Mobile Financial Service in Grameenphone

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[Type the abstract of the document here. The

Prepared By

Zubairia Khan

Financial Services, Grameenphone

REPORT ON Mobile Financial Services

Grameenphone

SUBMITTED TO:

HEAD, PEOPLE AND ORGANIZATION

GRAMEENPHONE

SUBMITTED BY

Zubairia Khan

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Letter of Transmittal

2 February, 2012Head, People and OrganizationGrameenphoneGP House, Baridhara, Dhaka

Subject: Submission of the report on “Mobile Financial Services focused on Grameenphone”

Dear Sir,It gives me immense pleasure to submit the report on “Mobile Financial Services in Grameenphone” as a requirement of the BBA program of the Department of Finance, University of Dhaka. Apart from the academic knowledge, I have got the golden opportunity to acquaint myself with the mobile financial services provided by GP as well as getting my first-hand work experience. I believe that the experience of corporate world I have acquired from this study will be an invaluable asset throughout my life.

It expresses me gratitude to you and my supervisor Mir Rashedul Hossaim, MD Financial Service, for providing me desired chance to learn about the mobile financial services provided by the largest telecommunication company Grameenphone. In spite of my limitation of short duration, I have devoted to find out the core operations and analytical procedures through my works.

I hope you will appreciate my endeavor and find the report up to your expectation.

It has to be mentioned further that without the expert advice and guidance of the Grameenphone family, it would not have been possible to complete this term paper. I will be pleased to answer any sort of query you may have regarding this report.

Thanking you

Zubairia khan

BBA 14th Batch

Department of Finance,University of Dhaka

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ACKNOWLEDGEMENT

It was the never ending efforts and ever increasing curiosity in preparing a term paper on “Mobile financial services focused on GP “. I strongly believe works like this will surely help me to have a clear concept about mobile financial services existing in our country. I would like to thank Almighty Allah, the all knower & best of the helpers to make my term paper a comprehensive one by providing us the mental & physical toughness in course of its preparation. My next honest & heartiest gratitude goes to Mir Rashedul Hossaim, MD Financial Service and my supervisor as well as all the members of Financial Service for their sincere and utmost guidance to prepare this report & to gather huge practical and realistic knowledge, to make me understand the topics, terms & make me familiar with the mobile financial services provided by Grameenphone.

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Executive Summary

Grameenphone Ltd., the largest telecommunications service provider in Bangladesh provides services to rural and urban customers across Bangladesh, where mobile telephony is acknowledged as a significant driver of socio-economic development, both for individuals and the nation. The Company was successfully listed in November 2009 – which was the largest IPO in the history of the Bangladesh capital market.

A significant development of mobile financial services in Grameenphone is an electronic ticketing service with data support from Bangladesh Railway and CNS, the authorized ticketing partner of the Bangladesh Railway. Using the MobiCash service, a traveler can purchase electronic railway tickets at anytime and from anywhere from his/her mobile phone and avoid the hassle of travelling to the station during working hours or standing in queue for long. Apart from train tickets, different lottery tickets have also been made available through MobiCash service. Mobile money services broaden the scope of development in our economy which includes Domestic and international remittances, Bill payment, Payroll deposit, Loan receipt and repayment, Purchases of goods and services ranging from prepaid airtime to groceries to bus ticket to micro- insurance etc. The core assets of GP are its strongest points to outperform over its competitors in the mobile financial sectors in Bangladesh.

Grameenphone’s long term focus of its mobile financial services is on customers and the convenience of other stakeholders including banks, merchants & agents. Three core mobile financial services of Grameenphone are fund transfers, payments of utility bills and mobile banking services. In Greameenphone, mobile money ecosystems are networks of organizations and individuals that must be in place for mobile money services to take root, proliferate, and go to scale. Mobile money ecosystem span a wide range of different players, including itself as mobile network operators, banks, airtime sales agents, retailers and so on; details about these players are mentioned in this paper. The foundation of Eco-system of Grameenphone lies on three core aspects, namely utility, capacity and an enabling environment.

Grameenphone is constantly trying to improve itself through maximizing utility of its customers, enhancing its capacity through technological innovation and contributing to socio-economic factors which are surrounded by this organization.

After the detailed report, real world business cases has been supplemented to gain insights on GP’s recent business activities that includes

Train ticketing from retail outlet GP charge from Bangla Lion

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Table of Contents

CHAPTER I: BACKGROUND OF THE STUDY1.1 Origin of the Study 21.2 Methodology of Study 21.3 Objectives and Limitations of Study 3

CHAPTER II: GP At a glance

2.1 Mission, Vision, Values 5 2.2 Recent Development in MFS 6

CHAPTER III: Structural Aspects of MFS 3.1 Mobile Money Opportunity 8 3.2 MFS in GP 9 3.3 Long term goals of MFS in GP 11 3.4 Eco- system of MFS 13 3.5 Foundation of Eco- system 17

CHAPTER IV: MFS Development 4.1 Offering of MFS 26 4.2 Business case: Train Ticketing from Retail Outlet 28 4.3 Business case: GP Charge from payment of Bangla Lion 35 4.4 Bill Tracking: Hypothesized Example 40

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Chapter 1

Background of the Study

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Origin of the Report

In the way of attending the BBA Program in the one of the finest university round the globe we are to get acquainted with the best knowledge and techniques. In such case, regarding the academic requirement, we were assigned to prepare a report on two important updated issues of the banking world among which we chose the issue of Basel from the viewpoint of Bangladesh. We were to select a bank to represent the implementation of Basel on it; and we had selected one of the high profile banks of the country called Dhaka Bank Ltd. (DBL) for our report purpose. After number of discussions with the officials of DBL we have prepared this report titled as “Is the Basel Compatible: Focus on a Bank”.

Methodology of the Study

The study requires a systematic procedure from the selection of the topic to final report preparation. To perform the study data sources are to be selected and collected, they are to be classified, interpreted and presented in a systematic manner and key points are to be found out. This overall process of methodology is given in the following page in the form of flowchart that has been followed in the study.

A. Selection of the Study: This topic was assigned by our honorable teacher Dewan Mustafizur Rahman and the Company (Grameenphone) was selected by me. Before assigning this report I have discussed with my instructor about the subject.

B. Identifying the Data Sources: Essential data sources were needed to be identified to prepare the report. And to meet up the need for the primary data I had taken several appointments with the high officials of GP.

C. Collection of Data: Primary data were collected through 100% physical inspection. And interviewing is predominantly required to collect the primary data.

D. Classification, analysis, interpretation and presentation of Data: To classify, analyze, interpret and presentation, I used some analytical tools to understand them clearly.

E. Findings of the study: After scrutinizing the data problems of the study are pointed out and they are shown under concerned heads. Recommendations are suggested thereafter to overcome the problems.

F. Final Report Preparation: On the basis of the suggestions of our honorable instructor and officials of GP this report is prepared thereafter in a comprehensive manner.

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Objectives of the Report

It is important to define the perceived objectives behind preparing this paper to make this a meaningful effort. The objectives of the study are given bellow:

Exploring different mobile services provided by GP Analyzing the current polices taken by GP. Status of GP in Bangladesh. Finding out the performance of GP.

.

Limitations of the Study

This report is focused on Mobile Financial Services provided by GP. This report is extensively dependent on secondary data such as annual report of GP, published materials, different internet sources. Primary information in investigating the report findings is difficult for time constraints. Interviewing technique was used in collecting primary data.

This study report is based upon secondary source of information from the documents and databases of the GP. Though I tried my level best in preparing this report some limitations were yet present there:

i. Information from Annual report regarding mobile financial services is not sufficient for in depth analysis.

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Chapter 2

GP at a Glance

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Grameenphone: At a Glance

Grameenphone Ltd., the largest telecommunications service provider in Bangladesh, received its operating license in November 1996 and started its service from March 26, 1997, the Independence Day of Bangladesh. Grameenphone provides services to rural and urban customers across Bangladesh, where mobile telephony is acknowledged as a significant driver of socio-economic development, both for individuals and the nation.

Grameenphone has played a leading role in increasing the country’s tele-penetration rate in mobile industry from less than one percent in 1997 to over 40 percent as of 2010.

After 12 years of successful operations, Grameenphone is the largest mobile phone service provider in Bangladesh, with more than 23 million subscribers as of December 2009. The Company was successfully listed in November 2009 – which was the largest IPO in the history of the Bangladesh capital market.

VisionGP exists to help the customers get the full benefit of communications services in their daily lives. The company always ready to help.

MissionGrammenphone is the only reliable means of communication that brings the people of Bangladesh close to their loved ones and important things in their lives through unparalleled network, relevant innovations & services.

Values

MAKE IT EASYEverything GP produces should be easy to understand and use. The company should always remember that it tries to make customers’ lives easier.

KEEP PROMISESEverything GP does should work perfectly. If it doesn’t, the company is there to put things right. The company is concerned about delivery, not over-promising. It cares about actions, not words.

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BE INSPIRINGThe valued members are creative. They bring energy and imagination to our work. Everything they produce should look fresh and modern.

BE RESPECTFULAlthough being a multinational company, GP acknowledges and respects local cultures. The company wants to be a part of local communities wherever it operates. Moreover, it wants to help customers with their specific needs in a way that suits way of their life best.

Recent Development: Mobile Financial Services

The electronic ticketing service was launched by Grameenphone with data support from Bangladesh Railway and CNS, the authorized ticketing partner of the Bangladesh Railway. Using the MobiCash service, a traveller can purchase electronic railway tickets at anytime and from anywhere from his/her mobile phone and avoid the hassle of travelling to the station during working hours or standing in queue for long. Apart from train tickets, different lottery tickets have also been made available through MobiCash service.

In another business development, Grameenphone signed agreements with different mobile phone operators to share its infrastructures. Leading mobile operators Orascom Telecom Bangladesh Ltd.(Banglalink), Axiata (Bangladesh) Ltd.(Robi) and Airtel Bangladesh Ltd. (formerly known as Warid) are among the major signatories. WiMax operators, Augere and Banglalion also opted for Grameenphone’s infrastructures to expand their services around the country.

Infrastructure sharing agreements, done in compliance with the guidelines issued by BTRC, enabled all parties to optimize their resource utilization and minimize cost of network deployment as well as of operations and maintenance. As a result, it would ensure sustainable utilization of national resources and reduce deployment of unnecessary infrastructural facilities in future.

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Chapter 3

Structural aspects of MFS

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Mobile Money Opportunity in Bangladesh

Mobile money is money that can be accessed and used via mobile phone. There is no limit in range of transactions and services for which mobile money can be used. Thus mobile money has significant implications for economic activity across the board, particularly in case of pre- emerging like Bangladesh. In the developing socio- economic scenario, most important thing of mobile money can be said as it reduces cost and risk inherent in dealing with cash. Besides, it facilitates the flow of money from one party to another using a communications infrastructure that already connects billion of customers throughout the world.

Scope

Use of mobile money for transactions and services in a developing country like Bangladesh includes -

Domestic and international remittances Bill payment Payroll deposit Loan receipt and repayment Purchases of goods and services ranging from prepaid airtime to groceries to bus ticket

to micro- insurance

Motivation for the poor people

GP recognizes that financial services can help poor people who are the majority in Bangladesh forge their own paths out of poverty in 2 ways –

They enable one to obtain through savings or credit sums of money large enough to invest in income generation and asset creation (through enterprise, housing, education or training which involves ones job market prospects).

They help reduce vulnerability to unexpected events such as accident, illness, thefts, or droughts. In addition in many countries, poor people are forced to rely on informal financial services, which may be unsafe or fringe formal financial products which may be expensive as well as unsafe.

Financial inclusion bolsters both the access to resources and he ability to transform resources into opportunities. Thus inclusion in financial sector is a critical prerequisite for effective market participation in its broadest sense – from being able to integrate send a utility bill payment by mobile phone instead of losing half days work in the line of

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the bank, to being able to integrate one’s small business into the value chains of the larger market players.

Socio economic Agents

Population 164.4 mn (UN estimated)

Population living below $ 2 per day 82.8%Urban population 27%Per capita Income $ 580 (nominal)Annual GDP growth At least 5- 6% since 1996Labor Force 75 mn

Communication & Connectivity

Mobile Phone Penetration 44%Mobile Phone Subscribers 76.43 mnMobile Network Coverage 99+%PSTN Subscribers 1 mnNo of mobile networks 6Internet Users <1%

Inward Foreign Remittance

Number of Workers abroad 6- 7 mn

Remittances >$10 bn (9- 13% of GDP)

GP and Mobile Financial Services

Core Assets

The core assets of GP are its strongest points to outperform over its competitors in the mobile financial sectors in Bangladesh. The industry specific assets GP has are not attainable by the other banking organizations.

Brand

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No 1 Telecom brand in Bangladesh Among top 100 most valuable brands in the world

Network

99% geographic coverage Over 12000 base stations Nationwide fiber optic network

Distribution

300000 points of sale 12 logistics centers, 100 distributors 100 nationwide GP Centers 500 GP Community Information Centers

Subscriber Base

35.69 mn active (Oct 2011) 44% market share Customer Usage Data

Grameenphone stands on the strong foundation because of these four valuable assets.

Mobile Financial Services

Grameenphone has launched such financial services for the favor of the convenience of the people of Bangladesh. By the time, it has been evolving its development cycle of being the provider of top class financial services.

Pioneering Experience & Knowledge

Launched first MFS in Bangladesh, BillPay, in 2006 Launched first mobile e- ticketing for Bangladesh Railway Launched lottery e- ticketing for charitable organization Launched inward foreign remittance services for the 2 banks

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Technology Platform

World class MFS technology platform based in international standards (transaction engine and prepaid stored value accounts)

Access and use of GP network

Distribution and Agent Network

5000 retailer agents serving Dhaka, Chittagong, Rajshahi, Sylhet and BillPay service

Operations and Back Office

Financial operations, accounting, reconciliation Customer service requests Reporting

Long term goal: GP MFS

Grameenphone is a customer focused company which introduced the mobile financial services with long term goals for different stakeholders, particularly for the customers.

Two banks are the associated partners of the Grameenphone. In most cases, banks think that MFS will harm their business in the long term; but this is completely a wrong concept. MFS opens new opportunities for the Banking sectors.

GP intend to achieve these goals for its three prime stakeholders.

Moreover its supplementary goals are mentioned here:

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For CustomersAffordabilityConvenienceSecuritySimplicityUsabilityAccess to FS

For BanksAttract untapped customersMobilize low cost depositsCustomer loyaltyLower cost of serving customersAdditional RevenuesReduce queues at peak times

For agents and merchants

Additional revenuesIncreased sales (Spillover)Reduced cost of handling cash

United Nations Development Programme (UNDP) articulates, financial inclusion bolsters “both access to resources and the ability to transform resources into opportunities.”

Mobile Financial Services has become a highly regulated sector in Bangladesh. As this is a new concept in our developing country, necessary independence is required for the experiment. Recently, the central bank Bangladesh Bank has published the rules and regulations regarding Mobile Financial Services which are to be in application from now.

GP Mobile Financial Services: Eco- system

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For mobile operators

Additional revenuesCustomer Loyalty

For regulatorsPromotes FS inclusionMove cash into visible, formal channelsSocio- economic development

Fund Transfer

Person- to- person Money TransferInward Foreign

RemittanceSalary Disbursements

Payments

Utility and 3rd party billsMarchant Payments and

m- CommerceGovernment to person

Mobile Banking

Bank account informationDeposit funds

Withdraw funds

Non bank retail agent outlets are used to convert monetary value (cash) into electronic value

Mobile phone used to identify customers, authorize transactions and to enable customers to initiate transactions on their own

Transaction processed against stored prepaid electronic value

“The three rules of mobile money are partnership, partnership and partnership. We need to create a mesh of partnerships covering various networks of relationships.” – Nepoleon Nazareno, president, SMART Communication

In Greameen Phone, mobile money ecosystems are thus the networks of organizations and individuals that must be in place for mobile money services to take root, proliferate, and go to scale.

Mobile money ecosystem span a wide range of different players, including itself as mobile network operators, banks, airtime sales agents, retailers, utility companies, employers, regulators, international financial institutions and donors, and even civil society organizations.

Players Assets & Capabilities Incentives

MNO (GP) Mobile infrastructureExtensive Retail OutletMassive Customer basesStrong brandingCustomer Service StructureAbility to make good margins on low ARPUs

Acquire customersManage churnCapture additional revenue opportunitiesIncrease ARPUsReduce airtime distribution costMeet service obligations & CSR goals

Bank Banking License and infrastructureRegulatory Compliance ExpertiseAbility to facilitate foreign exchange, clearing, settlement

Appearing in new customer segments and new geographic areasCapture additional revenueReducing cost of delivering financial services

Distributor Physical points of presenceAware of customer habits & usages

Earn commissions on transactionsIncrease traffic & sales potentials

Retailer Physical points of presence Reduce cost of handing cashReduce queues at peaks in peak timesManage inventory effectively

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Regulator (BB) Authority to impose regulation, monitor & enforce compliance

National socio- economic developmentEnable wider range of payment choicesAddress AML/CFT concerns by moving cash into more visible channels

End user Relevant needs Convenience of remote payment, remittance & financial servicesIncreased access & affordability of financial servicesReduce risk of carrying cash

Players Roles Limitations & Constrains

MNO (GP) Provide infrastructure & communication servicesIssue e- moneyAgent oversight & quality controlExercise leadership in drawing mobile money ecosystem together

Regulatory limitations on providing financial services, such as taking deposits and issuing e- moneyStrategic focus may not be mobile moneyShareholder pressure for quick increased returns

Bank Offer banking services via mobileEnsure compliance with financial sector regulationHandle cross- border transactionHold float in customer’s name

Lack of experience with and in some cases interest in, low income customersNarrow customer baseStringent regulatory requirements with significant compliance burdens

Distributor Indentify potential new mobile money applicationsPerform cash- in & cash- out transactionsReport suspicious transaction accordance with AML/CFT

Inefficient practice of business skillLiquidity problemLack of customer trust very oftenLimited ability to partner with large corporations

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Retailer Accept mobile paymentsBuild customer trust in mobile moneyUse mobile payments in B2B transactions

Customer demand for payments through mobile channelBusiness partner willingness to transact by mobile

Regulator (BB) Provide enabling environment for mobile moneyProtect stability of financial systemDemonstrate leadership to encourage & protect behavior change

Lack of financial and technical capacityLack of experience with convergence of financial and telecommunication regulatory regimes

End user Going for the use of mobile money for convenience

Limited financial literacyLack of awarenessCultural and psychological resistance

Mobile Network Operators

As a Mobile Network Operator Grameenphone is playing leadership role in this ecosystem. It spins the threads that knit all the relationships together. What gives MNOs the impetus and ability for leadership in developing mobile money ecosystem is their reach across customers in all income segments. In Bangladesh, about 1/10th of the population has bank accounts while nearly 1/3rd has mobile phones. As an MNO, GP is able to provide not only the infrastructure and a large pool of potential users of mobile money but also advisory services to other companies – banks, insurers, utilities, and so on – seeking to develop their own mobile money models.

Distributors & Retailers

GPs network of sales agents and retail outlets, where customers can sign up for services, purchase phones and accessories and top- up their prepaid airtime accounts, give them their reach geographically and across income segments. These people are called as the backbone of any mobile ecosystem. In case of further ecosystem expansion, the agents and retailers play the most significant role, no doubt. Another thing is recognized that expanding the mobile money ecosystem depends on good information about the flows of money. Thus these people

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are placed to follow the flow of mobile money and identify points at which cash is taken out and used instead. Besides these points are opportunities to bring new members into mobile money ecosystem. As these people do operations being close to the customers, they get the chance to observe the habits and needs of the customers and therefore identify and suggest new ways of use of mobile money.

Vodafone’s Hughes considers the agents and retailers “absolutely critical. They are our touch points to our customers.”

Banks

According to the Grameenphone, mobile banking is approximately 50% cheaper than traditional financial systems, thus the argument for the mobile money is stronger than the others like banks. It is costly for the traditional banks to reach the remote areas of Bangladesh. Most of the geographical areas in Bangladesh are of rural segment where no bank operates its business. Moreover banks are supposed to abide by the rules and regulations (in case of deposit taking, lending money, cross border business) set by the government authority to run business. Thus doing business in rural area is not profitable for banks as the people in these areas are unable to pass the requirements to have relationship with banks. Mechanism of mobile money has coined the term called “branchless banking”. This facility of branchless banking offered by the Grameenphone has been providing more value to the low- income customers who have no other options whereas banks have been content to focus on highest income segments- whereas m- banking may only offer marginally more convenience or security compared with options already available.

Regulators

In Bangladesh the regulatory role is played by the central bank called Bangladesh Bank. The role of Bangladesh Bank in Bangladesh cannot be overstated as it is responsible in providing feasible platform that enable ecosystem development to happen. Regulators can create space for experimentation and as experience accumulates, build the policy frameworks needed to undergird further growth. This is a very complicated exercise, with disparate and sometimes competing objectives that need to be reconciled. The challenge of shaping an enabling environment for mobile money is crucial in case of developing country like Bangladesh.

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Current standing of Eco- system

Mobile money is still in the emerging phase; most appropriately it is in “chaos” phase particularly in a developing country like Bangladesh. GP recognizes that there exists many opportunities for the growth of this industry; users need to be educated through a proper channel.

According to Vodafone’s Nick Hughes, “No one knows what the ecosystem would look like in five years. We can imagine the end state – closed loop, everyone connected, basically cashless – but getting there is the challenge.”

GP MFS: Foundation of Eco- system

For something to be ubiquitous the foundations need to be concrete, no doubt; thus scalable and robust technology will be required. The foundation of the Eco- system of GP lies on 3 pillars to work properly.

A. Utility

According to the economic context, utility is the ability of a good or service to satisfy some human want or need. For mobile money, utility is a function of the number of ways and places in which it is possible to use it. Today, remittances and remote payments are the most common uses of mobile money. Within these categories, different applications have experienced different degrees of uptake in different markets. This is partly because of differences in what mobile money provider’s offer and market. In Bangladesh, people typically must take three to four hours off work to travel back and forth and queue at designated banks-which are not necessarily the banks closest to their workplaces-in order to pay their utility bills. Consumers are using mobile money where there is a very clear, simple value proposition. So far, the predominant value proposition is being able to send money easily, cheaply and securely.

According to experts in Grameenphone:

“In the early stages of mobile money ecosystem development, the key to success is simplicity”

It is important not to confuse the market with too many services and to take the necessary time to establish consumer trust as well as the interest and collaboration of the parties that would need to be involved in each new service. Leaders in the mobile money industry believe that remittances and remote payments will serve as effective catalysts, but that in the longer term, if mobile money is to be ubiquitous, it must offer even greater utility. The greater the utility, the

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greater the potential uptake; additionally greater utility requires greater integration into consumer’s economic lives.

“It’s not just money in, money out; it’s what the customer can do with that money.”

Thus the future of Grameenphone is to be working to bring into the mobile money eco systems the schools, hospitals, retailers, and other merchants where its mobile money consumers must currently use cash.

It can initially be an uphill battle to persuade merchants to accept mobile money, according to DoCoMo Managing Director Hiroshi Tamano. He stressed a number of factors which are also followed by many pioneers round the world like GP.

Process speed

Minimizing the time it takes to process a transaction at the point of sale

Versatility

Enabling customers to use a single device for multiple services from multiple service providers, as compared with plastic cards that apply to single service providers only

Security:

Allowing customers and service providers to view their transaction histories at any time via their mobile handsets, and reducing the chance of loss as compared with cash

Mobile money providers increasingly recognize interoperability as part of the value proposition to consumer. Interoperability plays a role in both the remittance and remote payments space and in the emerging diversification of mobile money services.

Interoperability in remittances and remote payments

For customers, over time, it will be a lot cheaper and more powerful as a value proposition if you can send money to anyone with a bank or mobile money account, even if it is with a different provider.

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Interoperability in the emerging diversification of mobile money service

Some degree of interoperability will be required if a critical mass of mobile money services is to develop. Mobile network operators and other companies are conscious of their core competencies and often, quite rightly, want to focus on their core business. As a result, some interoperability, in the sense of collaboration or partnership, will be needed to expose to a broad range of players so collectively they can get the full package of financial services. Interoperability in the diversification of mobile money services is also important from the perspective of consumer choice. Offering consumers choice can be a key part of the value proposition. Industry leaders seem to agree that interoperability is the key.

Bilateral agreements

Mobile money providers need time to experiment, learn, deploy and develop their models.

In the short run, provider’s primary concerns have to do with consolidating their models. When the time comes to think about interoperability, the worry becomes whether or not interoperability will compromise their competitive positioning. The technologies are fairly similar. Competitive advantage comes from delivering better service to your consumers. Interoperability can be part of that better service. Consumers do not care about technological infrastructure-compete on product, price, and innovation, and not on the enabling technology.

B. Capacity:Entrepreneurialism involves risk while the risk appetites of firms and their shareholders reflect differently and change time to time. For mobile money ecosystems to begin springing up everywhere, potential players will have to have enough prior knowledge and capacity to be reasonably confident they will succeed. Capacity is an important consideration not only for MNOs like Grameenphone but all across the mobile money ecosystem. It is particular issue for the large numbers of small-scale players involved, and this has the potential to become a bottleneck on overall ecosystem growth. Among these small-scale players are the agents and retail outlets that perform the critical cash deposit and withdrawal functions. But these agents often lack even the most basic business skills, such as business planning, accounting, and cash management.

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Agents’ Capacity

Agent capacity becomes increasingly critical with the diversification of mobile money services on offer. And diversification of mobile money services is itself dependent on the capacity of businesses of all kinds to make effective use of the mobile channel. There needs to be a push on the corporate side, for example to convinces employers to process their payrolls using mobile money and to convince retailers and other points of sale to avail them of mobile money payment acceptance mechanism.

Micro Finance Institutions’ Capacity

As indicated above, much is made of the potential for microfinance institutions to adopt mobile money mechanism. But even though MFIs have strong local knowledge, product development and the ability to manage small transactions, most lack the stable core banking systems and specialized technical skill to implement branchless banking models or tap into existing systems. There is a big need for capacity-building for MFIs if they are going to participate in any way in mobile banking. Capacity issues are certainly not exclusive to MFIs .Some of the biggest banks in Bangladesh still keep track of deposits and withdrawals in hand-written ledgers, for instance, and certainly most companies have at least some work to do before implementing any new technology-especially one so central to the customer experience.

Regulator’s Capacity

For regulators (Bangladesh Bank), openness and receptivity are an important part of the capacity that is needed. Mobile money is in its emerging stages as an industry, and while there are policy innovations out there, “best practices “are still evolving; thus regulators are to offer flexibility & help in flourishing mobile money business for its own sake. Because this would increase the economic and financial activity to accelerate the Bangladesh Bank to achieve its target of price stability and monetary sustainability

Capacity building is not only a technical challenge. Cultivating openness and receptivity is a significant part of the work a firm must do to implement a new technology. But in the mobile money ambit, cultural receptivity goes beyond mere tech-readiness. Big banks, for example, must drum up some interest in customer segments they have previously ignored, or make a strategic decision to let MNOs and others serve those segments without political interference.

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Leveraging strategies

Smart communications is using a train-the –trainer strategy to train the smart money agents who sell airtime and perform cash deposit and withdrawal functions for its customers. Another very interesting leveraging strategy is bottom-up, collaborative self-help.

The role of IFIs, development donors, and civil society organizations

Because of the positive social and economic impacts of mobile money, players such as IFIs, development donors, and civil society organizations have strong potential roles to play in capacity-building. Hers roles are especially important in mobile money’s current, emerging stage, while consultants and other commercial capacity-building groups are still scarce. in addition, both today and in the longer term, IFIs, developments donors, and civil society organizations will be uniquely positioned to take on non-revenue generating bits of the capacity-building challenge, because they are accountable for social results in addition to or even instead of financial results.

IFIs, development donors, and civil society organizations may be particularly well-suited to help build the capacity of some of the smaller members of the mobile money ecosystem, such as cash-in/cash-out agents and small-scale retailers.

C. An Enabling environment

It may sound weird but it is true that for many business people, there is an almost instinctive negative reaction to the word “regulation”. But regulation is essential to creating and maintaining an enabling environment for business, and mobile money is no exception. The first concern of the regulator in Bangladesh is to maintain and if necessary restore, public confidence is a perquisite for the uptake of mobile money. Public confidence is predicted on the stability of the financial system. As we have seen, mobile money, airtime is being traded like currency- with significant implications for the economy and for people’s lives.

Grammenphones Delwar Hossain Azad agrees:

“We are talking about millions and billions from the base of the pyramid. we don’t want to mess with these people’s money.”

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In addition to financial stability, the Bangladesh Bank is concerned with financial inclusion. As described above, billions of people are currently left out of the formal banking system, living in entirely cash-based economics –at the expense of their full economic potential and often of their physical security as well. Their inclusions has implications not only for them individually but also for their countries nationally. The need for stability on the one hand and innovation for inclusion on the other hand requires regulators to strike a delicate and constantly evolving balance. Mobile money providers need some regulatory certainty in order to reduce the risk of investment. But rigidity in this emerging stage would stifle investment and innovation. Additionally, if the cost of compliance were too high, it could raise barriers to entry and jeopardize providers and regulators shared goal of reaching ever lower income clients.

Striking the balance between the stability and innovation is particularly difficult in the mobile money space, because multiple regulatory domains-banking and telecommunications –are involved.

It is surprising that many leaders in the mobile money industry view the regulatory environment as not particularly enabling at present. They cite regulation as a primary challenge to expanding mobile money ecosystems.

Grameenphone believes,

”Except regulation, all other challenges are within our control. We cannot live with the present banking act- we cannot serve the population within its present parameters.”

What is needed, then?

Instrumentality

Leaders are clear that in mobile moneys emerging phase, the worst thing we could do is pretend we know all the answers in advance. Regulators are not futurologists’. Take a relaxed, mature approach, and let the channels emerge. then add regulation as risks manifest.

Proportionality

Regulators need to weigh the potential gain against the potential damage.

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Executives of Grameenphone think like this:

”the success of service can be realized only through a rational, proportionate, and risk-based regulatory framework. We have to understand and accept the differences in need and requirement.”

Individual or bilateral engagement with regulators

In Bangladesh, Grameenphone interacts regularly at various levels of Central Bank management.

Collaborative or multilateral engagement with regulators

There are a wide range of organizations mobile money providers can work with to collaboratively engage in dialogue with government. For instance:

Other companies:

Collective company action can take place on an ad hoc basis, as clusters of companies with complementary interests coalesce, or more systematically, e.g. through industry associations.

Research institutions:

Independent research institutions can objectively assess and present fundamental data, for example on consumer usage, needs, and benefits. These institutions do not usually advocate company specific position, but they provide credible information on which to base those positions and communicate them to regulators.

Development agencies:

Development agents can be effective partners in government engagement for a number of reasons. First, they often have their own channels of communication into regulatory bodies, in addition to those that private sector companies have. Second, they are generally perceived to have the public interest at heart, which gives them a certain legitimacy in the eyes of regulators. The public value that mobile company creates-in terms of financial inclusion and all its attendant benefits –opens up the space for development agencies and companies to work together on advocacy.

More recognition should be given to regulators for creating enabling environments that allow mobile money ecosystems to take root and to grow. The very nature of ecosystem development means that to be successful, it has to be a collaborative effort. While MNCs have

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played and continue to play important catalytic roles, regulators will, in large part, determine how ingrained, how ubiquitous, mobile money becomes.

While mobile money is now in its emerging stages, it is rapidly moving toward consolidation and growth. Industry leaders are clear what is needed now is sustained action: experimentation and innovation by firms with mobile money business models and by government in the regulatory frameworks to make them possible.

Communication and collaboration will be a key. It is important to sustain and even diversify the opportunities for mobile network operators, banks, technology providers, and other interested firms to share experience and learn about business and technology innovations in the mobile money space.

At the same time, it is important to establish and support similar forums for regulators to exchange policy innovations across countries. And as business and government seek to interact more frequently and effectively in the policy-making process, more work should be done to learn from their efforts and spread best practice mechanism around the world.

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Chapter 4

MFS Development

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Offering of Financial Services by GP

Channelization of financial services takes this form:

The financial services can be divided in two payments of utility bills and ticketing. There are three types in ticketing, train ticketing, lottery ticketing and cricket match ticketing.

1. Bill PayIt is available to all GP subscribers and non subscribers. GP subscribers can go for it through their Mobicash wallet while non subscribers can avail it by showing the bill to GP retailers as retailers pay through their Mobicash.

2. TicketingOnly the GP subscribers can go for BCB Match Ticket and BTRB Ticket. But Ticketing for lottery is available for non subscribers.

a) Lottery Ticketb) BCB Match Ticketc) BTRB Ticket

BillPay

Currently focused on utility bill collection in 9 localities of the country via GP- authorized agents and self- directed mobile wallet transactions executed by customers from their own handsets

Partner Convenience

Instant Information Automated bill posting Operational Efficiency Easy expansion into new territories

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GP

Distributors100

Retailers200000

Active Subscribers35000000

Customer Convenience

Convenient locations, open longer Easy to use Access to relevant information 24/7 dedicated call centers Wider coverage: over 5000 GP- authorized agents for cash- in and bill payment

Utility Partners

There are nine utility partners of GP; both GP users and non users are enabled to pay through this system. GP users can pay through their air time wallet while non- users may pay through the retailers’ airtime wallet.

BPDB ctg

BPDB SylBPDB Raj

TTAS

DSCO

DPDC

BGSLCWSAKGDCL

JGSL

Flow Chart

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Partner

Partner uploading

bills for GP

GPPartner Sends bills to the utility users

Utility users make payment through Bill Pay

GP settling the Bill Pay with Partner

1

5

2 4

3

MobiCash Ticketing

Bangladesh Railway

Any registered GP subscriber can book and purchase a train ticket directly from their mobile phone, up to 10 days before travel time

Physical ticket collection against purchased e- ticket from selected GP centers

Bangladesh Cricket Board

GP has exclusive agreement with BCB to sell tickets for all international matches in the next three years.

Lottery

Government approved lotteries authorized for fund raising and philanthropic purposes.

Any GP prepaid subscriber can buy a lottery ticket directly from their mobile phone.

Inward Forward Remittance

Agreement signed with 6 banks, service launched with 2 banks Currently focused on cash-to-cash disbursement in the last mile of distribution

Business Case 1: Train Ticketing from Retail Outlet

Grameenphone currently operates the train ticketing directly through its close supervisory procedure. The purpose of this business case is examining the feasibility of giving this train ticketing to be operated through the retailers outlet.

Endogenous Variables

GP earns BDT 20 per ticket regardless of the price of the ticket. Distributors and retailers are to get commission on the total value of the ticket purchased by the customer. BTRC gets a portion from GP after deducting VAT and CNS fees from the revenue.

The proposal is the retailers are to be offered a flat commission of BDT 1.5 per ticket.

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Variables (Per Seat)

MobiCash Fee Per Seat: 20

Distributor Commission: 0.43%

VAT Rate: 13.045%

BTRC Fee on Revenue: 6.50%

Retailer Commission Per Seat Sold: 1.50

Current Scenario

Mobile companies are allocated 25% of the total seats available by Bangladesh Railway.

Along with GP, another mobile operator company named as Banglalink executes train ticketing through its mobile network system. A large portion is still untapped in this market of ticketing through mobile operators.

Variables (Addressable Market)

Total Daily Seats: 24,097

Mobile Quota (seats): 25%

Total Daily Addressable Market (seats): 6,024

Variables (Current Market Share)

BL Avg. Daily Sales: 1,000 16.6%

GP Avg. Daily Sales: 800 13.3%

Daily Untapped: 4,224 70.1%

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Projection

Projection has been made about the growth of future sales under this service. This projection has not been made on basis of historical data rather it has been made on reasonable ground.

This step of selling though retails outlet is to be initiated as it would increase the market reach of people. Thus the operational coverage of GP will definitely increase. There would be promotional activities to boost the sales revenue by capturing untapped market share.

Variables (Growth)

Growth in Avg. GP Daily Sales: 50%

It is to be noted that the market share of Banglalink is higher than GP. This close competitor also operates the service of train ticketing by own self, not through retailers.

Daily Seats Addressable Market Share

Current GP Sales (seats): 800

13.3%

Target GP Sales after Launch (seats): 1,200

19.9%

Net Increase in Seat Sales: 400

6.6%

According to the target market penetration, GP is going to achieve additional 6% market share by selling 400 more tickets from now.

Revenue Structure

There are tickets of Bangladesh Railway about 100 prices. Here the ticket of BDT 235 is chosen for the calculation procedure.

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Avg. Seat Price: 235

MobiCash Fee per seat: 20

Transaction Value: 255

Gross Revenue: 20

Distributor Com: 1.10

VAT on Fee: 2.61

Rev. Share to CNS: 8.70

Rev. Share to GP: 1.00

Net Rev. Share CNS: 7.70

BTRC Fee on GP Rev: 0.63

Retailer Com per Seat: 1.50

GP Revenue on Avg. Seat Price: 6.47

Margin: 32.34%

It is to be considered that if % of transaction value is offered as retailers’ commission, the revenue in case of higher priced ticket would be less for GP.

In the extreme case, it is found that revenue becomes negative if for an example 0.54% of transaction value is offered like retailers commission for other GP financial services.

Moreover, in case of crucial situation retailers would tend to sell only the higher priced tickets in order to gain higher commission as % of transaction value. This would irritate customers and become a threat of losing market share.

Measuring Profitability

There is net increase in revenue if proposal of commission BDT 1.5 is accepted. On the retailers’ point of view, there is increase in their revenues too. The ultimate bottom line is increase in net margin.

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Daily BDT

Net Increase in Revenue: 2,588

Total Increase in Ret Com: 600

Net Revenue: 1,988

Margin: 76.81%

NOTESThe maximum retailer commission per seat is BDT 2.45 to maintain non-zero income for GP on all seat prices. In future, it would be demand from retailers to increase the commission. GP can go for maximum BDT 2.45; a commission greater than this would provide negative net margin in case of higher priced tickets.

Under existing commission structure, retailer earns BDT 1.46 in commissions on sale of seats worth BDT 250.

Cost of purchasing printers will be borne by GPCFs.

Average revenue per transaction was BDT 10, according to November 2011 P&L statement

Correct Equation for BTRC Fee (Service Fee - Net CNS Rev Share - VAT) * BTRC Fee Rate

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Flat Commission VS Commission as % of Transaction Value

1. If flat commission is offered 1.50

Average net margin is the average of net margin of around 100 tickets which are priced differently.

Future GP Cash –In means total customers coming to get the facility.

Average Net Margin 20.09% High 34.6% Low 4.90%

Future GP Cash- in 1856

Avg Revenue per ticket 4.02 High 7.05 Low 0.99

Total Average Revenue is found by multiplying Future GP Cash- In by Avg revenue per ticket.

Total Avg Revenue 7457.02288

2. If commission is offered as % of Transaction Value 0.54%

Average net margin is the average of net margin of around 100 tickets which are priced differently.

Future GP Cash –In means total customers coming to get the facility.

Average Net Margin 5.31% High 39.5% Low-

28.88%Future GP Cash- in 1856Avg Revenue 1.06 High 7.9 Low -5.78

Total Average Revenue is found by multiplying Future GP Cash- In by Avg revenue per ticket.

Total Avg Revenue 1972.54288

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Comparing two possible options Net Margin Total Avg Revenue

1. If flat commission is offered 1.50 20.09% 7457.022882. If commission is offered as % of Transaction Value 0.54% 5.31% 1972.54288

Gain if Flat Commission is offered 14.78% 5484.48

After comparing two possible options, it is quite clear that it would be possible for GP to earn higher profit margin as well as higher revenue if flat commission is provided to agents.

Scenario Analysis

Under scenario analysis, three scenarios are in consideration; these are likely, worst and best scenarios. Two variables under this analysis are retailers’ commission and capturing addressable opportunity. All the values of the variables are taken on the ground of reasonability and reality. No structured logic is used while choosing values for variables.

Notes: Current Values column represents values of changing cells attime Scenario Summary Report was created. Changing cells for eachscenario are highlighted in gray.

Scenario Summary: Flat Commission

Current Values: Likely Worst Best

Changing Cells: Retailer Commission 1.5 1.55 1.6 1.45GP capturing addressable opportunity 25% 30% 20% 35%Result Cells: Net Margin 20.09% 19.84% 19.59% 20.34%

Total Avg Revenue 7457 8202 6444 9268

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Scenario Summary: Commission as % of Tnx Value


Changing Cells: Retailer Commission 0.54% 0.55% 0.60% 0.54%GP capturing addressable opportunity 25% 30% 20% 35%Result Cells: Net Margin 5.13% 4.90% 2.84% 5.31%


Gain if Proposal of flat commission is accepted


Net Margin 14.96%14.94

%16.75

%15.03

%


From the perspective of scenario analysis, it is still profitable for GP to go for the flat commission to the retailers.

Business Case 2: GP charge from Bangla Lion

Banglalion has proposed to use the infrastructure of Grameenphone in case of collecting this payment for providing internet facility. Now it is to decide how much GP is to ask for being in such an agreement.

Variables under 3 Scenarios1. Growth of subscribers.2. % that GP will earn from BL.

As the historical growth of the Banglalion subscribers is not available, the growth rates have been assumed under three scenarios; pessimistic, most likely and optimistic. These are in consideration on the ground of reasonability and reality. No logical structure has been used in this case.

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Growth over 3 years

Year 2012 2013 2014

Pessimistic 40% 30% 20%

Most Likely 50% 40% 30%

Optimistic 80% 50% 40%

No of Subscriber of BL

Year 2012 2013 2014Pessimistic 322949 419834 503801Most Likely 346017 484424 629751Optimistic 415220 622831 871963

At present the fraction of active subscriber is about 65%. But it can be assumed that the increase in population and the appearance of technological change would bring more people in this arena. Thus the fraction of active subscriber is supposed to increase. It has been assumed that active subscriber will be around 68%.

Present Scenario Active Inactive TotalNumber 149770 80908 230678Fraction 64.93% 35.07% 100.00%Future Fraction 68%

No of Active Subscriber

Year 2012 2013 2014Pessimistic 219605 285487 342585Most Likely 235292 329408 428231Optimistic 282350 423525 592935

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Bill collection through different channels

POS Channel Frequency Avg. Bill Per ChannelPlaza 9.96% 1260.09Office 1.15% 1327.17Bank 1.42% 1337.17Scratch Card 87.44% 498.53SMS 0.02% 913.06TOTAL 100.00% 5336.01

Cost Structure

GP Dist CommissionsDistributor: 0.43%

Retailer: 0.54%

VAT Rate: 13.045%

BTRC: 6.5%

1 SMS is to be sent as an alert and another SMS is as a notification to the customers of Bangla Lion. Cost per SMS is BDT 0.45. So, per bill payment the amount would be BDT 0.9.

Pessimistic Most Likely OptimisticGP Charge to Bangla Lion: 3.00% 3.50% 4.00%

Cost Per payment BDT 0.90

Conversion to channels

This is the projection on the ground of reasonability and reality.

% Conversion to GP ChannelChannel 2012 2013 2014Plaza 30% 35% 40%Office 20% 25% 30%Bank 20% 25% 30%Scratch 20% 25% 30%SMS 40% 50% 60%

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Final Outlay

BUSINESS CASE (OPEX) 2012

Pessimistic Most Likely Optimistic

Registered Bangla Lion Subscribers:

322,949 346,017 415,220

Active Bangla Lion Subscribers: 219,605 235,292 282,350

Active Subscribers Per Channel:

Plaza 21,862 23,424 28,109

Office 2,529 2,710 3,252

Bank 3,128 3,351 4,021

Scratch Card 192,033 205,750 246,900

SMS 53 57 68

Average Bill Amnt Per Channel Per Month: BDT

Plaza 1260.09 1260.09 1260.09

Office 1327.17 1327.17 1327.17

Bank 1337.17 1337.17 1337.17

Scratch Card 498.53 498.53 498.53

SMS 913.06 913.06 913.06

Annual Total Bill Collection Amount by Channel: BDT

Plaza 330,581,376 354,194,331 425,033,198

Office 40,282,365 43,159,677 51,791,612

Bank 50,185,188 53,769,845 64,523,814

Scratch Card 1,148,813,622 1,230,871,737 1,477,046,085

SMS 578,361 619,673 743,607

TOTAL 1,570,440,912 1,682,615,263 2,019,138,316

Amount Collected by GP Service 347261992.32 372066420.35 446479704.42

Amount collected by GP service has been found by multiplying annual total bill collection per channel with % Conversion to GP Channel.

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Revenue Model

Pessimistic Most Likely Optimistic

GP Income: % of bill collected 10417859.77 13022324.71 17859188.18 Operating Expenditure SMS Sending Cost & OHC: 46115.76745 49409.75084 59291.70101Distributor Commission: 1493226.567 1599885.607 1919862.729Retailer Commission: 1875214.759 2009158.67 2410990.404VAT: 1359009.807 1698762.259 2329731.098BTRC Revenue Share: 588825.2476 736031.5595 1009414.71Total Direct Deductions: 5362392.148 6093247.846 7729290.642 Net Gain / Loss: BDT 5055467.622 6929076.866 10129897.53Margin on Revenue: 0.48526931 0.532092159 0.567209295

Identifying the Floor of the charge on bill payment

Initially, GP is optimistic to get the best possible option as 4%. Here, the least possible options are examined. If GP intends to gain net margin not less than 50%, it should not accept less than 3.2% of bill payment. Moreover, if GP targets to gain not less than 30%, it should not accept less than 2%. At any cost GP should not accept less than 1.215%, otherwise there would be negative net margin.

GP Charge to BL Net Margin4% 56.72%

3.80% 55.43%3.60% 53.99%3.40% 52.38%3.20% 50.58%

3% 48.53%2.80% 46.19%2.60% 43.48%2.40% 40.33%2.20% 36.61%

2% 32.14%1.80% 26.68%1.60% 19.85%1.40% 11.07%

1.215% 0.37%1.20% -0.64%

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BillPay Tracking: Hypothesized Example

One of the most popular financial services of GP is BillPay. Here through a format, it has been shown how GP records, analyzes and monitors the scenarios of this service day to day. All the values are hypothesized; nothing is real in this format.

January Day Name No. of Bills Paid today

No. of Bills paid on the previous day

Difference

29 BPDB ctg BPDB Syl BPDB Raj BPDB Total 20646 3980 TTAS 1645 992 653 DSCO 1855 1288 567 DPDC 35 6 29 BGSL 462 163 299 CWSA 21 25 -4 KGDCL 1025 501 524 JGSL 219 95 124

There are few due dates in each month. As the day is close to due dates, the number of payments increases as people usually makes payment just before due dates

JanuaryDay Name

No. of Due dates till this day

No. of due dates till this day(last month) Difference

29 BPDB ctg 6 7 -1 BPDB Syl 8 10 -2 BPDB Raj 10 10 0 BPDB Total 24 27 -3 TTAS 0 0 0 DSCO 11 13 -2 DPDC 4 4 0 BGSL 0 0 0 CWSA 0 0 0 KGDCL 0 0 0 JGSL 0 0 0

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Day NameBills Uploaded till

todayBills uploaded last month till this date Difference

18 BPDB ctg 195275 303893 -108618 BPDB Syl 71733 116721 -44988 BPDB Raj 223617 260843 -37226 BPDB Total 490625 681457 -190832 TTAS DSCO DPDC BGSL CWSA KGDCL JGSL

JanuaryDay Name

No. of Bills paid this month till today

Last month as of this day Difference

29 BPDB ctg 45282 63791 -18509 BPDB Syl 50914 25208 25706 BPDB Raj 50914 61311 -10397 BPDB Total 147110 150310 -3200 TTAS 9940 12891 -2951 DSCO 18065 16838 1227 DPDC 87 16252 -16165 BGSL 1767 2125 -358 CWSA 225 747 -522 KGDCL 3243 4925 -1682 JGSL 876 1068 -192

MonitoringWhen there is significant decrease in bill payment in case of a specific utility partner for several months, the team of operations recognizes that there might be a need of promotional activities to encourage people to adopt this service. In this case SMS is sent to each GP subscribers with a message of paying bill through BillPay. Moreover, more banners and bill boards are posted to bring people under this service.

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Mobile Financial Service in Grameenphone

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