For a good look at the future of retail banking -- and mobile-phone profits -- in the developing world, consider the competition between corporate giants in Dharavi, the Indian shantytown that was the setting for the film "Slumdog Millionaire."
And also consider that they are copying a strategy already used, with great success, in Kenya.
In India, wireless carriers, including Vodafone Group Plc (VOD) and Bharti Airtel Ltd. (BHARTI), are stepping in to offer money transfer services as the companies compete for a share of $10 billion in annual rural-bound remittances in a nation where mobile phone connections outnumber bank accounts.
Vodafone and Bharti have tied up with banks to let customers deposit and withdraw cash and transfer money using their phone. Faced with slowing subscriber growth and a proposed 11-fold increase in license fees, the companies are betting mobile banking will help them boost airtime sales.
"Because of India's sheer numbers in terms of population, if you get the numbers, even a moderate margin could make mobile banking a good revenue game," said Jaideep Ghosh, a partner at KPMG India in Mumbai. "Revenue is quite significant compared to overall voice revenue" if the subscriber base is large.
It's not just the big companies that see a potential windfall. Comviva Technologies Ltd., a company that has developed a mobile banking platform used by France Telecom SA in Africa and by Telenor ASA in Bangladesh, has so far focused almost exclusively on emerging markets for selling its product.
"The banked segment, a lot of consumers, actually perceives the mobile as an insecure medium," said Srinivas Nidugondi, head of mobile financial solutions at Comviva in Gurgaon, near New Delhi. "People at the bottom of the pyramid, for them, the mobile is the most advanced piece of technology they've ever touched. It can't get better than this for them. So they will adopt."
About half the 1.2 billion people in India, the world's most populous nation after China, don't have a bank account. Ragged rural infrastructure and poverty make it hard for banks to justify branches in small towns and villages. In contrast, there were 919 million mobile connections at the end of March, of which 323 million were rural, according to the Telecom Regulatory Authority of India.
"Mobile phones have reached more households than basic banking services," Reserve Bank of India Deputy Governor K. C. Chakrabarty said in a speech posted on the bank's website. "The potential of the mobile phone to extend them financial services is still to be tapped."
Bharti, India's biggest wireless provider, has joined with Axis Bank Ltd. (AXSB) and offers a remittance facility aimed at urban migrant workers looking to send funds to their families.
The service allows people living in the nation's two largest cities, Mumbai and New Delhi, to open a basic account with Axis Bank and use their mobile phones to transfer money to family in Bihar and Uttar Pradesh, the two northern Indian states where most migrant workers originate. Customers can initiate money transfers on mobile phones, and recipients can draw the funds at a rural Bharti vendor.
Robbed Three Times
Shafkat Ali, a 38-year-old migrant from Uttar Pradesh who sells prepaid SIM cards and airtime top-ups for mobile phones and books train tickets for a fee, lives in Dharavi. Before Ali got his first bank account -- an Axis Bank mobile banking account -- he used to keep his savings in a wallet in a trouser and was robbed three times in three years.
Ali now uses a low-priced Samsung Electronics Co. (005930) handset to deposit cash and send about 10,000 rupees ($180) a month back to his parents and four siblings, who struggle to make ends meet at their family's quilt-making business in Jaunpur. A high- school dropout, Ali learned to navigate key services on the phone's mobile banking application with the help of a local store owner.
"It is easy to do banking using a mobile," said Ali, speaking in his native Hindi language. "You don't need to stand in line at a bank or at the post office anymore. And there are many illiterate people here who can't fill out forms and read documents, so this is easier for them."
Vodafone India Ltd. started a partnership with HDFC Bank Ltd. (HDFCB) in November last year, modeled after its highly successful M-Pesa money transfer system in Kenya. The service, which is in a pilot stage in the north Indian state of Rajasthan, allows Vodafone's customers to open basic HDFC accounts, deposit and withdraw cash at authorized Vodafone outlets, and make money transfers.
Safaricom Ltd., the Kenyan unit of Newbury, England-based Vodafone, in May reported a 43 percent jump in revenue at its M- Pesa business in the 12 months ended March, as the number of customers for the service rose 6.4 percent to 14.9 million. The mobile banking operation contributed 16 percent of revenue at the African nation's largest wireless carrier, which controls 67 percent share of Kenya's mobile phone market.
India, with a population 30 times the size of Kenya's, had only 12.2 million bank customers registered for mobile banking as of February, according to Reserve Bank of India data.
"The conditions in Kenya were just so very good," said Wim Raymaekers, head of banking market at the Society for Worldwide Interbank Telecommunication in La Hulpe, Belgium. "The basic infrastructure, the conditions, there were already a lot of remittances. It is very difficult to replicate that."
For a start, the Reserve Bank of India requires wireless companies or "non-banks" to partner with banks to offer mobile banking services, leading to tight controls on business. One reason is that only banks are permitted in India to accept deposits for maturity of less than one year.
"Going for a bank-led model was a conscious decision," Alpana Killawala, spokeswoman at the central bank, wrote in an e-mailed response to questions from Bloomberg News. The regulator is also concerned about "customer service issues" associated with the telecommunications company-led model, such as insufficiency of funds at the paying outlet, she wrote.
Total domestic remittances in India were valued at $13 billion in 2010, with 80 percent of the transactions directed toward rural areas, according to a July 2011 report by Analysys Mason. The overall market would increase to $20.3 billion by 2014, the consulting company wrote at the time.
Vodafone plans to sign on large numbers of customers and bring down the cost of transactions, the company wrote in an e- mail. The bank charges the customer a fee for services and shares revenue with the mobile operator, it said.
For Bharti, the reach of its sales network is its biggest strength when it comes to offering mobile banking services. The New Delhi-based carrier's 1.5 million retail outlets across India outnumber Axis Bank's 1,622 branches and 10,000 ATMs.
"It is increasingly difficult for banks to expand in rural areas because of various infrastructure, manpower and operational problems," Sriram Jagannathan, chief executive officer of mCommerce at Bharti, wrote in an e-mail. "The population that does not have access to a bank account nor a credit card can in future participate in electronic payments through prepaid mobile phones."