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