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Friday, October 17, 2008

On Mobile Banking

This write-up is inspired by Mr. Ahmed Ali's post "Grameenphone Attempted to Rob 40 Banks", it caught my eye and made me think...

Well mobile banking is an emerging concept, its a great concept, no doubt about it. There are several aspects of mobile banking in terms of implementation. Now I do not have any inside data on which model Grameenphone has proposed to operate, for the simplicity let's assume, by mobile banking, a Grameen subscriber will be able to deposit his money to his cellphone account, will be able to transfer it to another account and also will be able to withdraw money from his account.

There has been three models to do this mobile banking. I will discuss two here, one is that the mobile operator will itself become a financial institution which will be able to take deposits. This model is particularly suitable countries where most of the people do not have bank accounts or cannot afford to have one. Another model is based on bank accounts where mobile phone only acts as a medium.

As you may have already guessed, the second model is not suitable for our country since there are lot more mobile subscribers than bank account holders. In my case, I had my mobile phone before I had a bank account. And you can understand how many would use a bank account in the semi-urban or rural areas. Moreover, in our country, if you look at the government run banks, you will know that they are not equipped to provide information online, most of the information still resides there in paper. Another problem is that, to tie up with a mobile account, all bank must be taken under one system of accounting, otherwise the transaction between from one bank's account to another will be chaotic. So I think initially it will be difficult for GP to tie up with these banks and the alternative seems to be really easy.

Now the "financial express" has raised the concern that the banks will be losing the deposits - true, it will happen, but it will happen to the short-term deposits only, and we know how important is the short-term deposit for banks to operate the day to day transactions. So here is the problem, that banks will be losing these deposits once people will be used to the mobile banking. And honestly I don't think that is a problem, Grameenphone has taken a good initiative to bring the banking facility to the mass. Now it's time for the banks to take initiative to tie up the accounts with Grameenphone, and keep their account holders with them. Few regulations here can straighten up the things, like:

1) Grameenphone will keep the option open for the customer to choose, if the customer wants and his bank has developed certain supportive system for mobile banking, s/he may choose to associate his bank account with the mobile banking account. Grameenphone will not charge extra for this choice, however banks may charge for the mobile banking facility.

2) GP will not provide any interest for the money deposited. It will discourage the depositors to keep big amount of money for long time period in mobile account.

So what I am trying to say is that GP should not only be blamed, because this is a big opportunity for banks as well to expand their business, which they should utilize in a orderly manner. Thanks to the fellow blogger Mr. Ahmed Ali for bringing up this important issue, and kudos to GP for taking a good step. That should be my ending line.. Good Day.


Ahmed Ali said...

I think I should clarify some of the suggestions you gave.

1. I agree that GP should have an option to link to bank accounts. But until now they have refused to allow such a link. 8 Banks already have this technology but GP has prevented them from serving GP customers. Banks have taken the initiative but GP has stopped it just because they can and thinking that their proposal will pass.

2. Yes GP will not pay interest. But that doesn't stop GP from earning interest on this money (the simply put it together and put it in a FDR)

3. As much as GP wants you to belive, Bangladesh isn't the only country where there are more mobile users than bank users. (I will get into that in another article). None of those countries are considering GP's version of mobile banking.

4. Short term deposits are more crucial to the banking industry than what you estimate. No where in the world has a mobile company been put in charge of short term deposits.

GP clearly didn't have good intentions. Otherwise all the foreign banks wouldn't group with local banks to oppose this outlandish proposal. Again this is not only me that feels this way. The entire world acted in opposition to GP's Mobile Banking Thesis. GP's Mobile Banking is not the same as 'Mobile Banking'

tanvir said...

Actually the reason for writing about this issue was to make the banks aware and the regulatory bodies aware, I hope nothing has been finalized yet, and you mentioned in your post that Grameenphone has submitted the proposal.

But one thing, how can GP make FDR when they don't have control of the holdings of money, users can encash the money any time, although there is a good possibility that if this system is fully functional people will never encash the money and always keep the money in the account. And by the way if GP makes an FDR some banks will be benefited anyway.

And if the banks fail to make a deal with GP they should then issue more plastic money, cos that should be a good competitor to mobile money and it will be more secured, backed by interest earning (if it's a debit card) and will have wider acceptability.

And finally I am expecting your write-up mentioned in point 3. Because I also thought that there might be a syndicated approach from banks through an agent to tie up with mobile banking, in similar case where bank account holders are far less in number than mobile phone users.

Didarul I. Bhuiyan said...

Very important topic and interesting discussions.

I think initiating mobile banking will bring revolution in the country. It's an opportunity that we must not miss. We must also be very careful before we implement it, so that we can enjoy the best benefits from it. However, we must also set a endline of the discussions and deadline by when we will do it. We must not just continue with the discussion and waste time and opportunities.

With information found from these discussions, i would rather prefer for a mixed approach, at least at the initial stages.

1. Users who wants should be able to link their bank accounts with their mobile phone accounts. Then it would more secured, also they won't have to run every now and then to refill mobile accounts.

2. Those who want, may use mobile phone account as a bank account. They will be depositing money to their mobile accounts and expending when required.

Now, after starting with the mixed approach and continue it for say 5-10 years, government may evaluate the performance and also investigate the best approach and change accordingly, if required.

Anonymous said...

Regardless of the mixed reactions to this proposal ...there are plenty of points that makes me skeptic about the whole thing . Indeed it does seem outlandish...quite frankly needs more rigorous analysis and interpretation . We definatly do not want a new sort of crisis by integrating mobile and bank !!

Anonymous said...

BTRC has approved Mr. Babu (a TV presenter and program producer) to initiate Mobile Commer Project. What a funny way to go for Digital Bangladesh. Only government can say the justification of it. More or less it is a biasness and stupidity... But who cares its party time!

Anonymous said...

The basic idea on which the writer explained his views is totally wrong. The customers of a Bank-led mobile banking may or may not have bank account and thereby bringing the un-banked populations into the banking channel will not be a problem.