doing well in India. However both these networks carry with them the legacy of originating in the western world, catering to the needs of well developed markets with an organized retail sector and serving a largely homogenous customer base. India, with its diverse languages, heterogeneous markets, rampant illiteracy, poverty and underserved infrastructure offers insurmountable challenges in achieving higher penetration rates.

According to the data released by Reserve Bank of India (RBI) for 2009-2010 there were 18.3 million credit card users and 181.4 million debit card users in India.

Mobile Payment Networks:

Private mobile payment gateways have come up to meet the demand of micro payments like OxiCash, mChek. However, both cater to the urban pre-paid segment, utilize debit / credit-card networks and are primarily positioned to serve as an E-Wallet for the end-user.

National Payments Corporation of India (NPCI)

The future of India’s Banking and Commerce lies in a Mobile Payment Network like the one proposed and being deployed under the National Payments Corporation of India (NPCI), a government backed initiative. The envisioned architecture (Figure 1) proposed under the NPCI looks very comprehensive.


Figure 1: National Payments Corporation Network Architecture.

What’s unique about this network among other things is the ability to authenticate users using both conventional PIN and biometric technology, a must for serving rural customers, low transaction fees (Rs. 0.10 per transaction) and seamless integration with financial institutions. In addition technology has been leveraged and deployed to circumvent infrastructure and regional barriers in reaching the last mile.


Source: NPCI

Mobile Value Added Services & NPCI Network

Now it is up to businesses and entrepreneurs to harness this network at the backbone to deploy Mobile Value Added Services (MVAS) that can both develop trade and foster inclusive growth. The opportunities are boundless:

  1. Real-time Commerce.
  2. E-Business
  3. E-Billing
  4. E-Health
  5. E-Education
  6. E-Banking
  7. E-Logistics
  8. E-Entertainment 
  9. E-Travel


Source: ASSOCHAM Financial Pulse Study – Emerging Landscape in Mobile VAS Industry

It is a win-win situation for all stakeholders involved – Higher ARPU (Mobile Service Providers), Transaction Fees (Financial Institutions), Enhanced Trade and Commerce (Market Participants), Wider Tax Base (Government), Financial Security (End Users)

Closing Remarks:

I have spent the last six months travelling extensively across India, studying the ground reality, gathering first hand data, understanding the pitfalls, challenges and opportunities with doing business in one of the fastest growing emerging markets. While I am ecstatic of its potential one must tread this important market very carefully for the political, legal, cultural and infrastructure challenges are daunting and not for the faint at heart.

However with extensive market research, immaculate planning, localized offerings and innovative business models I am convinced one can succeed in what is shaping up to be the most important market of our generation. 

Recommended Reading:

Myths and Realities of Being an Entrepreneur in India (Knowledge @ Wharton)


I am thankful to officials (Government, Banks, Businesses), friends and eager citizens of India for their support and warm hospitality.


  1. India’s urban awakening: Building inclusive cities, sustaining economic growth – McKinsey Global Institute
  2. Planning Commission of India.
  3. Reserve Bank of India (RBI)
  4. Retail Banker International (RBI)
  5. Telecom Regulatory Authority of India (TRAI).
  6. McKinsey Digital Consumer Survey, 2010
  7. National Payments Corporation of India (NPCI).
  8. Learn Telecom