RBI plans money transfer via ATMs to non-account holders

This plan will set up a payment system that will transfer funds from bank account holders to those without accounts through mobile phones

mint news

A code will be sent to the recipient on their mobile phone that will allow them to withdraw the money from any bank’s ATM. Photo: Indranil Bhoumik/Mint

Mumbai: The Reserve Bank of India (RBI) is working on a plan that will enable bank account holders to send money to anyone, even if they do not have a bank account, through mobile phones. This plan is to set up a payment system that will transfer funds from bank account holders to those without accounts through ATMs.

An intermediary will be set up to process the payment and a code will be sent to the recipient on their mobile phone that will allow them to withdraw the money from any bank’s ATM, RBI governor Raghuram Rajan told the Nasscom India Leadership forum on Wednesday.

“Cashing out is important for remittances because we have a large recipient population in the country, most of whom do not have access to formal banking services,” said Rajan. “The system will take care of necessary safeguards of customer identification, transaction validation, velocity checks, etc. We need more such innovative products, some of which mobile companies are providing.”

To be sure, a similar money transfer facility already exists. But under it recipients can withdraw money only from an ATM of the bank where the sender holds an account. Once the central bank’s new facility is in place, money can be withdrawn from any ATM.

To initiate a fund transfer, the sender will need to have the recipient’s mobile phone number. Once the sender initiates the transfer, the beneficiary will receive an SMS from the bank with a PIN, which will need to be punched in to withdraw the money.

“We started working on it from November 2013 and it may take another three months for the process to become functional,” said Ram Sundaresan, head of National Financial Switch (business and operations), National Payments Corp. of India Ltd (NPCI).

India has about 900 million mobile phones but around half of the country’s adult population does not have access to formal financial services.

“We have consciously adopted the bank-led model for mobile banking, while the non-banks, including mobile network operators, have been permitted to issue mobile wallets, where cash withdrawal is not permitted as of now,” Rajan said.

Recently, a panel headed by former ICICI Bank Ltd deputy managing director Nachiket Mor proposed that a new set of banks be introduced to push financial inclusion. Called payments banks, these banks will be set up to widen the spread of payment services and deposit products to small businesses and low-income households.

Mor recommended that such banks can be created by converting prepaid payment issuers (PPIs), or companies that provide cards that customers can use to make payments with money that’s stored in them. India has 27 PPIs.

Rajan said few banks have relaxed their know-your-customer (KYC) norms despite RBI’s “exhortations”, since they fear that “they will be held responsible if something goes wrong, no matter what the regulatory norms. The acceptance of third party KYC certification is particularly difficult”.

The Mor panel also recommended that proof of permanent address should be enough for opening a bank account.

nagesh dubey
pgdm 2nd sem