Mumbai: Banks and telecom firms have agreed on a revenue sharing model to roll out mobile banking.

India, as the fastest growing cellphone market with at least 500 million subscribers, has huge potential for mobile banking, but a deadlock between banks and telcos had stalled a roll-out.

Pushing for change: Nandan Nilekani envisages a nationwide integrated network of around a million banking correspondents in two-three years. Rajkumar / Mint

The agreement now was reached at a meeting the Indian Banks’ Association (IBA), the national bankers’ lobby, had with telcos and Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI) last week.

At the meeting, it was agreed that the 1.3-million-strong vendor network of mobile operators would be used to offer banking services.

“Vendors of the telecom operators will be recruited as banking correspondents," K. Ramakrishnan, chief executive of IBA, said on Monday. “These correspondents will be given devices that will operate as micro ATMs."

The banking correspondents will double up as micro points of sale, offering goods and services using this network, he added. Under Reserve Bank of India (RBI) norms, grocery and medical shop owners, agents of small savings schemes, petrol pump owners and retired teachers, among others, can be banking correspondents.

Ramakrishnan said banks were earlier worried that telecom companies wanted to retain their customer base and leverage it to operate their own payment system. “Their (telcos) willingness to cooperate came as a surprise," he said.

“In two weeks, we are announcing a three-way partnership with a global telecom hardware distributor to roll out this service," said Rana Kapoor, CEO and managing director of Yes Bank Ltd. “This will bring a paradigm shift in the industry."

Mark T. Robinson, CEO (South Asia) of Citibank NA, told Mint, “Mobile banking continues to be at the core of our consumer banking and transaction strategies. We are closely looking at the developments to make appropriate moves."

Nilekani of UIDAI said individual banks and mobile companies would initially work to create closed networks of banking correspondents. “By February 2011, we will start issuing our unique IDs and later that year when the National Payments Corporation of India (NPCI) is ready, the interbank switch will come into being."

At that stage, the individual networks developed by banks will be integrated at the back end to provide a seamless payment pipeline across India.

NPCI, owned by RBI, is an operator for various retail electronic payment transactions, including switching of card transactions. It plans to operate a national card payment scheme—India Pay—and put in place an integrated apex level switch to ensure seamless transactions among banks.

Nilekani envisages a nationwide integrated network of at least one million banking correspondents in two-three years.

RBI’s deputy governor K.C. Chakrabarty had said earlier in a telecom summit in New Delhi that non-cooperation between telcos and banks was an impediment to mobile banking.

Banks and mobile firms had differences over ownership of customers, costs of operation and revenue sharing. Despite the laying of ground rules over a year ago, mobile banking has virtually been a non-starter.

Of the 32 banks allowed to offer mobile banking, 21 have started services. “Yet, we have not seen much activity in this area... The transaction volumes are very low," Chakrabarty had said. Mobile service providers did not open critical channels such as USSD, or unstructured supplementary services data, for facilitating mobile banking by banks, he added.

Mobile operators said banks were unwilling to take up costs and share revenue.

“Spectrum is a scarce resource and comes at a cost. If banks want to use it, they must also bear the cost," said Sanjay Swamy, CEO of mChek India Payment Systems Pvt. Ltd, an m-commerce service provider.