Starting its journey in 2011, Mobile banking, commonly referred to as mobile financial services (MFS), has recorded phenomenal growth in Bangladesh in terms of financial inclusion. The MFS sector now has almost 15 million registered users transacting over TK65 billion per month. In 2013, the number of registered MFS users grew at about 12 per cent each month, with a CAGR of 266 per cent. The fact that at the start of 2013 there were only 3.6 million registered users, but the number soared to 13.2 million by the end of the year, speaks volumes about the velocity of its growth march. The value of mobile banking transactions stood at Tk 78.96 billion in March this year, up by over 21.5 per cent in just a month, from Tk 65.35 billion in February, according to the Bangladesh Bank reports.
An appropriate banking environment is considered a key pillar as well as an enabler of economic growth. With the continuously merging wave of information driven economy, the banking industry in Bangladesh has inevitably found itself unable to resist technological indulgence. The need for convenient ways of accessing financial resources beyond the conventional norms has seen the current expansion and modernisation of banking patterns. And given the huge demand for finance oriented services, institutions beside the historical banks, have joined the fray in an attempt to grab a piece of the perceived cake of opportunity within the banking industry.
Earlier this century, mobile phone became the first communication technology to have more users in developing countries like Bangladesh. With the combination of two most recent technological advancements - internet and mobile phone -- a new service (mobile data service) is thus enabled and the first such wireless internet commercial transaction is performed by the banking industry. Banking through mobile phone has been common in developed countries for years. The real potential of "mBanking" may be to make basic financial services more accessible to millions of poor people.
Mobile Banking is a process of no-branch banking which provides appropriate financial services to unbanked communities in both urban and rural areas at affordable cost. The aim of the service is not to destroy branch banking but to bring those people under the umbrella of banking service who are away from banking facilities. Government thinks it has a great prospect as it is a new technology in digital Bangladesh. Through mBanking one can avail various services, i.e., utility bill payment, fund transfer, shopping, cash withdrawal from selected ATM or cash points and many more exciting facilities.
Non-branch banking is becoming increasingly popular in our country. Many banks are now offering non-branch banking facilities. A person can withdraw or deposit money in any branch of the bank he/she has account with. So moving to mobile banking will allow the banks to offer non-branch banking facilities. Mobile device is becoming very common to us and therefore a service offered through the mobile phone has a bright future. If we go to a bank branch to make a deposit, the bank will incur a cost of Tk. 50 to Tk. 60. If we withdraw cash from an automated teller machine (ATM), the cost for the bank is approximately one-fifth of that incurred through a branch. Needless to say, if we choose to transact from our desktop or mobile handset, the cost to the bank comes down substantially.
At the broadest level, MFS constitutes offering financial services that include, but not limited to, funds transfer, savings products, insurance products, paying fees of various forms (utility, education, etc) and receiving payments (from employers, government, etc). However, in the initial stages of market development, funds transfer services had been the most predominant form of MFS in Bangladesh.
Bangladesh Bank has approved 28 banks to provide MFS in the country and 19 of those have officially launched MFS services so far. The revenue stream for banks has experienced significant growth recently.
A survey conducted by the World Bank in Bangladesh found that nearly 48 per cent of the MFS users reside in urban areas while 32 per cent in rural and 20 per cent in semi-urban areas. Though the sender receiver split is roughly 50-50 across the country, research suggests that rural users are more likely to receive money, rather than send money. The research shows a big gender gap among the users, only 18 per cent of them are females.
Person to person money transfer, i.e., 'cash in' and 'cash out' are the two most popular types of transactions in mobile banking. The total number of agents providing such services across Bangladesh stood at around three hundred thousand until March 31, up from around two hundred thousand until December 31, 2013 according to BB data. Last year, Mobile banking registered 186 per cent growth in cash transactions and 262 per cent in the number of subscribers.
There are several factors that collectively contribute to the proper functioning of any MFS operation. Regulatory environment, business model, agent network, technology, partnerships and user adoption are among them. But perhaps, user adoption is the most important of them all, since the ultimate test of a product is whether or not the end-customers find the product valuable and use it. A closer look at the consumer needs, therefore, can be the guiding factor to draw the design and growth agenda for a product.
Mobile banking can be a perfect platform for Bangladesh to take financial services to the country's largely unbanked population in an efficient and low-cost manner. Countries across the globe are moving to doorstep agent banking. According to British Bankers Association, people in Britain are using internet and mobile banking for transactions worth nearly 1 billion pounds ($1.7 billion) a day and branch use is falling sharply. In response, banks are expected to close more unprofitable branches while they invest in mobile and online services for customers who want to bank while on the move.
Since it is not possible to have bank branches in every village, Bangladesh can also reach its 68,000 villages through agent banking. There are around 160 million people of which only 13 per cent are bank account holders, but more than 65 per cent are mobile phone users. Banks can now conveniently offer the banking services to rural and unbanked population through mobile phones.
Mobile banking enables bank customers to access accounts and general information on bank products and services through a mobile device. The system has proved inexpensive, time saving and trustworthy. However, this service is not yet available for inter-Bank transactions. Additionally, the absence of a regulatory framework may lead to money laundering activities.
Poor people who are often not considered valuable customers by the formal financial sector as their transaction sizes are small, and many live in remote areas beyond the reach of banks' branch networks, can be included in the banking system through MFS. Wherever necessary, microfinance institutions can be alternatives to the banks in expanding MFS across the country. More importantly, MFS will enable the banks to close their unprofitable branches and avoid recurring losses and at the same time, retain and extend their services down to the grass-root level. Royal Bank of Scotland said last month, it was inevitable that it would close more of its 1,900 branches after branch transactions fell by 30 per cent over the past three years. Barclays, Lloyds and HSBC are also expected to close many of their high street outlets, according to industry sources. In June this year, ICICI Bank of India clocked transactions worth over Rs 10 billion per month, up from Rs 3.50 billion per month about a year back. The mobile transactions market of India has grown by 3.5 times in the last one year. Other leading private sector banks like HDFC Bank and Axis Bank has also made similar gains over the last one year.
The average monthly income of MFS users in Bangladesh is about TK 8,000, which is lower than the national average, and nearly three times the poverty line average income. Majority of the MFS users do not have bank accounts in formal financial institutions. Much of the low value transactions are now flowing through MFS. The cost associated with the transfer is certainly a factor for this trend. It is cheaper to send smaller amounts of money through MFS than through other modalities such as courier service.
As part of the government's financial inclusion programme, the central bank has allowed 28 banks to provide mobile-banking. To date, 19 have launched the service. BRAC Bank's bKash, Dutch-Bangla Bank's mobile banking, Islamic Bank's MCash, United Commercial Bank's UCash, Trust Bank's mobile money, ONE Bank's OK mobile banking are now the key players in MFS in the country.
Bangladesh can be a role model for Mobile Financial Services globally if the present trend of growth continues. Mobile banking now registers more than 20 per cent growth in cash transactions a month, thanks to the growing popularity of the services. On an average, around Tk 2.63 billion is transacted a day through mobile banking services, which was only Tk 1.21 billion in April last year.
Adoption and use of mobile phones is product of a social process, embedded in social practice. Nowadays, millions of people in Bangladesh are within a network through mobile network coverage. mBanking technology, the latest generation of electronic banking transactions, has become one of the most familiar banking features that opened up new window of opportunity to the existing banks and financial institutions. In commercial sectors like banking, mBanking technology will bring banking facilities in hand's grip which will make life easier, robust and flexible. It is an urgent need to set policies and strategies to reverse gaps in terms of regulatory and legal issues. Bangladesh can use mobile financial services not only to accelerate financial inclusion, but also to bring more than 85 per cent unbanked population to the mainstream in a cost-effective manner.
