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9 October, 2019 12:17:31 AM / LAST MODIFIED: 9 October, 2019 04:16:24 PM

Non-interoperability impedes mobile financial services

Over the past few years, mobile financial service (MFS) providers have been able to bring a large portion of the unbanked population under financial services. However, when it comes to interoperability between different operators, MFS providers still have a long way to go. In a two-part series, The Independent explores the challenges and possibilities of MFS interoperability.
Non-interoperability impedes mobile financial services

Being a relatively nascent market hasn’t prevented the mobile financial service (MFS) industry from making great advancements in recent years. Ask Hemayetul Islam, an executive of a large travel agency in Dhaka, he would tell you why.

“It’s so convenient—it’s like an actual wallet in the phone, without the hassle of carrying all those banknotes. On these days, a lot of merchants have started accepting this mode of payment, so I have been loading and keeping a lot of cash into my mobile wallets,” said Islam.

There is one slight problem that bugs an otherwise happy MFS user like Islam. “I have three different mobile wallets in my smartphone-bKash, Rocket and UCash. I do most of my shopping with bKash as it is the most ubiquitous among the merchants, pay my utility bills with Rocket and pay my son’s school fee with UCash.”

“I have to load cash into these separate wallets on a regular basis and that’s sort of an irritation for me. It would have been much easier if I could transfer some money, say, from my bKash wallet to UCash wallet in times of need or vice versa. But that hasn’t happened yet,” he said.

What Islam has innocuously termed as a “slight problem” for him, has actually been putting the MFS providers across the world in a hot seat, forcing them to debate, object, counter-object amongst themselves, as well as with their regulators.

There is a formal definition and it is called “interoperability.” At present most MFS operators operate as a “walled garden”, meaning that transactions can only be performed between users of the same system.

Upon the implementation of interoperability among the MFSs, a bKash user will be able to transfer money from his bKash wallet into, say, Rocket wallet by pressing few buttons.

While this sounds like a rather straight-forward implementation for the MFS operators if they have shaken hands amongst them, it actually is not as there are technical and commercial aspects that need to be covered to make interoperability between MFS a success, said the experts concerned. 

The challenges of inter-operability

The Independent contacted Minaoar Hossain Tanzil, managing director of Kona Software Lab Limited (KonaSL), a South Korea based company specializing in developing payment system to understand the challenges of interoperability.

Tanzil said bKash is one of the largest MFS operators in the world. “There is only one operator in Kenya which is as big as a MFS as bKash and its name is M-pesa. No other MFS operators in the world are operating in such large scale,” he said.

He said mobile payment system is a different platform altogether and interoperability among the MFS is a unique thing globally.

“Commercially and technically it is an uphill battle as there are several challenges.”

Explaining the commercial challenge, he said all the financial institutions and payments systems across the world communicate with each other through secured medium. But mobile network doesn’t communicate with the financial system.

These MFS services have unique input and output system—namely cash in and cash out— which other traditional financial system do not possess. “If you want to draw out your own money in cash from a traditional financial institution, it won’t charge you. Yes, bank takes a fee for chequebook or ATM card but that is very nominal. But in case of MFS, when you cash out, the MFS charges you one percent to two percent for each transaction and this generates its main revenue,” said Tanzil

So, naturally a large MFS operator want to keep as many customers as possible within its own system as this would generate more revenues for the operator through the cash-out option.

“Think about bKash; if there is an option that you can transfer money from your bKash wallet to Rocket wallet, the money within bKash’s system actually get out of its own revenue generation model unless there is a set contract between bKash and Rocket that the former would get a percentage on that very transaction,” explained Tanzil.

“Think a bKash user want to cash out Tk 2,000. Normally he needs to pay Tk 40 for this, but if there is interoperability, then he could transfer the money from bKash to Rocket and then cash it out from DBBL’s ATM network without paying any fee since Rocket has that option,” he explained. About the technical challenge, he said for MFSs to contact and make transactions within each other through a secured medium, there has to be an established “switch” mechanism.

“Banks have this established “switch” with proper protocols and because of that there is no charge when money is being transferred from one bank to another bank,” he said adding that at the end of each day, Bangladesh Bank (BB) as a regulator acts as a clearing house and settles all the recorded transactions among the banks.

“So for MFS providers to make transactions within themselves, the central bank has to work as a clearing house to settle all the recorded transactions, clearing all the fees and charges. Bangladesh Bank has national payment switch to do that, so it must allow MFS providers to get connected with the switch for making interoperability a possibility.”       

What do the market players say?    

Smaller market players vehemently want interoperability to be implemented as they believe such implementation would open up the market and would ultimately benefit the common people like the way opening up of the telecom market benefitted the people in the middle of the past decade.

Rezaul Hossain, Managing Director and CEO of Celero Ltd and Co-founder and Director of Nagad—a payment system of state owned post office, told The Independent a lack of interoperability has been highlighted as a major barrier to the development of the mobile money market.  Hossain, a former employee of bKash, said during his time there, he realized the market potential and the fact that it was not possible by one single company to cater to the whole mobile financing market.

“In order to develop the industry more competitors are needed and according to market potentiality, 65 percent of the whole market is still available for grabs.

So far, the cash-in-cash-out feature has become widespread but there are many more options left to venture when it comes to MFS,” Hossain said Hasan Mahmud Jahid, head of service of UCash, said interoperability among the digital payment channels will ensure clients' benefits, facilitate competition based on product innovation and boost the growth of the digital finance ecosystem.

“Interoperability itself is a challenging task and collaboration is the key to its achievement. Not only do we need multiple stakeholders to coordinate with each other but we require legal frameworks, business models, enterprising solutions and policies at par with international standards for it to ever function as a whole,” he said.

About the prospect of interoperability, AKM Shirin, Managing Director of DBBL, said when interoperability in MFS comes into effect, it will guarantee an increase in transactions because this avenue of digital cash has no limit.

Rocket, the MFS of DBBL, now enjoys the second highest market share with approximately 17 percent of the MFS market.

“Now of course, taking a step back again, we need the government to understand how its approach is affecting the market and the regulatory bodies are struggling to tackle the right balance between the key market players and the customers’ interests,” added Shirin.

bKash, the largest MFS operator in Bangladesh, enjoys around 80 percent of the MFS market. Its spokesperson Shamsuddin Haider Dalim said as the largest MFS operator, bKash has no objection against interoperability.

“Interoperability among the MFSs is possible provided that the operators are at par on the ground of technological integration.

As fintech (financial technology) based service provider every operator has to ensure right technology and compliance to cater the seamless interoperability to the customers. bKash is committed to the regulator’s directives in this regard,” Dalim said.

bKash started as a joint venture between BRAC Bank Limited, Bangladesh and Money in Motion LLC, USA in 2010. In April 2013, International Finance Corporation (IFC), a member of the World Bank Group, became an equity partner and in March 2014, Bill & Melinda Gates Foundation became the investor of the company. In April 2018, Ant Financial (Ali Pay), an affiliate of globally reputed Alibaba Group, became an investor in bKash.

What does the regulator say?

Experts and stakeholders concerned have agreed that to implement the interoperability, the regulator has to play the major role. In some countries, the central bank is leading the way, as in Indonesia, while in other countries not-for-profit organizations are taking the first step, such as the Bill and Melinda Gates Foundation in Tanzania with the support of the local regulator.

Preferring anonymity an official with the payment system division of Bangladesh Bank told The Independent if there is a clear dominant player in a MFS market, it will be natural for it to become reluctant to support interoperability.

In Bangladesh, two MFS providers enjoy over 97 percent market share while rest of 14 out of 16 MFS licensees enjoy only 3 percent altogether. Mesbah Ul Haque, head of payment service department of Bangladesh Bank, however told The Independent interoperability between banks and MFS will be introduced by December this year and MFS to MFS by June next year. “We have already held several meetings on this manner and the MFS providers are on board with us,” he added.

The banking regulator has already launched an initiative for the interconnection of the MFS accountholders and their bank accounts, he went on.

Part II (tomorrow): Interoperability in mobile financial services will drive competition








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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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