Indian mobile banking has two major segments: the urban segment and the rural segment. Celent estimates that urban mobile banking subscribers will reach 65 million by 2012. The rural mobile segment represents a huge opportunity to bank the unbanked population, thereby adding a revenue stream.

In a new report, Mobile Banking in India; Dual Strategy for Rural and Urban Segments, Celent explains the mobile banking ecosystem in India and looks at the trends driving the growth in its urban and rural subsegments. The report looks at the prospects of mobile banking from both a regulatory perspective and an industry perspective.

In India’s urban segment, mobile banking is an enabling fifth channel, and in the rural segment, mobile banking is a primary mode of financial inclusion. In both segments, the two fundamental factors affecting the growth of mobile banking are regulations and technology. Nontransactional users will remain the majority in India because they will continue to use online banking and other payment mechanisms. Government-to-person (G2P) payments will be the major growth driver for rural mobile banking. Regulatory changes are also a big driver. Celent believes that, by 2012, over 60 million rural users will be beneficiaries of mobile banking through business correspondence.

“While the urban banking market is dominated by information services, the payment transactions segment has not picked up mainly due to regulatory limitations,” says Rajesh M R, an analyst with Celent and coauthor of the report. “However, recent relaxation of payment norms by RBI has presented a huge opportunity for this segment.”

“The rural mobile banking segment is a high growth area, due to the adoption of the business correspondent model and relaxed Know Your Customer norms, but financial literacy remains a big issue for retaining the rural adopters,” says Sreekrishna Sankar, Celent analyst and coauthor of the report.