Mobile banking

Mobile banking means the using of a mobile phone to offer banking services. Banks have introduced two different products in mobile banking. One is a personal/retail banking product and the other is a product to promote financial inclusion. As a personal banking product it is offered to every savings/current account holder and provides anytime anywhere banking. The mobile banking initiatives were started by foreign and private banks followed by public sector banks.

Mobile banking service is primarily available over SMS (Short Messaging Service) or through GPRS (General Packet Radio Service) or sometimes through USSD (Unstructured Supplementary Service Data).

The services available are:

Ø  Funds transfer (intra and interbank)

Ø  Balance enquiry services/mini statements

Ø  Request services (cheque book)

Ø  Utility bill payments and credit card payments

Ø  Demat account services

Ø  Mobile top up

Ø  Merchant payment, life insurance premium

Ø  Stop payment instructions

Why Mobile Manking

The rationale for using mobile banking as a product to promote financial inclusion is that even 63 years after independence, the majority of Indians do not have access to banking services. The poor are not able to access banking facilities because of illiteracy, gender, age, low and irregular income, regulating factors like identity documentation, non availability of bank branches etc.

To overcome these problems RBI permitted Banks to open basic bank accounts with nil or low minimum balances called No Frills accounts and simplified Know Your Customer (KYC) norms.

Customers can operate their account through a Business Correspondent outlet that only needs a mobile phone, a finger print scanner and a small printer to provide banking facilities and financial security to the customer.

The salient features of the account are:

Ø  It is a No Frills saving account

Ø  Opened by individuals only

Ø  No joint accounts are permitted

Ø  It is available at Customer Service Points(CSP) of bank appointed Business Correspondents/Business Facilitators

Ø  The initial deposit and minimum balance to be maintained is NIL

Ø  Rate of interest is as applicable to normal savings accounts

Ø  Cash withdrawals and funds transfer will be permitted at the CSP, subject to satisfactory biometric verification of the card holder

Ø  KYC norms will be done as per RBI guidelines for No Frills accounts

Ø  Nomination is made compulsory by some banks as the smart card is in single name only

The core banking (CBS) branch closest to the CSP of the Business Correspondent will be the link branch. The smart card accounts will have the link branch as their home branch
Banks normally designate an official to attend to any grievances of the card holders

Latest Trends In Mobile banking

Since it is not feasible to open bank branches to cater to every individual and in order to reach the maximum number of people, Banks have adopted mobile based channels as delivery channels, because of their reach and low cost service delivery platform. The mobile phone market is growing at 20% p.a. with mobile connectivity in almost every part of India. Mobile phone penetration is set to reach 60% of India’s population in 2011. It is felt that mobile banking is going to be the next revolution in the telecom and banking sectors. To enable wide coverage of mobile banking services, major telecoms and banks are entering into deals and MOUs. The telecom companies will act as Business correspondents and provide a range of financial products and services offered by the bank through the mobile operator’s retail outlets.
A mobile account will have to be opened by every user for doing mobile banking transactions. The present focus of the banks and telecom companies will be on the unorganized sector like migrant labourers who need money remittance services. A remitter in one city of India can send money back to his home in another city or village either by account transfer or instant money transfer module. The account transfer method is where money is transferred from the account of the remitter to that of the beneficiary when they both have accounts with the same bank. The second method is by the instant money transfer module, whereby, the remitter with an account with a particular bank remits money to the beneficiary who has a registered mobile connection but does not have a bank account. I thin PNB mobile banking is more secure because in this bank, your internet banking and mobile banking user id is same.

Advantages of Mobile Banking

Ø  Providing banking service to unbanked areas and to those customers who otherwise would not have got the banking service.

Ø  The wage earners staying away from their homes and finding it difficult and expensive to remit money to their families, can send money instantly through mobile banking

Ø  All non cash banking requirements can be carried out using mobile phones.

Ø  Genuine concerns about security aspects of mobile banking have to be addressed.
Different mobile operating systems and diversity of devices. Banks and telecom companies have to launch mobile apps. WAP sites that will run on all handsets and operating systems.
Reluctance of customers to learn new technology and lack of incentives for customers to use a new channel. As most of the customers would be first time banking users, they would need to be made aware of the mobile banking platform and the best way to use this platform.

Ø  The target group is the urban middle and high income individual customers 

Ø  There are no intermediaries. The customer is dealing directly with the bank. It is basically a self service where the customer is making payments himself, or requesting the bank for issue of a cheque book directly. All instructions are carried out by self

Ø  Security is by PIN

Sources...iibf.org.in

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Floating rate Term Deposits

Floating rate Term Deposits is a relatively new product and was introduced in September 2010 by a leading public sector bank. It means that the product will offer no guarantee on returns as the interest rate will change in tandem with the base rate, as and when a revision in the benchmark rate takes place. If a depositor wants flexibility in returns he can go in for the floating option. Floating rate term deposit will allow the investor to take advantage of any interest rate changes even in the short term.

Rationale:

Fixed deposits/term deposits should match fluctuating interest rate cycles. The change in the nature of term deposits should move in line with the change in movement of the market of the whole economy. Retail investors borrow at floating rates, but invest at a fixed rate, and are therefore exposed to high interest rate risk. Since retail investors cannot hedge their interest rate risk, investing in floating-rate products appears to be the only alternative to lower this asset-liability mismatch. The advantages of commercial banks offering floating rates on deposits along with fixed rates can be better understood with an example.

Housing loan typically figures as the single largest component of an individual's liability. For most middle-income individuals, fixed deposits are the major investment. This naturally leads to an asset-liability mismatch, because housing loans have floating rate of interest while deposits have fixed rate of interest. If interest rates were to move up, an individual would have to pay more on the housing loan because the benchmark rate would have moved up too. The interest earned on the fixed deposits would, however, remain unchanged. This leads to negative cash flows for the individual. This is because of the difference in the interest rate sensitivity of the asset-liability portfolio. This difference in sensitivity can be lowered if the individual is able to partially immunize his asset-liability portfolio.

If banks were to offer floating rate deposits, individuals can partially immunize their asset-liability portfolio. An individual may have taken a housing loan for Rs 25 lakh at, say, the 10-year government bond yield plus one per cent with a six-month reset. The same individual may choose to invest Rs 5 lakh in a 10-year floating-rate deposit with or without the same reset and benchmark. When interest rate increases, the outflow on the housing loan will be higher, but so will the inflow from the floating rate deposit.

Banks normally do not offer such products, as they do not have the technology to support them. The reason that floating rate of interest is now being offered by banks is that floating-rate deposits may also improve their asset-liability maturity gap. If banks continue to push individuals to borrow at a floating rate and invest at a fixed rate, the customers over a period of time will move to short-term deposits, if they perceive interest rates moving up as short-term deposits carry low reinvestment risk. Retail investors can easily switch to higher interest bearing deposits should interest rates increase in the future. When more individuals move to short-term deposits, the asset-liability maturity gap of banks will widen. This is because banks would have lent money for the long-term, but borrowed for the short-term. If interest rate moves up, banks' borrowing cost will also increase. Of course, if their assets earn floating rate, the asset-liability maturity gap may not necessarily result in negative cash flows but would certainly mean lower spreads.

Banks have to also contend with the cost of maintaining deposits. Employee time could be better served in core banking operations such as lending rather than on continual renewal of short-term fixed deposits. There is also a secondary positive effect of offering floating rate deposits. Typically, interest rates on fixed deposit rate will be higher than the floating rate deposit, as the former bears higher interest rate risk. Professional money managers can extract the banks' perception of interest rate movements by modeling a cross-section of the rate differentials.

Eligibility: Any individual can open the account singly or jointly

Minimum amount: The minimum amount of deposit is Rs 1000 and multiples thereof. Maximum amount is Rs.15lakhs

Period of deposit: 1, 3 and 5 years

Interest rate: The interest will be reset every time that the base rate is changed with an upper cap of 200 base points above the fixed term deposit rate. Interest will be paid quarterly/monthly discounted

Liquidity: Loan/overdraft can be availed against the FRTD (Floating rate term deposit) up to a maximum of 90% of FRTD amount at 1.5% interest above the interest paid on the deposit.

Automatic renewal: The deposit will be renewed automatically for same period as that of matured deposit at the interest rate prevailing at the time of maturity, unless instructed otherwise by the depositor

Premature withdrawal: Interest to be paid on premature withdrawal of term deposits is at 1.00% below the term deposit rate applicable for the period the deposit has remained with the Bank.

Disadvantages: It is a complicated procedure. The customer has to be aware which way interest rate is going to go in the future and accordingly has to take an informed decision. Otherwise he may end up getting lesser returns than fixed rate products. If the base rate is revised upwards, the customer is benefitted but in case of downward revision, the customer stands to lose vis-a-vis a fixed rate product.

sources..iibf.org.in

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