Why is it that the mention of mobile banking creates such a polarizing set of reactions among many people? For some, it seems to be the next best thing to sliced bread. Yet, for others, it seems to represent the next Rana Plaza waiting to happen. Let us remember that mobile banking is still really quite a new phenomenon – barely four years old. The fact that something this new can instigate such strong emotions (excitement or fear) at least should warrant a close look.
If we look first at the global experience with mobile banking, we see 200+ live deployments all around the world across two predominant models: an MNO-led model and a bank-led model. Globally, about 70% of the deployments can be categorized as MNO-led models, while 30% can be categorized as bank-led models. It can be argued that most MNO-led models have experienced success in least-developed-countries (LDCs), while bank-led models have experienced success in middle-incomecountries (MICs). Some countries are experimenting with hybrid models too: Sri Lanka allows both MNO-led and bank-led models to co-exist. India has just introduced “payment bank” model where non-bank entities are allowed to operate special purpose mobile banking services. More on this later.
If we now shift our focus to Bangladesh, we see about 25 million registered accounts and about $1.4 billion worth of transactions per month (about $47 million per day) through mobile banking, according to Bangladesh Bank. Not all the registered accounts belong to end-users; MFS agents own a large number of the end-user accounts today. MFS is mostly limited to services such as cash-in, cash-out, person-to-person (P2P) transfers, salary disbursements and utility bill payments. The last two categories remain relatively less prevalent (less than 5% of monthly transactions).
There are three fundamental questions about the mobile banking market in Bangladesh currently. The first question is do we have the right business environment today. 28 banks were given MFS licenses in Bangladesh. Of which 19 have launched services. However, one single player owns more than 80% of the market. The second player owns 18%. The remaining 17 banks collectively own 2% of the market. Clearly, the competitiveness of the market is questionable. While the regulator has put in place guidelines to encourage competition, the compliance and enforceability of the guidelines is quite weak. For example, despite OTC being strongly discouraged (practically banned), 80% of the transactions constitute OTC.
The second question is whether there is meaningful transition from OTC to wallet usage today. Wallet usage is increasing, even if at a slow pace. Over the last year, wallet usage has experienced a 5% jump – from about 15% a year ago to about 20% earlier this year. It must however be kept in mind that wallet usage is not limited to end-users alone, it also includes MFS agents using their non-agent wallets. However, a series of new use cases for mobile banking services are observed in recent advertisements. As people become more familiar with the benefits, the wallet adoption is expected to experience a sharper growth rate in the near future.
The third question is whether mobile banking is making sufficient contributions towards financial inclusion in Bangladesh. Financial inclusion has two broad mandates: access and appropriate use. For MFS, the latter is more about usage of wallets by end-users. While good progress has been made with respect to access (through 100,000+ agent points across the country), the fact that 80% of MFS users do not have/use personal mobile wallets (they use OTC), points to significant gaps with respect to wallet usage. Moreover, the average monthly income of MFS users in Bangladesh is still higher than the average national income per person, which means it is still not that prevalent among BOP segments.
While the discussion on the three fundamental questions above may lead to the view that we still have a long way to go in creating a well-functioning mobile banking environment in Bangladesh, we need to keep in mind the systemic limitations that exist today. For example, a basic pre-requisite for greater wallet opening and usage is an efficient KYC regime. If the regulation requires proper checking of IDs prior to opening an account, there must be an easy way to check this electronically. We do not have that in place today. Unlike Aadhaar in India or NADRA in Pakistan that provide this service, we do not have a validated national ID database system that is electronically accessible to MFS deployments.
Let me return to the payment bank topic, as promised. The idea behind a payment bank is to provide basic financial services such as savings, remittance, cash withdrawal etc. in a more cost effective way than a formal bank branch can provide. Most of the successful payment banks around the world are not banks; they are FMCGs or telcos, largely because they have proven track record with many of the critical success factors for payment banks. They can track and mine their customer data efficiently, they possess a distribution network that is deeply entrenched in a country, and they are exceptionally good at product innovations because that is a source of their competitiveness in their respective industries.
Some nations are already experimenting with payment banks. The Banco Walmart model in Mexico, and the new Reserve Bank of India licensing guidelines for payment banks in India are but a few examples. There is no reason why Bangladesh should not look at this model as well. It could add several hundred thousand new agent points within a short time – thereby significantly expanding the reach and access to financial services – not something a traditional bank could do easily or quickly. It could also attract a set of new players who bring prior experience with many of the CSFs, making the overall market more competitive – this could in turn bring product innovations, better pricing and better services to consumers. Whether Bangladesh implements a payment bank model or not, at the very least, we should tally up the challenges mobile banking is facing today, explore whether a hybrid model might help us get to an improved future state quickly, and assess if and how a payment bank model may facilitate that journey for us.
The mobile banking market in Bangladesh is truly at the crossroads today. What is clear is that it is not the next best thing to sliced bread (just yet), and it is not a Rana Plaza waiting to happen (just yet). What is also clear is that more of the same is really not going to serve us well into the future. A rethink is definitely in order. Perhaps even a pause, a rethink, and a renewed start.
This article was written in 2015.
pi STRATEGY