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.