India’s 840 million mobile phone connections are emerging as knights in armour in the financial inclusion challenge—they hold the promise of providing banking access to the large swathe of India’s unbanked population. Yet, today, less than 20 million people in India are using mobile banking services offered by some 50-odd banks, even though the National Payments Consortium of India (NPCI) has rolled out a gateway for inter-bank mobile payment services (IMPS).

M-banking at present includes: a mini-statement (recent transactions), balance confirmation, cheque book requests, change of m-PIN and money transfers between customers of signatory banks, within prescribed daily limits. M-banking access can be enabled through: interactive voice responses, mobile applications (apps), SMS, and of late, the Unstructured Supplementary Services Data (USSD). Of these, the USSD has been proposed as a game-changer in financial inclusion, able to accelerate the penetration and adoption of mobile banking, especially in interior unbanked areas. A standard short code—*99#—and a seven digit mobile-banking identity is all it will take.

The premise is indeed powerful: the USSD uses the internal signalling bandwidth of the mobile networks, does not require GPRS connectivity or downloading any software and can be used on the most basic GSM handsets--which have more than 60% market share. This makes USSD highly attractive for financial inclusion. Also, it is also more secure than SMS and does not store session data anywhere. If the time limit is crossed, the session simply terminates and needs to be re-initiated afresh. For banks, using USSD enables significant cost reduction over ATMs, particularly for non-financial banking transactions such as account balance enquiry, which cost banks Rs.5-8 per ATM query.

However, despite proven transaction cost savings, adoption remains rather poor. NPCI data on IMPS trends for 2012 show that during January-December 2012, while over 45 million MMIDs had been issued by 52 banks, only 9,38,713 transactions aggregating to over R229 crore took place, reflecting just over 2% of users actually transacting on the mobile phones.

Two major issues seem to be hold back progress. One, while financial inclusion is a common agenda, consumer awareness of USSD and m-banking has not been approached collectively. The onus of promotion by banks individually has denied scale and uniform nationwide coverage as banks have limited footprints individually. A number of user-level issues inhibit adoption: the need to remember multiple details (MMID, m-pin, iPin and ATM pin), security concerns over online transactions, and the inconvenience of a wrong entry terminating the entire transaction instantly. Two, while BSNL and MTNL have rolled out USSD, private telcos have not responded readily to what some might argue is a clarion call.

Telcos have several concerns on the USSD rollout in its current state. Firstly, USSD has not been tested out as a mainstream commercial service; it has essentially been an internal signalling channel of telecom networks. So far, USSD access for financial services has remained only in pilot stages. There is insufficient evidence of the results and the challenges from the experiences to date. Telcos feel that the Trai-stipulated requirement of a dedicated nation-wide interoperable platform for banking services, with a quality of service—a transaction response time of 2 seconds—without affecting the quality of other services requires a more detailed consideration of network planning and support infrastructure. There has been insufficient discussion on demand scenarios, customer mapping, rollout schedules, and infrastructure requirements to roll out USSD, while ensuring that the telcos’ internal signalling bandwidth is not clogged.

Second, USSD is merely an access platform for banks to transact with their customers. However, there has not been enough discussion with banks as to the roles, responsibilities, liabilities and cost estimations for enabling USSD and customer support. For instance, a failed transaction or query would most likely result in a customer calling the telco, which would entail call centre charges, with no clarity on who should bear these costs. However, other stakeholders feel that service agreements would take care of all these issues.

Third, telcos do not have clarity on the long-term viability of USSD in the absence of guaranteed volumes of transactions over USSD, which banks or the NPCI have not been able to assure or underwrite. Pricing for USSD access for m-banking is yet to be determined, for which telcos are in discussions with NPCI.

Fourth, the very premise of USSD functionality on basic mobile devices may be erroneous. User adoption remains a question with the non-usage of English at the BoP, and the Indian language functionality of low cost (Chinese) handsets. Neither banks nor telcos can have any control on device selection. As app-rich smart phones become more affordable and as internet penetration rises, the USP of the ‘basic’ phone argument may become irrelevant.

Irrespective of these early stage issues, there is uniform recognition of USSD’s potential and new innovations are on the anvil. However, for definitive progress, it is imperative that the government, NPCI, banks and telcos huddle together once more and thrash out a business case based on realistic scenarios, an interoperability framework across banks and telcos, a fair market-based pricing policy, and an aggressive consumer awareness campaign. Done properly, the benefits can extend well beyond cost reduction: the biggest low-hanging fruit is the unification of KYC norms used by telcos and banks, which can immediately bring enrolment—the biggest bottleneck in financial inclusion.

The author is a fellow at the Indicus Centre for Financial Inclusion