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Saturday, October 11, 2008

Grameenphone Attempted to Rob 40 Banks

Grameenphone single-handedly attempted the biggest bank heist in history. They were getting ready to rob 40 banks at once. (I wish I was being sarcastic). Even the Bangladeshi operations of Standard Chartered, HSBC and Citibank were perturbed by the attempt which also involved them. Clearly you have never heard anything about this white collar crime because the diversion was media advertisements.

Secondly after the most anticipated IPO in Bangladesh failed so horribly, I am beginning to suspect if Anders Jensen is purposely being made into a scapegoat. Ironically Anders Jensen had his own scapegoat, ex-CEO Erik Aas. But the media seems to be buying into the story that the blunders of Telenor and Grameenphone was all because of Anders Jensen. But the image, corporate culture and intentions of GP have always been immaculate?

An article published in The Financial Express clears the 'bhera' Jensen over the fence. More importantly it raises the issue that even though GP did everything right business-wise, their image and IPO took the hit due to the internal machinations and schemes developed perpetually on a corporate level (and not Anders Jensen). Its not a coincidence after the entire world said 'no' to the IPO, the 40 banks, held hostage, let the ball drop to the floor. Everyone would have believed GP's $3 billion valuation and even a $300 billion valuation if Grameenphone didn't take Bangladesh for granted so often.

I will end the talk right here, I won't spoil the details for you (as much as I am inclined to). The article is posted below:

Special thanks to The Financial Express for publishing the article. Even though 'Grameenphone' is not mentioned due to an advertisement embargo, the message is clear.

Pros and cons of phone companies doing mobile banking

MOBILE Phone Banking allows banks to make transactions and allow banking activity with the use of a mobile phone. The concept is not new and has existed since the '90s as banks try to take the next step in technology. However, the procedure and guidelines for mobile banking proposed by the country's leading mobile phone operator to the Bangladesh Bank is suspiciously unconventional.

The conventional, orderly method is what we see adopted in North America and Japan. In these regions the phones are merely a medium of banking communication. Mobile phones in the banking landscape serve solely as a method of convenience much like ATMs and bank branches.

Bank accounts are linked directly with the phone, the money transacted is done on the phone and the changes are applied onto the bank account. The phone company never transacts money or accepts money in accordance with the banking laws. What the concerned operator has proposed in our case is the opposite.

It wants the phone company to have the right to accept money and carry out financial transactions that have nothing to do with phone time. The related operator wants a mobile banking license for a mere Tk 350 million while banks will have to raise their paid up capital to Tk 4.0 billion. Simply put, the related mobile phone operator is buying a license to kill the Bangladeshi banking industry for Tk 350 million.

Banks in Bangladesh are governed by the strict Banking Act and centuries of banking traditions and norms. But the concerned mobile service-provider has not had to abide by any of the high standard regulations of the banking industry in its entire history. Instead, it has been fined repeatedly for deliberately manipulating and blatantly disregarding its own less-stringent regulations. Giving a banking license to it for an industry that is extremely regulated is absurd. Banks in Bangladesh are shocked at the possibility that it is only in Bangladesh that a phone company can get access to a banking license. The related mobile phone service-provider's initial proposal calls for the innocuous feature of local remittance. But the limits are extremely high on this feature. For instance, if a person does not withdraw the entire remittance at one time, the phone starts being a bank account. With a phone license, the concerned operator easily becomes a bank.

It -- the mobile company under mention -- has made an ethical claim to the issue stating that if it receives a mobile banking license, it will be taking banking facilities to the poor and 'unbanked'. Unknown to it, for the last three years, private commercial banks (PCB) have lobbied the Bangladesh Bank for rural booth licenses. Because the costs of running a full-fledged branch is high, a stripped down version or a booth would be the answer for delivering world class banking services to all corners of Bangladesh. However, the Bangladesh Bank opposed this step by PCBs. Now the related mobile phone operator wants to copy this concept and market it as its own by labeling it 'mobile banking'. The playing field is clearly not level for banks as the mobile phone service-provider's rural outlets will be subsidized by their phone business. Furthermore, the implications for state-owned banks are more morbid. State-owned banks are already hanging by a thread and a banking license for the related mobile phone operator will make the situation even worse for them. It is also notable that despite the lack of bank booths, banks use each others' branches to full capacity and also signed up with the post office to offer remittance services to rural areas as much as possible.

If concerned mobile phone service-provider receives a banking license, there are some issues that are of great concern. The first is money laundering. Never having been trained in financial forensics, without having knowledgeable staff or being regulated by strict money laundering rules, the said operator expects the Bangladesh Bank to believe that despite these high-risk shortcomings, the mobile phone service-provider has overnight become best suited to offer mobile banking. In reality it will jeopardise the financial security and integrity of Bangladesh by making the country vulnerable to external claims of illegal activities.

The second problem is while banks continue to use triple DES encryption and AES encryption to offer transaction security, the concerned operator wants to get away by relying on SMS. SMS has been proved to be insecure. This is the reason Japanese phone companies use an NFC Payment system (think of it as secure bluetooth) that is linked up with banks instead of SMS. Not only does the mobile phone service-provider see itself not cooperating with banks where bank involvement is crucial, but it has also disregarded any investment for a secure protocol. The lack of secure protocols will only shift the blame onto the customer in false claims and identity theft.

The related operator has selectively thrown around quite a few case studies: Kenya, Philippines and DiGi Telecommunications while systematically ignoring the entire continent of North America and Japan. It states that DiGi does mobile banking, but this example is biased to say the least. Digi Telecom is owned by a familiar multinational parent company (which also has a stake in the related mobile phone service-provider in our case). But the real icing is that DiGi had to partner with a bank, Citibank, for remittance/mobile-banking services. But the said operator is conveniently unaware of this. The situation with Kenya does not fare much better. Phone companies have held Kenyan banks hostage. Kenyan banks have claimed that they are being cornered by Kenyan foreign-owned phone companies, Safaricom and Zain.

Kenyan banks have alleged that the phone companies have taken their own liberty with the laws (similar to the scandal over the Bangladeshi VOiP) and are in the process of wiping them out. Since the Kenyan phone companies also have major foreign ownership, their foray into the banking industry takes out capital to Europe where it would traditionally be used for the improvement of the Kenyan economy. The interesting thing is that the concerned operator found Kenya's scrambled egg mess exemplary when compared to the tried and tested models which have served North America and Japan just fine.

Maybe we will find some insight in the way India decides to deal with its poor and 'unbanked'. India, as you may recall has foreign remittance that dwarfs Bangladesh's remittance. India not only has a larger rural population but a rural population that is spread over a landmass 23 times larger than Bangladesh. Yet Indian phone companies do not take the liberty to accept money for anything other than phone time. Mobile banking exists in the realm of banks, not the phone companies.

Indian banks and phone companies seem to be doing just fine without any cause of confrontation because each knows where they stand and the limitations of their respective licenses. Where is Bangladesh's unique headache for granting mobile banking licenses to phone companies stemming from?

It is not new for the concerned mobile phone operator in our situation to systematically ignore banking channels.

Its new service BillPay which lets users pay bills through mobile phones could have easily been tied up with a bank account. Instead it took the roundabout route and did it on their own terms ignoring banks entirely. The problem is that this writer does not recall the mobile phone license allowing the concerned mobile phone company, operator or service-provider to accept customer deposits for anything other than phone time. It might not disclose the fact that in western countries, all bills are paid through a bank account (be it mobile, branch or ATM).

Instead it takes the credit of bill payment by restricting banks from their mobile network while taking pieces of the banking industry piece by piece for themselves.

As for remedies to the hypocritical and contradictory views of the concerned mobile phone operator, there are a few solutions. If the Bangladesh Bank wants to take the risk and allow phone companies to do banking business, it should be done in the same conditions as in the US, where banks are the backbone and mobile companies act strictly as the vessel.

The second solution lies on the consensus that the unbanked cannot be bought under banking channels without mobile banking. If so, then why not provide a few mobile licenses collectively to banks so that they can bring the "unbanked" under their umbrella? But that wouldn't be fair to phone companies as the banks would be getting more for their highly regulated banking license. Or would it?


Anonymous said...

Man, you have a real hard-on for GP, huh?

Ahmed Ali said...

Thanks and sorry. But they try too many back channels. I only go hard on them because their advertising packages makes them look heavenly and ensures a censored media.

I actually expected a list of how the article is 'false' from some dreamy GP employee or PR rep. But they did submit this proposal to Bangladesh Bank. I can't seem to get my hand on it even after calling GP. I think they are trying to bury the issue.

Anonymous said...

I am not sure about the contents of GP's proposal submitted to BBK. But I dont see any problem if mobile phone is used as a medium of banking and e-commerce. Mobile can really facilitate the payment mechanism which can be beneficial for e-commerce.
Why not BBK provides licence imposing transaction limits so that it cannot be used for purposes other than desired ones?

Anonymous said...

The Grameen Phone proposal was sent in a year ago and the banks of Bangladesh have done nothing and have offered nothing to benefit the unbanked population of Bangladesh (87% +). The people of Bangladesh need the ability to move money via mobile phones for domestic and international remittances. You also need to chekc your facts there is no bank-led mobile phone paymentservice in the US where money can be moved from person to person. One has to use PayPal or Obopay, neither one bank-led. India has no effective mobile payment strategy, so I would not use them as an example.

If you wait for the banks in Bangladesh to lead in mobile payments, you will be waiting for many years.