Mobiles as Banks

It has been ages since we have witnessed revolution in Banking products. And of course, internet was the last new and so called innovative channel of acquiring customers. To be honest, banking is an industry meant for shrewd, conservative people who hate innovation as time and again it has been proven that innovation almost inevitably ends in busts. The recent subprime crisis is just a grim reminder of the same. Wait a sec! Does that mean we really can't push the frontiers of banking?

If you ask me, I see a whole new vista of banking possible. A channel called Mobile!!! And yes, I am not kidding. Everyone must have already read that Smart phones and mobile commerce are going to witness an explosive growth. And all the major banks in the world have religiously lined up something to capture this mobile commerce share. And all of these things involve using a person's existing Credit / Debit card. Why aren't banks planning to use this as a channel to acquire new customers? Especially the banks that are small can really benefit from this.

Let me explain you how this is possible. The banks can try partnering with the network providers whop sell post paid plans. The objective is that the Banks should own the Credit limit offered by the Network providers. Say you have an Airtel post paid plan with Rs 4000. Now, Airtel can offload its credit risk by getting this backed by a bank like SBI or ICICI. With this the bank wins a customer. And in exchange for offloading this risk, the network provider can pay a small fee to the bank. That is stage 1. The second stage is eating into Mobile commerce world. As the Mobile customer has already got a Credit limit from the bank, he/she can charge all the transactions that are done on the internet using mobile to the same credit limit. And this credit limit can work like a normal credit card in that case :) Even old customers of cellular network company can be migrated to such a product. The beauty of such a Banking product is that, the banks get new customers without spending even an extra rupee. And the advantage to a network provider is that they offload their credit risk completely and can try selling more post paid plans.


The innovation on the banking + mobile need not stop here. We have just discussed a possible way to eat into the Mobile commerce. But, can we just ignore the huge volume of trade that happens in rural and semi urban areas of India (which are heavily underbanked) ? The answer is a resounding no. Once the network service providers start upgrading their existing prepaid connections to post paid (with some effort from the banks), the Stage 3 starts. Any two mobile holders who undertake a trade transaction, can pay the money via the mobile credit limit to the other. Lets take an example. Suppose that there are two parties A & B. A is a farmer who wants to buy fertilizers from B. The transaction amount is say Rs 5000. A can simply transfer money to B buy sending an SMS. And as A and B already have preapproved credit lines from bank, organized banking has entered a transaction which would have earlier been impossible. All that the banks need to do is ensure that money is delivered to any specified bank account of B. And the network service provider acts as the collection agent from A. These kind of transactions make it possible for a bank to capture market share in areas where they don;t have any of their channels like branches, internet or even kiosks

Doesn this sound too futuristic? I think this is quite possible provided that there are no regulatory hurdles :)