The World Bank’s Global Findex Report 2017 states that India accounts for an unbanked population of 190 million. Around 48% of bank accounts in India are unused following a formal registration. Given the ubiquity of mobile phones in India, leveraging mobile banking systems for increasing the solutions of financial inclusion in India stands vital. Mobile banking not only eliminates the physical travelling barriers to banks in rural (underserved) areas, it also offers various allied benefits. First and foremost, it is indeed more affordable as compared to branch-led banking and the business correspondent model. According to the Global Findex Report 2017, while there is 50% of the unbanked population in India, 66% of inactive account subscribers in India use a mobile phone. Despite 90% of Indians being digitally illiterate, the easy user interfaces and rising adoption make mobile banking a fitting mechanism to promote financial inclusion.
In the case of India, the advent of mobile banking can also provide an optimal solution to the age-old dilemma faced by the low and middle-income people: the savings vs. spending dilemma. If there is increased penetration of mobile banking (digitalisation) in India, the workers and employees associated with the informal economy would be eager to receive their remuneration in their bank accounts directly. They would then be able to make even their small denomination payments (e.g., utility bills, grocery purchases, etc.) directly from their bank accounts.
When coupled with the convenience of effecting withdrawals and deposits easily from the mobile phone device itself, it increases: cost efficiency, frequency of using mobile banking services, timely and reasonable savings. With a firm digital banking ecosystem and its regular usage, generation and analysis of customer data to understand their monetary behaviour and grading their credit level will also be possible for financial services providers and banks in disbursing credit (loans). This cycle of events will ultimately result in higher participation and thorough financial inclusion of even the so far underserved.
There is also a peculiar challenge present when addressing financial inclusion in such highly populated countries as India and China. This challenge relates to the usage of only a basic feature phone by a considerably large population of these less advanced countries. Such phones may or may not be having a mobile internet feature available to be used for internet-led mobile banking services. In this case, the Unstructured Supplementary Service Data (USSD—a GSM network service) platform for initiating cashless transactions can be considered.
What would be necessary to actually increase the acceptance of the USSD mode of mobile banking in India would be to relinquish the mobile operator charges, so as to motivate the monetarily fragile (informal economy) sect of the society to use this medium. Mobile banking also makes it possible to simplify the understanding and delivery of various financial products (also having a larger base) in a consolidated manner. However, there is a need to increase financial and digital literacy of the unbanked and underserved of the population coupled with readying an enhanced security framework in relation to the development of a robust encryption mechanism is a must, if the USSD mode is to be fully utilised.