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10 October, 2019 00:00 00 AM / LAST MODIFIED: 10 October, 2019 01:08:35 AM
Mobile financial services

Interoperability key to competition

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. Today’s installment is the second and concluding part.
Faisal Mahmud, Dhaka
Interoperability key to competition

Getting mobile payment products to “understand” each other, or to be “interoperable,” is a big challenge to solve if Bangladesh wants to expand overall digital services and financially include over six crore  people in the country, who are currently excluded from the formal financial system, said experts.

One-third of the population in Bangladesh is still financially excluded because of the high cost of financial transaction and poor regulations, a study of World Savings and Retail Banking Institute (WSBI) said. Mobile financial services (MFS), which in the past few years have reached out to nearly 41 percent of the country’s population, is the best vehicle to bring those unbanked population under any financial services, the experts opined.

Industry collaboration and interoperability between the MFS is essential to expand the services, they added.

The data of Bangladesh Bank (BB) said at present there are 7.3 crore registered accounts under MFS service out of which 3.35 crore are active. On every day, the number of transaction is around 7.3 million, which is nearly Tk 37,477 crore, said the BB data. The average daily cash in transaction is worth Tk 12,524 crore, cash out Tk 12,346 crore and the point to point (P2P) transaction is Tk 8,196 crore, said the central bank data.

Interoperability will reduce cost of transactions

An official with the BB said this P2P transaction could be at least doubled if interoperability is implemented. P2P transaction mainly refers money transaction from a user account to a merchants account. Cash in and cash out is basically mobile money transfer service but P2P is the service where no cash is involved hence the essence of mobile money is fully implemented, the BB official said.

Mesbah Ul Haque, head of payment service operation of the central bank, told The Independent the overall transactions through MFS will be “significantly” increased if interoperability between MFS providers is implemented.

Md Assalatuzzmaan, CEO of Prolific Analytics, a Dhaka based company which conducts R&D on mobile payment system, told The Independent interoperability can promote competition, increase the financial viability of service offerings by reducing fixed costs and unlocking economies of scale.

“All these elements are generally considered to facilitate financial inclusion. A lack of interoperability can result in inefficiencies due to overlapping or limited coverage and sunken investment costs, which can negatively impact adoption and usage,” he said.

Assalatuzzaman said at present two MFS providers bKash and Rocket control over 97 percent of the MFS market. “bKash alone comprises 80 percent of the market and they charge quite heavy amount for their services. Charging two percent on cash out transaction is of course too much but since they are technologically advanced and has no equal competitor in the market, they can charge whatever they want,” he said.

“We have to realize that the core essence of mobile payment or mobile wallet is to create a cashless society and that would be possible if interoperability is implemented,” he said.

Market players might show reluctance

Mizanur Rahman, a banker and the editor of Fintech magazine, said despite the advantages that interoperability brings, not all market participants will necessarily embrace interoperability initiatives.

“For example, in highly concentrated markets with only one or a few dominant players, the short-term objectives to lock in customers and retain the existing market share might distract dominant market participants from the medium to long-term benefits of a growing the overall market,” he said.

Rahman also said if properly implemented interoperability will surely reduce the cost of transaction within MFS system for a customer.

Example of inter-operability driven competition

African country of Tanzania provides the best case to explore how this new services have impacted the market development. As one of the earliest countries to launch mobile money back in 2008, Tanzania has evolved into a mature, competitive market. With four mobile money providers—Airtel, Tigo, Vodacom, and Zantel—Tanzania is a significant contributor to growth in the region.

According to a document of GSM Intelligence, from the early days, the Bank of Tanzania—the country’s central bank—has had a progressive regulatory approach, seeking to create a conducive “test and learn” environment.

After observing ongoing integrations between mobile money providers and the banking sector, in 2013, the Bank of Tanzania began to encourage discussions on account-to-account interoperability between the MFS providers.

Providers would begin to interconnect their services in the following three years, first with a bilateral arrangement between Tigo and Airtel in September 2014. In December 2014, Tigo connected with Zantel, and in February 2016, Vodacom announced its commercial launch, connecting with Airtel and Tigo.

The International Finance Corporation, supported by the Bill & Melinda Gates Foundation and the Financial Sector Deepening Trust in Tanzania, facilitated the majority of the industry discussions leading to those launches.

Because of this deployment of interoperability in Tanzania, the number and value of transactions is growing very fast— about 10 percent growth month on month— and today the Tanzania market is performing close to Kenya—the most successful African country in terms of implementing MFS.

Moreover, there is no single dominant MFS provider in Tanzania rather all the MFSs providers there compete among each other to provide the best possible MFS service in best possible rates.

A need of time in Bangladesh

Interoperability between the MFS has become a “need of time” in Bangladesh, said Abdur Rauf, chairperson of the Bangladesh Competition Commission—an independent commission in Bangladesh which was formed upon the enactment of “Bangladesh Competition Act 2012”, to initiate healthy competition in different business sectors.

Talking with The Independent, Rauf said a large chunk of MFS users in Bangladesh are from financially marginalized societies. “The people in village use this MFS service for money transaction from one place to another and they are practically paying the highest amount for the transaction of money,” he said.

Rauf said charging 1.5 percent to 2 percent for money transaction to these people is “not acceptable.” “We want the market to open up a bit so that common customers can reap the benefit of healthy competition between the different MFS providers. If the market remains concentrated to one or two MFS providers, this competition will not come in its full form,” he said.

He said once the telecom market of Bangladesh was concentrated to one large operator and at that time they dictated the call rates and other services. “After the market got open with entrance of other telecom operators, the call rates got drastically reduced and the customers were immensely benefitted. I believe, same will happen if interoperability is ensured in mobile banking services,” he said.




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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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