News From Telecom World

Mobile banking misappropriated

Posted on: September 15, 2008

What phone companies in Bangladesh have termed as ‘mobile banking’ is completely different from mobile banking systems in western countries. In North America, mobile banking does exist, but it is used as a vessel by banks. Therefore banks retain the backbone and manage the transaction. Companies wishing to be banks need banking license to deal with money transactions. There is no shortcut or any exceptions to this rule in any developed nation. Yes, as the author mentioned, that ‘change is the only constant’, but change also has to be fair. Keeping the banking sector highly regulated for years and turning the benefits to on to another industry would be an unjust change.

But if we really want to look for a positive change, the banking sector’s transformation in Bangladesh is nothing short of extraordinary. With the leadership of the Bangladesh Bank (BB), the sector has improved dramatically and has caught the recognition of the International Monetary Fund (IMF), World Bank and Citibank’s Chief Executive Officer Mamun Rashid. But yet the improvements of the banking sector are not easily recognisable as there are no phone subscriber numbers to boast about and no market penetration data to flaunt to the public. The results of the banking sector’s role and improvement are seen in the rapid industrialisation of Bangladesh and the country’s competitiveness in the international world. And some banks have gone further by pushing SME financing aggressively.

Regarding the phone operator outlets versus banking booths, the writer mentions that mobile operator outlets are not supposed to replace branches. The playing fields are not level to start off as the writer presents the evidence himself. He mentions that banks have tied up with the Bangladesh Post Office (BPO) to increase their retail outlets to over 10,000. But for the last two years banks have lobbied for rural booths that are capable of offering world standard banking services and bringing banking to the rural masses. The regulator did not allow this. That is the only reason why banks were forced to tie-up with BPO. With the booth rejection for the banks, the phone companies want to copy this concept for their retail outlets and term it as ‘mobile banking’.

If the phone company’s mobile banking is approved, it will make the situation worse for that region as banks will not have any business case of delivering world class banking services in remote areas. Phone company outlets are already there being subsidised by their phone operations. For state banks, which are hanging by the thread, the situation is even more morbid. Their branches will become inoperable if a sector that was under their control suddenly becomes the realm of a phone company.

A problem with Bangladesh’s version of mobile banking, that the writer did not mention, lies with the SMS protocol being used. It is widely known and proven that SMS is insecure. It is usually mentioned in the first chapter of any computer security textbook. In Japan, the most widely documented mobile-banking case, uses an NFC Payment system which is a type of secure blue-tooth instead of the insecure SMS. The difference being the Japanese phone companies invested in a new system instead of trying to adapt the widely insecure SMS protocol. Also the crucial difference in Japan is that banks are in control using the phones as a medium of payment. This is also the reason Bangladeshi phone companies exclude Japan from their case studies. Japan is a testament of the new investment for security as well as mobile banking done correctly in accordance with banking laws.

What banks are concerned about is, as a banking licence holder, they are not getting what they are entitled to as stipulated in the license. They fear that phone companies are already getting more than what they are being offered in their phone license (a banking license as well). They have no problem if mobile banking is done in accordance to standards in developed countries such as the US and Japan where the backbone of the transaction lies with the banks. Phones are a medium of communication, not a banking licence.

The writer mentions that money-laundering can be addressed by educating phone company staff. But is it not a whole lot simpler by letting banks deal with the money laundering problems and the phone companies only act as the medium? When the phone companies strictly act as a medium, the entire money-laundering problem disappears. There is also an issue with trust, as most of the phone companies have been fined repeatedly for skewering or blatantly disregarding their own rules. How will we trust them to act properly with a banking license?

Lastly the writer mentions that the mobile operator DiGi does mobile payments and it is an excellent case to let phone companies do mobile banking. The interesting case with DiGi is that it is also a subsidiary of a well-known phone company doing business in Bangladesh. So the example of Digi is a little biased. The phone companies point out to the Philippines as a excellent case study for mobile baking, whereas they conveniently ignore Japan and the US.

Also neighbor India, despite having significantly larger remittance than Bangladesh has not given out mobile banking licenses to any phone companies. India not only has a larger rural population, but the rural population is spread out over a landmass that is 23 times larger than Bangladesh. Doesn’t India have similar problems with their poor being ‘unbanked’? Or is this headache unique to Bangladesh?

As for remedies to this collision of views there are a few solutions. If BB 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 a 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 this would not be fair to phone companies as the banks would be getting more for their highly regulated banking license. Or would it?

Source: Daily Star


1 Response to "Mobile banking misappropriated"

I’d like to follow up with you on this. Do get in touch with me.


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