Mobile Banking in BangladeshAn Incomplete Study

Prepared By: Ahsanul KarimFeedback to: ahsanul.karim@sentinelbd.com

Mobile Banking in Bangladesh (MFS)

1. Banking Infrastructure2. Banking: Technology and Channels3. Mobile Banking: as the largest Channel4. Prospects of MFS Systems5. SWOT: Strengths, Weaknesses,

Opportunities & Threats

Banking InfrastructureBangladesh: Demographics

Total Population 160m

Population having Bank Account

14% (22.4m)

Mobile Phone Users 60% (95.53m)

Banks 47

Mobile Operators 06

Banks started MFS 05

Mobile Operators joined MFS

04

Banking: Technology & Channels4 common alternative banking channels:

1. ATM2. Debit Card3. Credit Card4. POS

Innovative Technology and Bank Profitability: The Bangladesh Experience (Working Paper Series: WP 0803-Bangladesh Bank)

60% transactions take place through alternative channels.

Cost of transaction is 10% of manual channels.

The huge mobile penetration (58%) in Bangladesh makes Mobile Banking (MFS) as the Biggest Alternative channel.

MFS: Biggest Channel? (1) Although MFS activities are underdeveloped through agents so far:

Branches ATMs Agents

7,961 3,000 9,093

Transaction Points Among Scheduled Commercial Banks

Success Story 1: DBBL reports 1,72,020 unbanked customers and around BDT 90 crore transaction (as on 18 July, 2012) within 14 months of launch.

Success Story 2: BRAC Bank/bKash reports 2,37,423 registered clients and around BDT 118.51 crore transaction within 12 months of launch

MFS: Biggest Channel? (2) Mobile Banking: Current Statusupto March 2012 (excluding remittance-only deployments)

Banks with MFS License

10

Live MFS deployments 5

Accounts Opened 4,42,269

Appointed Agents 9,093

Total Value of Transactions (BDT)

207,00,000

Cost Study of DBBL:Estimating: interest spread of 5%, deposit of 5 billion taka (USD 62.5 million) would create an annual income of 250 million taka (USD 3.125 million), equivalent to the maximum annual expense of the project. DBBL expects to achieve the above targeted deposit and income by the end of 2013.Breakeven: 30 months

Benefits: On an average, the customers pay 1% of the transaction amount as fee. This fee is shared among the parties tentatively as follows: Agent-50%, MNO-25%, Bank-25%

MFS: Biggest Channel? (3) Mobile Penetration is Bangladesh: 11th Position in the world in terms of number of subscribers: (Source: Wikipedia)

Mobile Banking: WhyFeasibility:To bring rural unbanked people into banking channel● Setup of bank branches: not

profitable○ Amount of deposits and loans

in the rural areas do not always generate enough revenue to meet expenses

● Setup of ATM in rural areas: not always feasible○ ATMs need regular cash feed

from bank branches○ ATM needs data network

coverage and security

Cost Minimization:● Alternative channels always

minimizes cost than manual banking (even sometimes 90%)

● Apart from cost minimization mobile banking can generate revenue

● Can create new marketing channel for new products and services

Infrastructure:● Ability to use existing MNO

networks and infrastructure● Ability to create agent

networks using mobile airtime resellers, small shops, and convenience stores

SWOTStrengths:● Number of unbanked people

with mobile access causing a huge demand

● Awareness already established● Lower cost for agent network

Weaknesses:● Security issues● Defensive culture in some of the

banks● 3 way integration: Banks, Telcos

and Technology Providers

Opportunities:● Reduce cost of banking ● Platform for new services like

digital content buy/sell etc● Offering value added services

Threats:● Fraud Management● Load Balancing● Money Laundering

Existing Systems: InfrastructureTrust Bank DBBL bKash

Core Banking Y Y N

Mobile WalletY Y N

SMS Y Y N

GPRS Y Y N

USSD Y Y Y

IVR N Y Y

Apps N Y N

NFC N Y N

Existing Systems: Features (1)Trust Bank

DBBL bKash

Payment Network Y N N

Multibank N Y N

Balance N Y Y

Statement N Y N

Fund Transfer N Y Y

Bill Pay N Y Y

Remittance N Y N

Digital Content Payment N N N

Existing Systems: Features (2)Trust Bank

DBBL bKash

Top-ups N Y Y

Anti-Money Laundering N Y N

Tax Pay N N N

Security Audit N Y N

Micro Payment N Y N

Micro Finance N Y N

Micro Insurance N N N

Micro Savings N N N

Central Bank Regulations1. Bangladesh Bank Guidelines

and Regulations for MFS2. Compliance

MFS Guidelines & Regulations:iSentric Mobile Banking Solutions is compliant with the following guidelines from Bangladesh Bank and also open to provide all solutions for specified services:● Disbursement of inward foreign remittances ● Cash in/out using mobile account through agents/Bank

branches/ATMs/MNO’s outlets● Person to Business Payments (utility bill payments or merchant payments)● Business to Person Payments (salary disbursement, dividend and refund

warrant payments, vendor payments)● Government to Person Payments (elderly allowances, freedom-fighter

allowances, subsidies)● Person to Government Payments (taxes, levy payments)● Person to Person Payments P2P (One registered mobile account to another

registered mobile account)● Other Payments (microfinance, overdraft facility, insurance premiums,

deposit pension scheme deposits)

Bangladesh Bank Regulations

Data Source[1] Bangladesh Bank report on Mobile Financial Services in Bangladesh: An Overview of Market Development. (July 2012)[2]http://www.thedailystar.net/newDesign/news-details.php?nid=104699[3]http://www.smbworldasia.com/en/content/dutch-bangla-bank-pioneers-mobile-banking-banglades[4]http://en.wikipedia.org/wiki/List_of_countries_by_number_of_mobile_phones_in_use[5]http://www.isentric.com/index.php?rt=page/content&page=solution-banking&m=solution

Key DefinitionsAgent A person or organization authorized by a bank to carry out financial

transactions on behalf of the bank. Often these are small shops whose proprietor can provide cash-in and cash-out services to a bank’s clients.

IVR Interactive Voice Response – refers to different ways users can use a voice prompted menu driven service over the phone.

MNO Mobile Network Operator – Airtel, Banglalink, Citicell, GrameenPhone, Robi, Teletalk.

SMS Short Message Service – text messaging over mobile phones.

USSD Unstructured Supplementary Service Data – a real time communication channel between a mobile handset and the servers of a mobile network operator. MFS providers typically require a commercial agreement with a mobile network operator to gain access to USSD, but this has the advantage of being accessible over any handset.

SCB

SB Savings Bank

PCB Private Commercial Bank

FCB

MFS Mobile Financial Services