Mobile Banking – an affordable technology for digital banking

Mobile Banking – an affordable technology for digital banking

Written by

Abul Kashem Md Shirin

Published by

In the book entitled:

The Article:

In Bangladesh, banking was traditionally branch-based. Customers need to come to a bank-branch for banking especially for deposit and withdrawal of cash. Deployment of mass-scaled ATM by Dutch-Bangla Bank Limited (DBBL) since 2004 facilitates the customers to withdraw cash from outside a bank-branch. However both bank-branch and ATM booths are mainly urban based, and as such the rural people remains out of banking services.

On the other hand, the traditional banking is costly for the customer. The customers need to pay enormous bank charges. The customers also need to maintain a handsome amount of minimum balance in his bank account. Moreover, most of the rural peoples are not educated and thus can’t write check and sign on it.

It was therefore a requirement that there is a banking system where the customers can transact from their home in the rural area, pay less charges for banking, and can use their mobile phone to pass the transaction typing a secret PIN (instead of signing on a check). More than 100 million people out of a total of nearly 160 million people of the country use mobile phone.

In absence of an appropriate system to address all the above issues, the rural people were always remained outside the banking facility. Until 31 May, 2011, there were no means and ways to deliver banking services to the rural poor people of the country.

A Mobile Banking Agent Point

 On 31 May 2011, the first Mobile Banking system was deployed by DBBL to boost a Digital Banking System in Bangladesh. Later on, another 19 banks launched Mobile Banking in last 3 years.

The Mobile Banking is a revolution in Bangladesh. Now the number of people who knows the words “Mobile Banking” is more than the number of the peoples who knows the words “Savings Account”. Within next 2-3 years, there will be more Mobile Banking accounts in Bangladesh than the traditional bank accounts.

As per the Central Bank of Bangladesh, till March, 2014, the number of the registered mobile banking customers is 15.0 million and the number of Agents offering mobile banking services on behalf of Banks from their own shops in the rural area is 293,000, which is more than the outlets of the existing traditional banking system in Bangladesh.  The value of mobile banking transactions stood at Taka 79.00 billion (approx. USD 1.0 billion) in March, 2014 which constitutes:

a)      Cash-in (cash deposit)

b)      Cash-out (cash withdrawal)

c)      Cardless ATM withdrawal

d)      Disbursement of foreign remittance/salary

e)      Air-time top-up (mobile recharge)

f)       Person-to-Person (P2P) fund transfer

g)      Merchant Payment (payment after buying goods from a shop)

h)      Utility bills payment (such as tuition fee, insurance premium, electricity/gas/water bill)

i)        Collection (collection of distributor’s payment by a principal company before delivery of goods to its distributors).

Disbursing government salary through Mobile Banking Union Parishad (UP) is a local government body located in the rural area and constituted by a few villages. There are elected Chairman and Members and appointed secretary, Chowkidars and Dofadhars in each of the UP. The respective district offices are responsible for disbursing their salary on bi-monthly basis. On the date of salary the UP staffs need to spend one or two working days travelling up to 100 km to collect their salary. A large part of their salary was spent in travelling, accommodation and food during collection of their salary from the district head quarter. There was involvement of risk also while they were travelling with cash. The process makes the UP staffs to spend their office time and hard-earned money, and also invites risks of loss of their money. DBBL’s Mobile Banking has removed all these barriers for the UP staffs in Sylhet, Sunamgonj and Jamalpur districts. The district authorities disburse the UP staff salary through DBBL mobile banking every month and the UP staffs withdraw their money from their nearest DBBL mobile banking agents. DBBL has more than 80,000 agents all over the country. The UP staffs now get monthly salary instead of bi-monthly, they don’t need to travel up to 100 Km, and spend lot of time and money. They can now utilize more time in their office.

Nearly 80% of the people of the country are beyond traditional banking services. Many of them receive local and foreign remittance by unknown channels. Their savings remains out of banking channel.

There are millions of shops in the rural area, sale proceeds of which are kept at shop or home. Thus a huge amount of money remains ideal. Money at home or shop is not secured.

If all these people and their money can be brought into mobile banking channel, there will be a huge revolution in terms of financial inclusion and economic activity.

Mobile Banking in Bangladesh is an affordable technology to achieve this goal. Any low cost basic mobile phone can be used to access mobile banking system of a bank using USSD (Unstructured Supplementary Service Data) connectivity of their respective mobile operators.

In Bangladesh, only Bank-led model of mobile banking is allowed. Bank-led models allow a prudent, regulated and mature approach to banking. While Bank-led models are winning overwhelmingly in almost all countries, the non-bank led model exists in few undeveloped countries.

Peoples of Bangladesh, although less literate, are accepting the technology enormously. Government of Bangladesh including the Central Bank and BTRC (Bangladesh Telecom Regulatory Commission) is unanimously supporting the technology by formulating various policies & regulations and promoting by arranging seminars, symposium and talk shows on the subject matter.

(The writer is a Deputy Managing Director of Dutch-Bangla Bank and can be reached at akmshirin@dbbl.com.bd)

Banking the 87 Percent

According to market research conducted by Dutch-Bangla Bank Limited (DBBL) before it started its mobile banking initiative, just 13 percent of the 160 million people in

Bangladesh had bank accounts. The reason was a lack of branch offices in rural areas, where the majority of the population lives. Yet within the unbanked 87 percent,

which is more than 139 million people, 50 percent had mobile phones. Again, access was the key. Mobile operator agents

are widely distributed, the devices themselves are affordable and service coverage is constantly expanding. 

Similar numbers are common in developing nations all over the world for the same reasons, which is why the opportunity for banks to bring basic financial services to the unbanked via the mobile channel is so big.

In mid-2011 DBBL launched a solution for customers to manage money with their mobile phones, depositing and withdrawing funds as well as conducting other financial

transactions. In addition to making banking more convenient and accessible for customers, the mobile channel provides a low-cost methodology for DBBL.

Why Mobile Makes Sense 

Technology is a key business driver for DBBL, established in 1996 as a joint venture between local shareholders and Dutch company FMO. The bank focuses on financing high-growth manufacturing industries in Bangladesh. It has the largest ATM network and electronic processing system in the country, and it is the largest corporate donor. DBBL has won numerous international awards because of its unique approach as a socially conscious bank.

Combining its philanthropic mindset and willingness to put new technology to work, DBBL understood that deploying a mobile banking solution would be much less costly than expanding services through new branch locations or even ATMs. 

Opening branches in the country’s rural areas is difficult and expensive. Each new branch requires the approval of the Central Bank of Bangladesh, which allows only 5 to 10 new branches per bank, per year. 

New branches also require a staff of expert bankers, and generally, expert bankers do not want to work in rural areas. What’s more, rural branches do not take in enough deposits or provide enough loans to make them profitable.

ATMs seem like a better fit for rural areas—and there is no restriction on number—but they still require continuous maintenance, cash restocking from the nearest branch, rent,

electricity and security. Without a network of branches in rural areas, ATMs are not practical either.

For many years, these complications left the rural population cut off from the traditional banking system. That is changing now, however, as mobile phones are providing access and banking opportunities to people who have never had them.

Tapping into an Existing Network 

Mobile phones are not the only access point. DBBL saw an opportunity to leverage a network that already exists throughout rural areas: mobile operator agents. These agents are generally small shop  owners or retailers. As they are already distributed throughout the country, they help new customers open accounts and check account balances, as well as provide cash-in/cash-out services. Customers use their phones to authorize the transactions.

Account holders can arrange to have employers or the government deposit payments to their accounts, or mobile wallets, and transfer money to their relative’s wallets. The accounts remain secure by requiring personal identification number (PIN) access, and customers can change their PINs from their mobiles. The bank’s plans for the next phase of services include mobile airtime top-up, merchant payment, ATM withdrawal and micro financing—all using consumers’ mobile devices. 

Benefits Beyond Banking

Existing and new customers have adopted mobile technology quickly, and a large segment of people that lived too far away from banks to open accounts can now conduct all types of banking transactions. However, DBBL’s mobile solution promises to deliver more than just banking. For people who have never had access to financial services, the numbers show that—as deposits are greater than withdrawals—simply having a bank account helps develop savings habits. 

For illiterate people, who cannot sign their name to paper cheques, the mobile system provides a workaround whereby customers type their PIN into the phone. If the combination

of the PIN  and the mobile number is correct, DBBL releases the money to the agent so he or she can pay the customer.

The system also allows local and international money remittance, so Bangladeshi expatriates can send money home. The receiving family  member can withdraw funds at the nearest participating retailer or cash point.

An Open Network

DBBL’s service will be available on all mobile devices with subscription to any of the six mobile operators of Bangladesh. This openness is key to being able to reach the maximum number of customers, as the business model depends on serving the widest base of the economic pyramid.

DBBL now has a business channel that is much less costly to support than building branch offices and installing ATMs. This

tremendous innovation gives the bank a competitive advantage and ushers in a new era of banking in Bangladesh.

DBBL hopes that banks throughout the developing world will use its mobile banking initiative as a model. Mobile money can increase financial inclusion and bring positive change to economies throughout the world. 

The writer: Abul Kashem Md. Shirin worked for the Bangladesh Sugar and Food Industries Corporation for 10 years and served as head of IT at BASIC Bank, Bangladesh for eight years and head of IT at DBBL for ve years. Since 2008 he has been the deputy managing director at DBBL. 

Published in the Sybase Mobile Commerce Guide - 2012

Mobile Banking in Microfinace Operations

A Seminar on “Mobile Banking in Microfinance Operations”

MRA organized a seminar on Mobile Banking in Microfinance Operations at CIRDAP auditorium, Dhaka on 10th December, 2013. Dr. M Aslam Alam, Secretary, Bank and Financial Institutions Division, Ministry of Finance was the chief guest in the seminar while Mr. Abul Kashem Md. Shirin, DMD, Dutch-Bangla Bank Ltd. and Mr. Dasgupta Asim Kumar, Executive Director, Bangladesh Bank were present as special guests. The Seminar started with the welcome address by Mr. Khandakar Muzharul Haque, Executive Vice Chairman, MRA. Representatives from NGO-MFIs, networking agencies, Bangladesh Bank, Commercial and Specialized Banks, and Officials of MRA were present at the Seminar. Following presentations were given in the seminar:

Please click at the following link to view the slides posted by the MRA (Microcredit Regulatory Authority):


Mobile Banking in Microfinance Operation

Mobile Banking in Bangladesh

Mobile Banking

 

1. Citizen’s right and the Government

 

• People of a remote village has the right to get a nearby school where they can send their children for education

• They have the right to have a road and bridge for their movement

• They have the right to have a nearby Hospital, Post Office etc.

• Similarly they have the right to have banking facility in their nearby village:

• So they do not need to keep the money in house

 

• where money is at risk to be theft

 

• unnecessary expense may happen

• Government of each country has the obligation to provide all the basic facilities to its citizens

 

2. Why the Mobile Banking?

 

• Mainly to bring the rural unbanked into banking channel (financial inclusion)

• There are 160 m people in Bangladesh whereas 13% of them have bank account and 55% uses Mobile phone

• There is a very few bank branch in the remote rural area of Bangladesh

 

• Setup of Bank Branch in Rural area is not profitable

 

• Amount of deposit and loans in the rural area does not generate sufficient income to meet the expenses of a rural branch

 

• Setup of ATM in rural area is not feasible

 

• ATM requires regular cash feeding from a nearby branch

 

• There is no branch in the rural area

 

• Only the Mobile Banking is the solution to financial inclusion

 

3. Specific benefits (other than financial inclusions) of Mobile Banking:

 

• To customers:

i)    Safe deposit of their money and also interest income on deposit

ii)   Transactions in the account on 7 X 24 basis

iii)  Truly on-line banking (anywhere, anytime)

iv)  Sending and receiving local remittance instantly

v)   Receiving foreign remittance from a walking distance

vi).  Hassle free payment for buying goods and services.

 

• To the bank:

i)    Coverage of whole country with minimum cost

ii)    Increased number of customers

iii)   New source of deposit

iv)   New source of income

 

• To the country:

i)    Delivery of banking services to the rural people

ii)   Increase in money circulation

iii)  New employment

iv)  New source of income for the agents

v)  New source of income for the Mobile Operators

vi) Quick and easy delivery of Government allowances like freedom fighters allowance, elderly allowance, salary of primary school teachers etc.

 

4. Mobile Financial Services that Banks can offer through Mobile Banking

 

i. Disbursement of inward foreign remittances

ii. Cash-in (deposit) / cash-out (withdrawal)

iii. Person to Business Payments - e.g. utility bill & merchant payments

iv. B2P  e.g. salary disbursement, dividend and refund warrant payments,

v. G2P  e.g. elderly & Freedom-fighter allowances

vi. P2B  e.g. tax, levy payments

vii. P2P Payments.

viii. Other payments like microfinance, OD facility, insurance premium, Deposit Pension Scheme, etc

 

5. Mobile Banking Business Models

 

Two Types of Mobile Financial Services:

 

A.​ Bank-led model

 

i) Bank is the custodian of each individual deposits

ii) Bank is the custodian of customer’s financial and personal information

iii) Bank is responsible for KYC of each of the account holder

 

B. ​Non Bank-led model

 

The non-bank-led model is where a bank does not come into the picture (except possibly as a safe-keeper of aggregated funds) and the non-bank (e.g. Telco) performs all the functions.

 

Only Bank-led mobile banking model is allowed to operate in Bangladesh

 

6. Bank-led mobile banking model is getting popular day by day

 

- ​Mobile Banking initiated by Banks is getting popularity due to confidence of the customers for banking with banks.

 

- ​Some of the non-bank-led mobile banking systems were used to “Send Money” and “Pay Bills” which are not core banking activities. These models are failed. DBBL starts with Banking activities such as opening account with proper KYC and making transactions (Cash-in and Cash-out) and developing deposit habits among the customers. ‘Send Money’ and ‘Pay Bills’ will be the secondary product for the banks.

 

7. Making a mobile banking project successful

 

i. ​Selection of right Technology Partner

 

​A strong, reliable, experienced and accommodative technology partner can only help you to go through an extensive trial and error method of designing process flow for a particular market segment as behavior of market segment vary from country to country.

 

ii. ​Handling Security issues to prevent frauds

 

-​ PIN with account access blocking facility after consecutive n-numbers of unsuccessful attempts

-​ Check digit to handle typography error

-​ Proper Know Your Customer (KYC)

-​ Enforcing maximum transaction limits for each type of products – daily and monthly limits

-​ USSD and sms/IVR for PIN transmission

 

iii. ​Keeping the operation simple

 

-​ Customers of the rural area do not use a transaction which is complex to be processed.

 

Example: For P2P fund transfer, initially there was a need of recipient’s registration in the senders mobile. Then he can only send money to a pre-registered customer. Registration required typing alphabets while the illiterate customers can hardly recognize the numeric digits. This was a barrier for the customers to use P2P. However after discontinuing the registration process, the P2P has become very popular method of sending money to others.

 

-​ A simple operation process is required for the mobile banking in which training and education on the system is only required for the agent, not for the customers. Such a system will require that most of the transactions for the initially rolled-out products will be initiated by the agents, not by the customers. Educating relatively small number of agents is manageable than of a huge number of customers.

 

iv.​ Pricing for the service – making both agents and customers happy

 

​Decision on pricing policy affects the success of the mobile banking. Poor rural people are very much price sensitive. However Banks need to pay the agents as they work on behalf of the banks, and Telcos as they are the communication partner. Pricing for the service to be charged to the customers may be fixed at per transaction-basis (fixed or percentage of volume) or may be fixed as a service charge realizable on periodic-basis from the account. Keeping both the agents and customers is a challenging decision.

 

v.​ Proper roll out plan – Products and Regions

 

- ​ Product roll-out may be started with registration, cash-in and cash-out products. After attaining a good number of customers, other products like foreign remittance and salary disbursement, send money, bills pay, air-time top-up, merchant payment, ATM withdrawal, fund transfer between bank account and mobile account, microfinance may be introduced gradually.

 

- ​Regional roll-out planning is very important. Better to start with the capital city and nearby rural areas within 50 Km radius where bank employees have quick access for conducting educational & promotion activities, and dispute management.

 

vi.​ Promotional activities

 

- ​Marketing promotion is a weapon in attracting mass customers.  Budget should be allocated for airing regular TVC, publishing advertisements in newspaper, conducting campaigns, providing Posters and Bill Board, and conducting one-2-one meetings.

 

vii. ​Mobile Banking project is an investment.

 

- ​The associated cost for setting up mobile banking such as price of software, hardware and network, and expenses on manpower, promotional & educational activities versus earnings from the customers and interest spread on deposit may not justify the mobile banking project for the first 3 years. However as the customers will gradually become aware of the service and feel secure and confident, the use will be significant to make the project economically viable in future.

 

8. DBBL perspective

 

i.​ Achievements as on 25 June, 2012

 

​No of Agents ​​​​= 9171

​No of accounts​​​​= 2,75,043

​Deposit (Taka)​​​​= 18.42 Crore

​Cash-in / day (Taka)​​​= 1.76 Crore / 5,466 Numbers

​Cash-out / day (Taka)​​​= 1.49 Crore / 3,469 Numbers

​P2P transfer / day (Taka)​​= 18.03 Lac / 1,432 Numbers

​Top Up / day (Taka)​​​= 0.27 Lac / 1,231 Numbers

​Foreign Remittance (Taka)​​= 1.31 Lac / 11 Numbers

​

 

ii.​ Awards

 

1. Digital Innovation Award-2011

2. Mobile Money Transfer (MMT-Dubai) Award – 2011

3. eASIA Driving Economy Award - 2011

4. The Asian Bankers Award (Bangkok) – 2012

5. The Computer World (USA) Laureate – 2012

 

 

9. National Perspective

 

2009 ​ Bangladesh Payment and Settlement System Regulations, 2009 was circulated by Bangladesh Bank allowing only Bank-led Mobile Financial Services in Bangladesh

 

2010-11​​ Bangladesh bank licensed 23 Banks to start mobile financial services

 

31 March, 2011​​ DBBL, for the first time, started mobile banking in Bangladesh

 

July, 2011​​ bKash started mobile banking

 

Sept, 2011​ Bangladesh Bank circulated ‘Guideline on mobile financial services for the Banks’

 

2011-2012​​  13 Banks started mobile banking in Bangladesh

 

 

Meet the Leader - Abul Kashem Md. Shirin

Interview of Abul Kashem Md. Shirin with Market Pulse

Abul Kashem Md. Shirin at SAPPHIRE NOW

Abul Kashem Md. Shirin is talking at the "Sapphire Now - 2012" held at Orlando, Florida, USA

Link to SAP

Abul Kashem Md. Shirin at Priyo Tech Talk

 

Abul Kashem Md. Shirin is talking on Mobile Banking

Mobile banking to plug gaps in financial inclusion - The Daily Star

Bangladesh can use mobile financial services not only to accelerate financial inclusion, but also to bring more than 85 percent unbanked population to the mainstream at a cost effective manner.

Despite the enormous demand for mobile phone-based financial services, a large-scale adoption is yet not seen.

Analysts and policymakers made the observation at a roundtable co-organised by The Daily Star, BRAC Bank and bKash at The Daily Star Centre yesterday.

Former adviser to caretaker government Abdul Muyeed Chowdhury moderated the programme.

Some of the discussants proposed to form a body comprising the officials of the central bank, the telecom regulator, microfinance regulator and other stakeholders, to promote the services.

“A body can be formed to identify the problems and expand the services further,” said Khondkar Ibrahim Khaled, chairman of Bangladesh Krishi Bank and former deputy governor of Bangladesh Bank.

He said microfinance institutions can be the alternatives to the banks in expanding the mobile financial services across the country.

Muhammad Abdul Mazid, former chairman of the National Board of Revenue, also echoed the views of Ibrahim Khaled on the coordination issue.

“There is a necessity of coordination among the regulators to avoid any conflicting situation,” said Mazid who presented a paper on mobile financial services in Bangladesh.

The coordination issue came to the limelight as mobile financial services in Bangladesh are a bank-led model run by mobile phone companies, which are regulated by the Bangladesh Telecommunication Regulatory Commission (BTRC).

Often these two regulators come up with separate orders having no coordination between them.

Iqbal Quadir, a director of bKash and a teacher at the Massachusetts Institute of Technology in the US, also raised the conflicting issues between the banking regulator and the telecom regulator.

AB Mirza Azizul Islam, another former adviser to caretaker government, also stressed the need for coordination in the regulatory framework of the Bangladesh Bank and the BTRC.

Abdul Muyeed Chowdhury also endorsed the idea of forming a separate committee to promote the services.

Bangladesh, with a population of 150 million and a per capita income of around $800, has seen a steady economic growth over the past 15 years. Poverty rates have halved from 60 percent in early 1990s to 31 percent in 2010.

This development has also been reflected in the growth of the country’s financial sector, supported by the recent transformation in banking technology.

Speakers said despite these significant improvements, access to basic financial services is still restricted to only 15 percent people.

They said, for the financially excluded people, opening and maintaining bank accounts can be costly, complex and time-consuming due to a lack of education and awareness.

The central bank has allowed 23 banks to operate mobile financial services. But only two banks — BRAC and Dutch-Bangla — have come up with the services and registered 20 lakh clients so far.

“Identity is a big problem,” said Nazrul Islam Khan, secretary to the ICT ministry, on the security concern in mobile banking services.

Khan said he is trying to convince the government to make an accurate database of the population, which can be used for mobile banking services.

Mahabub Hossain, executive director of BRAC, a non-government organisation, said mobile banking can benefit the poor who feel shy to go to a bank. But further investment is needed to reach out to the people, he added.

Khalid Shams, former chairman of Grameenphone, said there are some risks in the service, but Bangladesh should seize the opportunity.

Shams, a former bureaucrat, also asked the operators to come up with new products for the targeted people.

Abul Kashem Md Shirin, deputy managing director of Dutch-Bangla Bank, said cost is not a big issue in mobile banking as there will be no cost if there is no use. On security concern, he said it is like using credit/debit cards and there is nothing to be anxious.

Michael Kuehner, chief executive officer of mobile operator Robi, said costing and convenience of services are the two main components in mobile banking.

Hassan Zaman, chief economist of the central bank, said they have planned to launch a financial literacy campaign to make people aware. On why other banks are not coming with the mobile banking services, he said may be it is for the investment and profit margin issues.

Zaman also said the BB is trying to disburse money to the targeted people through mobile phones under different government programmes.

Brig Gen (retd) Shahedul Anam Khan, defence and strategic affairs editor of The Daily Star, delivered a welcome address, while Shah Husain Imam and Salehuddin Ahmed, associate editor and managing editor of the daily, and Syed Mahbubur Rahman, managing director of BRAC Bank, also spoke.

Source: The Daily Star

Emerging Markets Mobile Banking Runs Ahead Of Google Wallet - Sybase

Mobile phones have changed banking faster in emerging markets than in developed countries, so they may provide an indication of where hot tech like the Google Wallet might go if it ever catches up with South Africa, Kenya or Bangladesh. Banks in emerging markets are using mobile phones to extend their services to existing customers and to provide banking connectivity to individuals with no previous banking relationship.

Dutch-Bangla Bank, one of Bangaldesh’s largest, has selected Sybase 365 for its mobile banking platform.

Diarmuid Mallon of Sybase 365 said Dutch-Bangla Bank is a good example of the way banks are going after the unbanked. He distinguishes between mobile banking and mobile money. Mobile banking is about extending a relationship with an existing customer who has a record in core banking’ mobile money reaches out to individuals who don’t have a bank account.

“Sybase 365′s platform allows us to deliver the best possible mobile banking services to our customers,” said Abul Kashem Md. Shirin, deputy managing director at DBBL. “We hope that efforts to pioneer mBanking will propel other banks to adopt similar services and accelerate the process of financial inclusion in other developing markets.”

Of the approximately 160 million people in Bangladesh, only 13 per cent have bank accounts. By using Sybase 365 mBanking, DDBL can now reach the rural and unbanked population — 45 per cent of them are mobile phone users. With their mobile phones, Bangladeshi expatriates will be able to easily remit money to the mobile accounts of their families, who can then make a withdrawal at the nearest retailer or cash point. The service will be available on all mobile devices with subscription to any of the six mobile operators of Bangladesh.

Banks are playing catch-up in many emerging markets where telecommunications companies and networks of agents have been using SMS and text messaging to transfer funds to phones, with the phone owner then able to turn text to cash at a merchant or agent.

In the cities, banks maintain branch networks which serve the middle class and high net worth customers, said Mallon, although the cities also have a high percentage of unbanked people.
“In the countryside they have no branches and no ATMs, and it’s not commercially viable to extend either of those networks into the countryside. Setting up a branch is very costly with its IT, building, manager and senior staff. Also, the people you need to run a branch aren’t interested in moving out to the middle of nowhere. An ATM doesn’t need staffing, but you need a secure location, have to pay rent and you need to go out on a regular basis to put money into it.”

Mobile operations have less stringent regulation, in part because the sums transmitted are relatively small — the equivalent of a few hundred dollars at most.

Through some clever use of text messaging, a very basic phone can provide most basic banking services. Although Africa is the fastest growing market for smartphones, it starts from a very low base and banking services have to work on very low end phones, said Mallon.

“You have to support SMS and USSD (Unstructured Service Data) which is one of GSM’s best kept secrets,” added Mallon. “Nobody has ever heard of it in the U.S. and Europe, but it is very popular in Africa and Asia. It is text-based with screens of information and menus and operates over the voice channel.” Literacy is low in many new markets, but numeracy is high, so the phone plans offer a basic menu — 1 for balance, 3 for bill pay, etc.

“You can get through a menu by remembering the number. They have also developed a solution where at the end of a transaction you get a call back by an automated service to confirm your payment, it reads the transaction through IVR and at the end you type in a PIN to confirm.

“Users can do anything that you and I would be used to via normal Internet banking,” said Mallon. “The two biggest uses are person to person payment and bill pay. Often in these countries a large part of the population works away from home and has no way to send money back to the family. In a lot of countries, they give cash to someone they trust. Person to person payment is a big changer. The other is bill pay — if you aren’t banked, you can’t cut a check to pay for your electricity. The only way to pay is to go to the office of the electric company and queue up, spending most of your day there to pay. Moving that into a mobile channel is a big change.”

Banks and third party payment operators make it easy to get started. A user can sign up for an account while walking down the street by entering a code from a billboard. Several countries offer cash for phones through a scratchoff card like those used to recharge pay-as-you-go phone plans.
The issue for banks is whether they maintain customers in a separate mobile channel or try to bring them into a full banking relationship, he added. In several of the emerging markets, opening a bank account requires an initial deposit equal to several months’ salary, while opening a mobile money account may requires as little as $1 or $2.

Customer Case Study - Dutch-Bangla Bank (DBBL) by Sysbase/365

Dutch-Bangla Bank Limited

Sybase mBanking 365 made it possible for us to create a new era of banking in Bangladesh. The solution is equivalent to giving us a new banking license, and we can now generate new business by connecting with a previously-untapped segment of customers. Mobile banking is a tremendous new innovation and when powered by Sybase mBanking 365, it becomes fully operational.

Abul Kashem Md. Shirin
Deputy Managing Director, Dutch-Bangla Bank Limited

Dutch-Bangla Bank Limited (DBBL) is a joint-venture bank in Bangladesh, launched by local shareholders as well as the Dutch company FMO. The bank focuses on financing high-growth manufacturing industries in Bangladesh and has won numerous international awards because of its unique approach as a socially-conscious bank. The company’s stock set the record for the highest share price in the Dhaka Stock Exchange in 2008.

Business Advantage

• With the help of Sybase mBanking 365 mobile-platform technology, Dutch-Bangla Bank has opened a large and previously-untapped consumer-market segment in Bangladesh to which the bank can now provide banking services via mobile phones.

Key Benefits

• Enables consumers to conduct banking transactions securely via mobile devices
• Provides easy, user-friendly environment that accelerates technology adoption rates
• Offers a mobile-banking platform easy to customize for specific bank requirements
• Integrates efficiently with third-party partner systems

Sybase Technology

• Sybase mBanking 365

Industry

• Financial Services

Creating a New Market of Banking Customers
Based in Bangladesh, Dutch-Bangla Bank Limited (DBBL) engineers enterprise and creativity in business and industry with a commitment to social responsibility. Technology is a key business driver for the bank, and its proficiency in this endeavor has attracted a large number of corporate and retail customers.

After conducting market research, DBBL discovered that 87 percent of the potential customers in Bangladesh did not have a bank account of any type due to the lack of any branch office near where they live. The study also revealed that 50 percent of this market-segment possessed a mobile phone.
“We recognized this as a tremendous opportunity if we could find a way to make it possible for people to access our banking services through their mobile phones,” Abul Kashem Md. Shirin says. “But to do so, we also realized we would need to rely on mobile-platform technology that would make it easy and secure for people to conduct their banking online.”

DBBL set out to create a solution where customers could manage money via their mobile phones serving as a “mobile wallet” capable of depositing and withdrawing money as well as other financial transactions. In addition to making banking more convenient for customers, this approach also offered a low-cost transaction methodology for DBBL.

“Deploying such a banking solution is much less costly than trying to expand services through new branch locations or even ATM machines,” Mr. Shirin says. “Building branches and deploying physical assets require big investments and a lot of manpower. These approaches would also force us to go through a complex permission process with the Bangladesh Bank (Central Bank of Bangladesh).”

Sybase Mobile Technology Offers Superior Banking Capabilities

In searching for a mobile device platform on which to build its banking applications, DBBL considered solutions from different developers but found that Sybase mBanking 365 met the requirements most cost-effectively. “Sybase has vast experience in mobile technology and has proven itself by delivering reliable solutions on-time along with expert support,” Mr. Shirin says. “We also found that Sybase mBanking 365 best met our technical requirements—with enough flexibility to allow us to customize the platform according to the needs of our front-end application.”
Sybase mBanking 365 enables financial institutions to introduce mobile banking services that allow customers to have the flexibility and convenience of managing finances over their mobile phones. Customers can make micropayments, check account balances, transfer money, pay bills and execute other financial transactions. Financial institutions can easily integrate the mBanking platform with existing banking platforms and their core banking systems so that they can offer innovative mobile commerce services.

Platform Flexibility Allows for Customization to Meet Bank Requirements

The Sybase professional services team assisted DBBL software engineers with the Sybase mBanking 365 implementation and helped customize the platform to meet the bank’s specific requirements. Neurosoft Technology, a Sybase solutions partner in Bangladesh, also assisted.

The solution is configured with many key attributes that offer unlimited scalability in terms of the number of customers and simultaneous users as well as the maximum throughput and speed that the system can handle.

“The Sybase team was particularly helpful in customizing the platform for bank-specific requirements,” Mr. Shirin says. “This includes implementing the chart of accounts and parameters such as product definitions and fee definitions.”

Banking Services Now Available For the First Time for Many Consumers

With the Sybase mBanking 365 platform, DBBL can easily register selected banking agents that are authorized to work with customers. The platform also makes it easy for customers to open accounts at agent points and check account balances. Customers can then make deposits and withdrawals at any agent point with their mobile phone serving as the device to authorize the transactions.

Although customers are not aware that the Sybase mBanking 365 platform powers the DBBL mobile application, the technology enables them to conduct many banking transactions. For example, customers can arrange to have employers or the Bangladesh government automatically deposit payments to their mobile wallets, and they can transfer money to another customer’s mobile wallet. Customers can also make merchant payments and pay utility bills. The account remains secure by requiring PIN access, and the PIN can be changed right from the mobile phone.

The Sybase mBanking 365 customization has allowed DBBL to create a mobile banking solution that meets the needs of Bangladeshi consumers that do not live near bank locations. By designing and deploying the solution quickly, Sybase also enabled DBBL to become the first bank in Bangladesh to offer a mobile banking solution.

Existing and new customers have adopted the new technology quickly, and the agent network DBBL partners with is enthusiastically marketing the service in their respective localities. “A large segment of people that lived too far away from banks to open accounts can now conduct all types of banking transactions,” Mr. Shirin says. “Previously, we could not reach this untapped market, but Sybase made it possible by creating an environment that lets us connect to anyone with a mobile phone.”
The new mobile banking solution has also prompted the need for DBBL to recruit a large number of new employees to provide services for the expanded customer base, which is growing rapidly. In addition, the solution is a new source of revenue for the mobile-phone network operators and banking agents that DBBL partners with. With consumers linking to DBBL for banking services via their mobile operator, they are less likely to switch to another operator.

A New Era of Banking for Bangladesh

“The Sybase mBanking 365 platform is customized to the extent that it’s very easy and quick for consumers, agents and merchants to use the service,” Mr. Shirin says. “This has accelerated the adoption of the technology.”

DBBL now has a new business channel that is much less costly to support compared to building branch offices and installing ATMs, and Sybase mBanking 365, with is user-friendly environment, gives the bank a competitive advantage. Many Bangladeshi consumers are glad they can now conduct banking at any time from any place in an easy manner.

“Sybase mBanking 365 made it possible for us to create a new era of banking in Bangladesh,” Mr. Shirin says. “The solution is equivalent to giving us a new banking license, and we can now generate new business by connecting with a previously-untapped segment of customers. Mobile banking is a tremendous new innovation and when powered by Sybase mBanking 365, it becomes fully operational.”

Mobile Money for the Unbanked by Claire Penicaud

What is the business case for banks to get into mobile money? The example of DBBL in Bangladesh

  

I recently had the opportunity to talk to Mr Abul Kashem Md. Shirin, the Deputy Managing Director of Dutch-Bangla Bank Limited (DBBL), a bank serving over 2.5 million people in Bangladesh. A couple of years ago, DBBL was facing a challenge, as it was unable to serve people in rural areas. There were 160 million people in Bangladesh at the time, of which, 87% didn’t have a bank account and most were living in rural areas. This represented a huge untapped market for DBBL. However, establishing bank branches across rural Bangladesh was not an option because of the costs and of regulatory constraints as the Central Bank only grants new branch opening licenses for a maximum of 15 branches in a year. DBBL had to come up with an innovative solution.

It’s in Kenya that Mr. Sayem Ahmed, Chairman of the Executive Committee of the Board of DBBL, and Mr. Abul Kashem Md. Shirin found the solution. Eighteen months ago, they embarked on a trip to East Africa to learn from the world’s most famous mobile money service, M-PESA. When they came back to Bangladesh, Mr. Shirin presented the idea of a mobile money service for the unbanked to the board along with a compelling business case.

When MNOs enter the mobile money business, they see a business case of direct revenues from revenues and indirect benefits of ARPU lift, churn reduction, and/or savings on airtime distribution. However, a bank’s rationale for entering the mobile money business will necessarily be different as they don’t have the indirect benefits.  In DBBL’s case their aim was to increase the balance sheet, growing the number of deposits taken in over mobile banking and on lending those funds.  On this basis, they estimated that at an interest spread of 5%, a deposit of 5 billion taka (USD 62.5 million) would create an annual income of 250 million taka (USD 3.125 million), which is equivalent to the maximum annual expense of the project. Mr. Abul Kashem Md. Shirin was hoping to achieve the above targeted deposit and income by the end of 2013.

Following the Central Bank’s “Guidelines on Mobile Financial Services (MFS) for the Banks” (of 22 September 2011, as amended on 20 December 2011), it was clear to both Bangladeshi banks and MNOs that mobile money would only be through partnership models led by banks.  DBBL launched its mobile money service on 31 May 2011 in partnership with Citycell and Banglalink, the number 4 and number 2 MNOs in the country, respectively. The service which is powered by Sybase 365, a division of SAP, has 338,000 unbanked customers (as on 18 July, 2012).

Unbanked people subscribed to any mobile network operator (MNO) in Bangladesh can register to the service. With a DBBL mobile banking account – which is different from a standard DBBL bank account – customers can perform P2P transfers, merchant payments, utility payments, foreign remittance transfers, and receive salary and government allowance disbursements. The most popular transaction in terms of number of transactions performed is airtime top up, while it is cash-in, in terms of value.

After the launch of its mobile money service last year, DBBL opened 400 small offices in the country’s rural areas. A total of 10,423 agents have been appointed to perform cash-ins and cash-outs for customers. These agents are normally small shop owners or retailers of various MNOs. Agents perform on average 3.3 transactions (cash-in and cash-out) per day.

DBBL has now partnerships with Citycell, Banglalink, Airtel and GrameenPhone. As per the partnership agreement, MNOs provide USSD connectivity between the DBBL server system and agents/customers who are using their mobile phones. They also engage their retailers to work as DBBL agent points. In return, MNOs get around 25% of the transaction fees paid by customers.
Launching the service proved more difficult than expected. In particular, the main challenge faced by DBBL was customer education. But 14 months after the launch of its mobile money service, DBBL is on the way to reach its financial targets.

When I asked Mr Abul Kashem Md. Shirin what advices he would give to other banks willing to launch mobile money service for the unbanked, this is what he told me:

• Don’t be afraid to put a lot of money on the table: mobile money requires heavy initial investments;
• Manage expectations: mobile money will be profitable in the long-term, but don’t adopt a short-term view.

Insights of the Mobile Financial Services by Abul Kashem Md. Shirin

Insights of the Mobile Financial Services

Abul Kashem Md. Shirin

Regulatory Approval for Mobile Financial Services (MFS) in Bangladesh:

Depending on the operation, responsibility and relationship(s) among MFS Solution Provider and customers mainly two types of mobile financial services (Bank-led and Non-Bank-led) are followed worldwide.

Bank-led model - Every customer has a direct contractual relationship with a licensed Bank even though the customer may deal exclusively with an agent who is equipped to communicate directly with the bank server (typically using a mobile phone). The Bank keeps track of deposit of individual customers, not the aggregated deposit of all the customers.

Non-bank-led model- Customers have no direct contractual relationship with a licensed Bank. Bank works behind the screen to manage the total fund.

There is a debate worldwide that which model to be followed for Mobile Banking - Bank-led or Non-Bank model. While Bank-led models are winning overwhelmingly in almost all countries, the non-bank led model exists in few undeveloped countries. Bank-led models allow a more prudent, regulated and mature approach to banking.

In Bangladesh, theCentral Bank has concluded this debate for Mobile Financial Services. The central bank in its “Guidelines on Mobile Financial Services for the Banks” clearly states that “From legal and regulatory perspective, only the bank-led model will be allowed to operate”. However applied regulation in Bangladesh may be termed as 'light-touch' as there are subsidiary and third party hosted model (which is being shared by 2 or more banks) in place.

Focuses of MFS in Bangladesh – Banking or Send Money:

Although more than half of the Banks in Bangladesh are running MFS services, only two players – Dutch-Bangla Bank Limited (DBBL) and bKash of BRAC Bank are active in the market. Both of them have 100% coverage in terms of area of the country. However some banks are focused on 'banking', while others are at 'MoneyTransfer'.

Only 'MoneyTransfer' can't help financial inclusion. As a bank-led model, the MFS services should be more focused on savings and credit schemes, and providing various services on a single wallet (account). More attention should be provided to develop banking habit among the rural people. This will bring a huge amount of money into banking channel, and contribute to real financial inclusion and economic growth of the country. There are millions of shops in the rural area, sale proceeds of which is kept at shop or home. There is a huge amount of money remain idle. Money at home or shop is not secured or safe. The habit of the rural people and small/micro enterprises can be changed by a joint 'right' drive of all the banks working in MFS arena.

Needs for real growth of MFS and financial inclusion:

For real growth of the MFS and financial inclusion, some important measures need to be taken by banks, government and regulators. These are briefly outlined below.

Discouraging OTC and encouraging P2P

OTC stands for 'Over-The-Counter' and refers to sending money using two agents' personal MFS accounts. Here both real sender and real receiver are unknown to bank. These transactions are illegal by the AML (anti-money laundering) rule of the central bank as there are scopes for corruption in this system. Taking advantage of this, a large number of fraudulent &extortion activities are happening in Bangladesh as reported by many national daily news papers for last two years.
Even with existing regulation, some players in the market are allowing the registration of fake accounts without proper checking to increase their business. This also leads to '1 agent having registered with as many as 200 SIM as personal account' in order to facilitate fraudulent and extortion activities as OTC.

P2P stands for person-to-person transfer. In this case both the sender and receiver are registered MFS users. The sender first cash-in money to his own MFS account either from a bank-branch or agent point, and then transfer to another MFS account sitting at his home or office in a free time. The recipient gets a message and then goes to ATM, bank-branch or agent point for cash-out. He can cash-out in full or part.

Another form of sending money is called 'partial OTC', in which case sender does not have MFS account, but the received has one. Sender goes to a bank-branch or agent point and cash-in money directly to a registered MFS account.

Both the P2P and 'partial OTC' are secured and traceable if KYC of the registered MFS accountholder is maintained properly. Regulator should be very tough on OTC transfers by imposing penalty and if needed by canceling MFS license.

Ensuring proper KYC to arrest corruptions using MFS& access to NID database
Speed and rule can't run together. If a bank wants to be KYC compliant for all the MFS accounts opened by it, it has to be slow in opening MFS account. If a bank compromise with KYC, corruption using its MFS account can't be checked.Currently many banks enforce strict KYC compliance while others do not to gain better market share and business.

Proper KYC needs that the bank people check the genuineness of the information, photograph and NID (National Identity Card) for each customer.

We have never heard that an extortionist asked the victim to deposit money to a bank account. But thousands of incidents have been reported that the extortionist has taken money at his MFS account and law enforcing agencies failed to arrest him as all of his information in the MFS database are found false.And almost always this is from the MFS providers that are not KYC compliant,and are abiding by it on paper and not in practice.

However, checking the KYC manually is time consuming and costly. To ease this, like some other countries, Banks may be allowed to access the NID database online (like CIB database of the BB). In this way, submitted NID and KYC information may be checked for genuineness from the NID database easily.

Corruption by SIM replacement
Like a report of the Daily ProthomAlo published on 27 February, 2014 at page-20 many news papers have reported that fraudsters are hacking money from agents' and customers' account by SIM replacement. Fraudsters come to know the PIN and other information (including balance) of the MFS accounts – may be by dodging the call center agents or the MFS accountholder or directly from the MFS database. Then he either uses the collected information or 'manage' to obtain a replacement SIM from the service center of the respective Mobile Company. Using the PIN and the new SIM, he either transfer the money to another non-KYC (or false KYC) account or cash-out from an agent point.
BTRC and/or BB can instruct banks to inform the respective mobile companies on daily basis the SIM numbers on which a MFS account is opened. Mobile Companies will immediately inform (online) the respective banks if any of these SIM is replaced. Banks will block money on these accounts. Then after proper verification if the SIM replacement is found genuine, bank may unblock the money on the MFS account.

Disbursing government salary through MFS

Union Parishad (UP) is a local government body located in the rural area and constituted by a few villages. There are elected Chairman and Members and appointed secretary, Chowkidars and Dofadhars in each of the UP. The respective district offices are responsible for disbursing their salary on bi-monthly basis. On the date of salary the UP staffs need to spend one or two working days travelling up to 100 km to collect their salary. A large part of their salary was spent in travelling, accommodation and food during collection of their salary from the district head quarter. There was involvement of risk also while they were travelling with cash. The process makes the UP staffs to spend their office time and hard-earned money, and also invites risks of loss of money to the UP staffs.

DBBL's MFS has removed all these barriers for the UP staffs in Sylhet, Sunamgonj and Jamalpur districts. The district authorities disburse the UP staff salary through DBBL mobile banking every month and the UP staffs withdraw their money from their nearest DBBL mobile banking agents.
DBBL has more than 70,000 agents all over the country. The UP staffs now get monthly salary instead of bi-monthly, they don't need to travel up to 100 Km, and spend lot of time and money. They can now utilize more time in their office.

Government can utilize the convenience of the MFS services for disbursing salary of the government employees including that of Primary Teachers.

USSD policy and Bank's freedom in changing customer fee

USSD stands for Unstructured Supplementary Service Data and used by MFS for data communication between bank server and an accountholder. USSD channel is secured, cheap and can be activated for all types of mobile phones – from smart phone to low-cost basic phone. This is why USSD is the prepared communication channel for MFS throughout the world. However due to lack of an USSD policy, individual banks need to bargain with different Mobile Companies for obtaining USSD channel. Some banks are getting connections and some are not. Those who are lucky of getting connections are paying different amount of charges. Many banks have found that this is the main barrier for expansion of MFS.

In this region, Bangladesh is the first country of having own MFS guideline.India, although formulated a MFS guideline later, is now much ahead of us in terms of USSD policy. Telecom Regulatory Authority of India (TRAI) has understand the importance of an USSD policy, and thus formulated a clear guideline with Rs.1.50 per USSD session charge, making it mandatory for the mobile companies to provide connection to banks, agents and customers, and to support up to 5 stages to complete a mobile banking transaction.

In Bangladesh, Banks have entered into agreement with the mobile companies with a commitment of certain share of the customer fee and a predefined customer charge for a service. Due to this, it is not possible for banks to reduce the customer charge without consulting the mobile companies as this has direct impact on the income of the mobile companies.
USSD policy will make the banks independent in deciding the customer fee.

Customer's Fee and charges:

In a CGAP study conducted recently (BANGLADESH: Consumer Insights – 6 Feb, 2014), it has been found that average monthly income of 1,88,000 agents in Bangladesh is Tk.8,000/- which is 1.2 times of average national income and 2.7 times of the poverty line. In addition every agent has their own business income. Agents normally get a share of 50-60% and distributors get 15-25% of the customer's fee. The customer fee for cash-in plus cash-out varies from 1.5% to 2.0% of the transaction volume.

Therefore there are two propositions:

1) If all the MFS players agree or Bangladesh Bank (BB) mandates, the agents' and distributors' share can be reduced and the Banks can become profitable. Mentionable that with almost Taka 6,500 crore of transactions in February, 2014 and running the MFS business for last 3 years in a row, all the banks are at loss for MFS. If this continues, existing banks looking for ROI will lose intereston MFS, new players will not join in this endeavor and real financial inclusion will not take place in Bangladesh. The business policy of some players may be different, not making profit by business, but by capital gain. If such players don't participate, other players will not be able to reduce the agent share as this will swipe them out from the market (as the whole MFS business is agent & distributor driven).

In this proposition, the banks and financial inclusion program will be benefited.

2) If all the banks agree or BB mandates for a maximum ceiling of customer fee (say at 1%), USSD policy comes into force, and agents' & distributors' share is tuned slightly, banks ROI can be maintained at present level but will soon increase with the increase of the MFS market.
In this proposition, the customers will be benefited at large.

Tax & VAT holiday and disbursement of safety net allowances

The MFS is a new ICT-based service in Bangladesh and till in its infant stage. All the MFS providers are counting loss. From the beginning, Banks (MFS providers) are liable to pay 15% VAT and 10% AIT on the customer service charge. The existing banks are fighting for survival and the new banks are very much shaky in launching MFS in Bangladesh due to projected loss burden. The future of financial inclusion is hazy.

To support this nascent initiative, Tax and Vat holiday on MFS services may be allowed for at least 10 years.

On the other hand, government is disbursing a huge amount of allowances under the safety net program to the rural people. To support the financial inclusion program, the allowances may be disbursed through MFS. It may be found that many of the recipients do not have a mobile phone and as such unable to open a mobile account. However we can start somewhere. May be 25% of the people will be receiving their allowances through their mobile accounts. At least life of 25% people will become hassle-free and MFS in Bangladesh will get its momentum.  

Mobile Financial Services (MFS) is a very good initiative of the Central Bank of Bangladesh. All the central banks in the world are looking for a way out from cash and achieve a universal banking solution. MFS can present us a cashless and boundless society. Bangladesh is pioneer in the world for Bank-led model. The start is fantastic. However the pathway is becoming clumsy and hazy day by day. We must review the MFS very carefully and undertake measures from all the stakeholders, be it Bangladesh Bank, commercial banks, NBR (National Board of Revenue), BTRC or mobile phone companies. A high level task force with participation of all the stakeholders for a limited period may help grow MFS in a right track in Bangladesh.

The writer is DMD, Dutch-Bangla Bank.

Published in the Daily Star (http://www.thedailystar.net/print_post/insights-of-the-mobile-financial-services-21238) : 12:01 am Wednesday, April 23, 2014

Last modified: 12:57 am Wednesday, April 23, 2014