New Bangladesh regulation could put mobile payment services out of business
The Central Bank of Bangladesh has drafted new guidelines for mobile-based financial services which may put the market participants out of business, according to reports.&nbsp;Bankers and analysts criticised the suggestions, which included a proposal to form a mobile payment platform consisting of multiple players with no single party having more than a 15% stake.&nbsp;
Analysts focus on the central bank's proposed guidelines, at a roundtable at The Daily Star

Bankers and analysts attend a discussion on “regulatory guidelines for mobile financial services in Bangladesh”, organised by The Daily Star at its office in the capital yesterday. Photo: Star

Bankers and analysts yesterday criticised the central bank's draft guidelines on mobile financial services that proposed forming a platform consisting of multiple players with no single party having more than 15 percent stake.

Khondker Ibrahim Khaled, a former deputy governor of Bangladesh Bank, said the existing mobile financial service (MFS) providers have invested a lot in building their systems, which are yet to yield profits.

But right now, they are making do with losses under the hope that they would be logging in profits in 5-10 years' time.

If BB's proposed guidelines go through, then after three years the MFS providers will have to wind down their business and join the new system.

"Then what will happen to their investments? Can Bangladesh Bank ask them to close down their operations? I think this is arbitrary, unethical and probably illegal."

He went on to urge banks to file a writ with the High Court seeking compensation if they are forced to abandon their existing MFS.

Khaled's comments came at a view exchange meeting on "regulatory guidelines for mobile financial services in Bangladesh", organised by The Daily Star at its headquarters in the capital.

The MFS platform will be sponsored and led only by commercial banks, who collectively will own 51 percent of the shares, according to the proposed guidelines. A single bank cannot have more than 15 percent of the shares.

It may have both banks and non-bank entities, including mobile network operators, as equity holders, and the beneficial ownership of the telecom companies cannot exceed 30 percent of its total equity.

Khaled said the existing homegrown MFS model has been running for a long time to global acclaim. "If it was ineffective, then how come others, including the outsiders, have lauded it as a good model?"

Bangladesh's MFS is the second largest payment service in the world, with more than $1.4 billion changing hands monthly. It has also given a push to the country's efforts to boost financial inclusion.

He said central banks should not develop any business model; they can only give a framework.

But in the name of a framework, the BB has given a business model, he said, adding that the central bank wants to kill the existing models to make the new one a monopoly.

Khaled said seven players grouping together and forming an MFS platform is not practical in the context of Bangladesh and will not work.

Subsequently, he proposed a bank-led model in which a principal bank would have 51 percent or the majority of the shares and the remaining shares distributed among other participants such as banks, non-banks and telecoms.

He opposed the idea of forming an independent bank in the guidelines, as neither the central bank nor Bangladesh Telecommunication Regulatory Commission would be able to control it.

"So the central bank is ceding its authority to thin air. It is committing hara-kiri," Khaled added.

Shahadat Khan, chief executive of Progoti Systems, a mobile banking and payment solution provider, said there should be more than two service providers in the country to ensure competitiveness and provide more benefits to people.

But, there is no market for 28 MFS providers in the country either, he added.

Some 28 banks have been given licences to provide mobile banking services but 18 have introduced the service to date.

Brac Bank-owned bKash and Dutch-Bangla Bank control 95 percent of the market.

Mohammed Nurul Amin, chief executive officer of Meghna Bank, echoed Khan about the need for more than one operator in the event that the proposed guidelines materialise.

More operators should come into the scene to break the monopoly, reduce cost and boost competitiveness, he said.

The coordination cost of running a single platform with 7-8 players will be high and there are doubts about the platform's operability, he said, adding that the definition of non-bank entities is also not clear.

Nazmus Salehin, CEO of Standard Bank, said there should be a lead bank in the model that will enjoy 51 percent share in the platform.

Abul Kashem Md Shirin, deputy managing director of Dutch-Bangla Bank, said the existing policy that was implemented four years ago is robust enough to run the mobile banking system in a competitive manner.

"The existing policy has highly been accepted by the whole world. India has praised our policy and so has the US president. So, why should it be changed suddenly?"

The banker said if the regulators want to introduce an inclusive approach to the MFS business, it can do so under this current policy. Mobile operators can play a part in the MFS business under the existing policy.

Dutch-Bangla Bank has already invested more than Tk 100 crore for mobile banking services. It has 51 lakh active customers and five lakh agents.

"And now if I lose this money for the new rule, the regulator will be responsible for it and not the bank. Under the proposed rule we also need to sell out 85 percent of our venture. Is it realistic?"

It is not possible to change the rules after starting the game, he said.

"If six other investors join the consortium, then who will lead it? The new members of the consortium will not allow us to use our brand and distribution network as well."

Shirin also said because of the rise in agent-to-agent transactions, the number of mobile wallet is not increasing. "And we don't know whether the money channelled through over-the-counter process is for bribery or terrorist financing."

Raihan ul Ameen, deputy managing director of IFIC Bank, was of the same view.

While MFS has made life easier for people across the country, the agent-to-agent transfers are posing a challenge, he added.

TIM Nurul Kabir, secretary general of Association of Mobile Telecom Operators of Bangladesh, thanked the central bank for acknowledging the mobile operators as a key part of the MFS.

In the last 18 years, the mobile operators have invested billions of dollars, taking connectivity to the remotest parts of the country, which are also helping the banks, he said.

Globally, the mobile operators run 70 percent of the MFS business, he said.

However, the mobile operators have some concerns about the proposed guidelines. "We are not accepting this guideline. This is a complicated proposition where at least seven players are needed to create a consortium."

Mirza Mahmud Rafiqur Rahman, additional managing director of United Commercial Bank, said the proposed guideline is not well-thought-out.

He, however, said he personally welcomed the inclusion of mobile operators in the proposed guidelines because although it is a bank-led model, it is not a banking business.

There are some technological aspects for which banks are already dependent on mobile phone operators, he said.

UCB is looking for strategic partners to revive Ucash, its MFS business, Rahman said, adding that he would not mind if the bank has to take up mobile operators as partners as they already have large distribution and agent networks.

Syed Mohammad Kamal, country manager of MasterCard, said the MFS business is scaling up, so it should not be reined in at this stage.

M Shamsuzzaman, deputy managing director of Islami Bank Bangladesh, said the prospect of eight parties coming together to run a single business have next to no chance of success.

"In such a scenario, who will take the responsibility of KYC (know-your-customer) or when someone is accused of money laundering and terrorist financing offences?"

Taher Ahmed Chowdhury, head of ICT of First Security Islami Bank, said access to the telecom network has to be ensured as MFS players are sharing profits with them.

Kamal Quadir, CEO of bKash, questioned whether all banks want to join this type of business where the average ticket size is Tk 700.

"Twenty-eight banks have got licences, but one of the reasons we have not seen so much competition is perhaps it does not interest everybody."

"It is not banking and it does not give credit. The only thing we do is payment."

He said bKash has four shareholders and all of them are known for their inclusive agendas locally and globally. "Still, it took five years for us to bring the four of them together."

"So, if they are anticipating that we would be having seven-plus shareholders on day one, with all having the same mindset, focus and objectives, we may need to review this thought."

Moynul Islam, a joint director of BB, said the guideline is a pre-draft and it may not be passed in its current form.

The central bank always pays heed to people's demands and will do the same in this case too, he added.

Brig Gen Shahedul Anam Khan (retd), editor of Op-Ed and Strategic Affairs of The Daily Star, moderated the discussion.

Pial Islam, managing partner of PI Strategy Consulting, made a presentation, while Mamun Rashid, chairman of Financial Excellence, and Rokonuzzaman, a professor at North South University, also spoke.