Mumbai: Indian banks will have to leapfrog into adopting mobile phones and point of sale (PoS) terminals as the primary media of banking services if they are to reap dividends from a large unbanked population through the use of technology, bankers said.

Use of cellphones will help banks penetrate into the hinterland with a negligible investment and be a win-win situation for both banks and customers, said participants at Mint’s Clarity Through Debate event in Mumbai on Wednesday. The discussion on “Banking: Reaping the Digital Dividend" was moderated by deputy managing editor Tamal Bandyopadhyay.

Banking perspectives: (from left) Sanjay Sharma, managing director and CEO, IDBI Intech; B. Sambamurthy, director, IDRBT; Pravir Vohra, chief technology officer, ICICI Bank; Tamal Bandyopadhyay, deputy managing editor, Mint; A. Krishna Kumar, deputy managing director (IT), State Bank of India; Anil Jaggia, chief information officer, HDFC Bank; and Ajay Kaushal, director, BillDesk, in Mumbai on Wednesday. Abhijit Bhatlekar / Mint

“The difference between ATM (automated teller machine) and mobile is there are 400 million mobile population whereas the banking population is much less and there’s a tremendous scope for banks to adopt this channel because, unlike other technologies, this is one channel the customer is comfortable with," he said.

However, he said that for the mobile to be successful as a medium, there is a need for an aggregator for the transactions.

“There are operators and banks but there is no convergence point. What we need is an aggregator which will talk to the banks on one side and to the operators on the other side. If I am doing a transaction between IDBI Bank and ICICI Bank, I should be able to do (it) seamlessly like ATM transactions. The moment we reach there, the mobile payments would go up exponentially," he said.

Also See Quotes by participants at Clarity through debate ( pdf )

B. Sambamurthy, director of the Institute for Development and Research in Banking Technology (IDRBT), the Reserve Bank of India-backed technology research institute, urged bankers to shift focus from cost reduction to branchless banking.

“There are two elements for branchless banking—it could be through a smart card route or mobile. Both are technology agonistic. It is a wonderful opportunity for our country compared to Western countries. We need to leapfrog from tellers to point of sales," he said.

Sambamurthy said the need for ATMs will vanish once transactions switch to PoS terminals.

“If I want something, I go to the ATM, withdraw cash, go to the mall and pay the cash to buy things. The mall then deposits the money into the bank and the bank puts the same cash in the ATM machine. Use of ATMs involves a cost, so it is not that technology brings down the cost. I will be very happy if we switch business to PoS. There are a potential 6,25,000 villages. If we have one or two PoS per village, then we will really be a cashless economy," he said.

Anil Jaggia, chief information officer at HDFC Bank Ltd, said technology could only help financial inclusion, but a cheaper version of the PoS terminal will have to emerge.

“I agree that ATMs are too expensive to take to all the villages and it is not practical to sell ATM services to them. A device like the PoS with a cost of Rs10,000 or thereabouts will, I think, transform the rural hinterland of the country in terms of banking to the end user. Also, if the UID (unique identity) initiative takes root and flourishes, that will itself make a huge difference for banking in the countryside," he said.

Ajay Kaushal, director at online bill payment company BillDesk, predicted that a new mode of payment could emerge and the current mode is expensive because it was not designed for payments.

“All these cards today actually started as lending tools rather than payment tools. They were not designed to pay. What we need today is a way-to-pay product because these were way-to-lend products. I think in times to come, a new way-to-pay has to emerge with a robust business model, which helps banks invest and merchants accept it has to emerge. Whether it is on the mobile or the Internet, but that has to happen because otherwise you might have financial inclusion or cards but it will not get used," he said.

There was unanimity that technology will have to play a vital role if financial inclusion has to be successful.

A. Krishna Kumar, deputy managing director, information technology, at State Bank of India, the largest bank in the country, said financial inclusion may not happen “fast enough" but banks are on the road to achieving their targets.

“I agree that may be it is not fast enough. I cannot put a time frame to it, that, say, within 2015 all villages will be covered or all citizens will have a bank account, but certainly we are on the road to achieving that target," Kumar said.

Recent guidelines by RBI (Reserve Bank of India) allow mobile prepaid cash cards for purchases of goods with a cap of Rs5,000.

Bankers said there are no roadblocks by the regulator but there is a right amount of caution on mobile banking so far.

Sanjay Sharma of IDBI Intech said blind use of technology itself could be a challenge if not dealt with properly.

“It is a tool which you have to use properly. You should know what you are doing with that. Whenever a new technology is introduced, the regulator wants to understand the impact of that on the ecosystem and that’s important because if you allow the banks to do internet banking without safeguards you know what will happen. When Internet banking was launched, RBI had asked to do something to launch Internet banking and now they know banks are taking care. Similarly, in terms of the mobile channel they want to see how the system will function and I think that’s the right way," he said.