Mobile phone use in Bangladesh is not a luxury now. Almost half of the country's 160 million population uses mobile phones, but very few have bank accounts. There were lot of talks in the past few years on how the big population could be brought under the banking services via their mobile handsets. The GSM Association (GSMA) predicts that by 2012, nearly 300 million of the previously "unbanked" will be using some form of mobile banking.
The GSMA is an association of mobile operators and related companies devoted to supporting the standardising, deployment and promotion of the GSM mobile telephone system.
Bangladesh adopted the concept few years ago. Some banks have already started remittance services by mobile phone.
The central bank issued a guideline last week on mobile banking, covering core banking services.
In the guideline, the central bank made it clear that mobile banking will be bank-led, not telco-led. Now there is no confusion as the regulator, Bangladesh Bank, said: â€œFrom legal and regulatory perspective, only the bank-led model will be allowed to operate.â€
Bangladesh Bank said the move would help banks bring a vast number of unbanked people into the banking services through the mobile network operators (MNOs). Underprivileged and rural folks would benefit the most from the MFS, it said.
The bank-led model shall offer an alternative to conventional branch-based banking to the unbanked population through appointed agents facilitated by the MNOs or solution providers. Customers account, termed "mobile account", will rest with the bank and will be accessible through the accountholders mobile device. The account will be a non-cheque limited purpose one.
What are the services to be available?
Bangladesh Bank (BB) has allowed almost all services from disbursement of inward remittances to cash in and out, person to business payments, business to person payments, person to government payments, government to person payments and person to person payments.
Customers are also allowed to some other payments such as microfinance, overdrawn facility, insurance premium and deposit schemes. Cross-border outward remittances are allowed only after the central bank's approval.
Are all banks allowed to do the business?
No. Taking approval from the BB is a must for banks to do the business.
"Banks willing to provide mobile financial services shall seek prior approval from Bangladesh Bank, with full details of the services including tentative implementation schedule," the banking regulator said in the guideline.
Banks shall have to submit agreements or memoranda of understanding containing service level agreement signed between the banks and their partners and agents before launching the product.
Who will select cash points and agents?
Banks will select the cash points and agents. A list consisting their names and addresses shall have to be submitted to the Department of Currency Management and Payment System of Bangladesh Bank on monthly basis.
The cash points or agents can be a bank branch or an outlet of a mobile phone operator. Banks have to rely fully on the MNOs as they lack countrywide presence. Banks will be the custodian of individual customers' deposits.
It is the bank's responsibility to identify, contract, educate, equip and monitor activities of the agents regularly. There must be a clear, well documented agent selection policy and procedures. The agreement signed between the banks and the agents will primarily include business hours of the cash points/agents, standard of performance, fees permissible by Bangladesh Bank, customer service, dispute resolution procedure and proper signage.
Those who have countrywide branch network such as non-government organisations, the MNOs or the postal department may act as partner/agent. Banks should publish list as well as addresses of cash points/agents/partners in their websites.
The issues that should be taken into account for selection of partners/agents are: competence to implement and support the proposed activity, financial soundness, ability to meet commitments under adverse conditions, business reputation, security and internal control, audit coverage, reporting and monitoring environment.
Opening of mobile accounts
Banks must ensure that a mobile account is opened for each customer seeking to avail MFS with all the required documents as per the KYC (know your customer).
The central bank is yet to determine the limit. But it said it will fix the transaction limit as well as overall cap (per customer/ per month) if needed.
Charge for the services
Charge to be imposed for the services is a major challenge for the service providers. The central bank also did not suggest anything on the charges rather it said banks may fix charges which will be under Bangladesh Bank oversight.
Banks shall pay interest/profit on the deposits lying with the customers' mobile accounts.
Risks and its mitigation
Anti-money laundering and terrorist financing are the two major areas of risks in mobile banking.
The guidelines have clearly mentioned that banks and its partners shall have to comply with the prevailing anti-money laundering/combating the financing of terrorism related laws, regulations and guidelines issued by the BB from time to time.
The cash points/agents/partners will be responsible for authenticity of the KYC of all the customers. No KYC or account opening form is required for the existing bank customers. Banks shall ensure that suspect transactions can be isolated for subsequent investigation. Report must be sent to the BB immediately if there are any suspicious, unusual or doubtful transactions likely to be related to money laundering or terrorist financing activities.
The banks will bear all the liabilities that arise from improper action on the part of their subsidiaries/cash points/agents/partners.
The BB also said banks have to develop an IT-based automated system to identify suspicious activity/transaction report before introducing the services.
Banks shall be responsible for mitigating all kinds of risks such as liquidity risk, operational risks, fraud risks, including money laundering and terrorist financing risks.
Technical risks should be covered by the solution provider.
Transaction records of the mobile financial services must be retained for six years from the origination date of the entry. The participating bank(s) must, if requested by its customer or the receiving bank(s), provide the requester with a printout or reproduction of the information relating to the transaction. Banks should also be capable of reproducing such records for later reference, whether by transmission, printing, or otherwise.