RBI guidelines for mobile banking: A brief report

RBI guidelines for mobile banking: A brief report

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  TARUN KHANDELWAL 1421426 TIRTHANKARSUTRADHAR 1421427
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  MOBILE BANKING Mobile bankingis a term used to refer to systems that allow customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or tablet. Mobile banking differs from mobile payments, which involve the use of a mobile device to pay for goods or services either at the point of sale or remotely, analogously to the use of a debit or credit card to effect an EFTPOS payment. The earliest mobile banking services were offered over SMS, a service known as SMS banking. A sharp increase in use of smartphones by Indians has led to a sudden surge in mobile banking transactions — almost four times in a year in value terms.
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  WHY? 1) For Financialinclusion. Almost 60% of the population does not have a bank account. 2) Take banking to the masses - there are only 90,000 bank branches in India and covering the whole population with physical bank branches will take more than 20 years. 3) Mobile banking costs make for a compelling business case - according to Citibank the bank branch is 10 times more expensive than doing a transaction on a mobile phone. 4) Large part of the population has a mobile phone, but no bank account - making the case of using mobile phones for financial services (like payments) compelling. INTRODUCTION The operative guidelines on mobile banking, based on industry best practices, aim to bring in greater standardization across mobile services offered by various banks. Lack of awareness among customers and diversity in mobile banking services had “led to a situation of slow pick-up of mobile banking services despite the high mobile density in the country”, the central bank said in a notification. When banks sign up customers, they must inform the new account holders about mobile banking services. The account opening form should also clearly indicate that opting for mobile banking services will provide an alternative delivery channel. Related inputs, materials and booklets should be provided to interested customers, outlining the features of mobile banking services offered by the bank, the process involved, roles and responsibilities. Existing customers who have registered their contact information, but have not activated mobile banking services must be encouraged to do so, this could be done by sending text messages and emails to their customers on registered mobile numbers and email addresses, providing necessary links and customer care numbers from which the customer can obtain additional information on activating mobile banking.
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  Banks may alsouse automated teller machines (ATMs), self service kiosks, social media and phone banking channels to encourage customers to activate mobile banking services. Those who haven’t registered a mobile phone number with the bank should be urged to do so at the earliest at ATMs, passbook printing counters and self-service kiosks, RBI said. Similarly, tellers at bank branches can urge customers to register their mobile numbers when they come in to make a transaction. Regulatory & Supervisory Issues  Only banks which are licensed and supervised in India and have a physical presence in India will be permitted to offer mobile banking services.  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.  Only Indian Rupee based domestic services shall be provided. Use of mobile banking services for cross border transfers is strictly prohibited.  Banks may also use the services of Business Correspondent appointed in compliance with RBI guidelines, for extending this facility to their customers.  The guidelines issued by the Reserve Bank on ‘Risks and Controls in Computers and Telecommunications’ vide circular DBS.CO.ITC.BC. 10/ 31.09.001/ 97-98 dated 4th February 1998 will apply mutatis mutandis to mobile banking.
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   The guidelinesissued by Reserve Bank on “Know Your Customer (KYC)”, “Anti Money Laundering (AML)” and Combating the Financing of Terrorism (CFT) from time to time would be applicable to mobile based banking services also.  Only banks who have implemented core banking solutions would be permitted to provide mobile banking services.  Banks shall file Suspected Transaction Report (STR) to Financial Intelligence Unit – India (FID-IND) for mobile banking transactions as in the case of normal banking transactions. Registration of customers for mobile service  Banks shall put in place a system of document based registration with mandatory physical presence of their customers, before commencing mobile banking service.  On registration of the customer, the full details of the Terms and Conditions of the service offered shall be communicated to the customer.
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  Clearing and Settlementfor inter-bank funds transfer transactions To meet the objective of a nation-wide mobile banking framework, facilitating inter-bank settlement, a robust clearing and settlement infrastructure operating on a 24x7 basis would be necessary. Pending creation of such a national infrastructure, banks may enter into bilateral or multilateral arrangement for inter-bank settlements, with express permission from Reserve Bank of India, wherever necessary. Board approval Approval of the Board of Directors (Local Board in case of foreign banks) for the product as also the related security policies must be obtained before launching the scheme. Approval of Reserve Bank of India Banks wishing to provide mobile banking services shall seek prior one time approval of the Reserve Bank of India, by furnishing full details of the proposal. Technology and Security Standards 1. The security controls/guidelines mentioned in this document are only indicative. However, it must be recognised, the technology deployed is fundamental to safety and soundness of any payment system. Therefore, banks are required to follow the Security Standards appropriate to the complexity of services offered, subject to following the minimum standards set out in this document. The guidelines should be applied in a way that is appropriate to the risk associated with services provided by the bank and the system which supports these services. 2. Banks are required to put in place appropriate risk mitigation measures like transaction limit (per transaction, daily, weekly, monthly), transaction velocity limit, fraud checks, AML checks etc. depending on the bank’s own risk perception, unless otherwise mandated by the Reserve bank. Authentication Banks providing mobile banking services shall comply with the following security principles and practices for the authentication of mobile banking transactions:
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  a) All mobilebanking shall be permitted only by validation through a two factor authentication. b) One of the factors of authentication shall be mPIN or any higher standard. c) Where mPIN is used, end to end encryption of the mPIN shall be ensured, i.e mPIN shall not be in clear text anywhere in the network. d) The mPIN shall be stored in a secure environment. Limitations and problems of Mobile Banking 1) Despite a high base of mobile phone users, the smart phone penetration is limited, less than 20%. This restricts use of full scale mobile banking; users can't download banking app on basic phones. They have to depend on SMS, which is cumbersome. 2) A user can have up to nine mobile phone numbers (allowed by TRAI) but only one mobile bank account (says RBI). And the limit of transactions for mobile payments is Rs 50,000 per month.
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  3) The mobilepayments model via telcos makes money on scale. According to Airtel it will take two years to be relevant and five years to make money. Mobile payments today are at the same stage as credit cards 20 years back and ATMs 15 years back. 4) Despite being convenient, the cost of Know Your Customer (KYC) for mobile banking or mobile payments is huge - Rs 400 to Rs 500 per person. This is more than the average revenue per subscriber (ARPU) for telcos. 5) Less than 10,000 outlets today accept Airtel Money or any other mobile payment. There's no incentive for merchants to accept mobile payments as they don't get any commission. Future of Mobile Banking 1) Mobile banking is the future because of its cost effectiveness and ability to reach out to customers in remote areas. It will take 5-6 years for the model to mature. 2) In US, Europe, phones with NFC (near field communication) have entered the market. NFC is a chip embedded in a phone enabling the phone to interact with a point of sales terminal (with this, phone can act as a virtual credit card). 3) Cheque truncation can be done via mobile phones. In US it is called 'Cheque 21' or 21 stcentury cheque payment. Not yet available in India. 4) Banks will be able to approve and give loans via mobile banking within the next five years. This will further reduce the need to go to a branch.