Like any fast moving consumer goods (FMCG), two key critical factors can “make or break” your business dream in mobile financial services. First is the Product Development & Marketing and the second but equally important is building a “Quality Distribution/Agent Network”. Today, I'll touch upon building a “Sustainable Quality Agent Network” for effective and compliant mobile financial service delivery.
Bangladesh Bank prescribed a Bank Lead model where by only a Bank is authorized to offer mobile financial services directly to the customers, ensure customer protection and other compliances. For traditional Banks, this is a completely “new world” because for ages, they're trained and tuned to “brick & mortar” operation to deliver services physically to limited number of customer from secured “Branch Offices” managed by their own employees.While, for a mobile phone company, serving endless millions of customers and delivering services from 4-5 lakhs of “agents” is “normal”, it could be huge and mammoth tasks for a Bank. To put in right contrast, it's like conventional war vs. guerrilla war and we know how US Army was defeated in Vietnam and Russia in Afghanistan. It's War but, with completely “different” set of “engagement rules”, and with those “differences”, small can beat the big forces.
With the MFS guidelines, local banks are finding new ways to delivering financial services to common people. Rather than using bank branches, they offer banking and payment services through mostly Telco agents. For common people with very simple needs, receiving banking services through “agents” is far more convenient and efficient than going to a bank branch. Possibly,it's thefirst time they have access to any formal financial services “informally” from their “known”places and faces using mobile phones.
Delivering financial services through agents is exciting to regulators because mobile companies haveproven over years that similar regulated services (customer registration, airtime sales, utility bill payments, ticketing etc.) can be extendedto all including marginalized communities.
For example, even in rural areas, many poor people have access to low cost mobile phones and Flexiloadagents. Customers use mobiles to transfer money from one person's account to another. They use the agent to exchange cash for electronic value in a mobile account that resides in an authorized Bank.But, we have to understand that, the technologies are just tools and parties to mobile financial services must see a business case for their involvement. Unfortunately in Bangladesh, the service pricing is set at such low levels which is unheard off and making it significantly difficult to adequately viable and attractive for parties involved. Delivering quality services at such low prices demands extreme “efficiency” and mind set to “build-on-top” rather “building afresh” which is again too costly and redundant. Bear in mind that building Agent network is risky, costly, needs continuous nurturing, mentoring and monitoring. For example, leading MFS providers who built their own agent network, spend about 80%-85% of their revenues simply as commission to Agents and Distributors while managing hundreds of employees to run this distribution operation. This is not efficient and doesn't leave enough margins for a Bank to carry on huge Marketing, managing technology or share enough for the cost of resources used from Mobile companies. Sometime, very low margin or insane competition may tempt service providers to cut corners. In one such case, newspaper reported that a Bankoutsourced whole technology operations and distribution to an “unregulated” entity who exploited this opportunity to fraud common people and partners and gone underground with huge sums of money.
Bangladesh Bank emphasizes on multiple categories of risk that bank should seek to mitigate such as credit risk, operational risk, legal risk, liquidity risk, and reputational risks. Operational, Liquidity and Reputational risk takes on special importance when customers use agents instead of bank branches to access financial services.
It's fact that agents are far more risky than in a conventional bank branch. These agents may operate in hard-to-reach or dangerous areas, and they also lack physical security systems and specially trained personnel. The lack of expert training may seem a particular problem if agents' function goes beyond normal cash-in and cash-out transactions. MFS agents also potentially increases risk and concerns on consumer protection as well asensuring compliance with rules for combating money laundering and financing of terrorism.We will try to briefly touch-base the five risks mentioned above.
Credit risk, for example, a customer receives a receipt when makes a deposit at a bank branch and usually can be fairly certain that the funds will be credited to her account and can be withdrawn when desired. But, when a customer makes a cash-in into her mobile account through a retail agent, even if the customer receives a receipt immediately, bears the risk that the transaction is not communicated to the bank unless the customer check her balance immediately after the transaction. On the other hand, when the retail agent processes a cash withdrawal for a customer, the retail agent takes the credit risk that the bank may not reimburse him the cash he disbursed from his account balance.
Operational risk refers to potential losses resulting from “inadequate or failed internal processes, people and systems or from external events.” Service providersrely on electronic communications to settle transactions and a variety of potential operational risks arise. For example, customers or retail agents could commit fraud, or a bank's equipment or other property could be stolen from a retail agent's premises. Financial loss for banks or nonbanks (and also potentially for customers) can also occur from data leaks or data loss, inadequate physical or electronic security, or poor backup systems. Evidence from Brazil, which has the longest track record with agent assisted branchless banking, suggests that operational risk is significant.
Legal risks. Financial service providers will invest in a new delivery model only if they can predict and manage how relevant laws, regulations, and legal agreements will be applied and enforced, and how these things may change over time.
Liquidity risk. Agents, especially those that are relatively small, unsophisticated, and remote, may not have enough cash to meet customers' requests for withdrawals and may lack experience in the more complex liquidity management required for offering financial services. To manage liquidity effectively, agents must balance several variables, including turnover of cash, ease of access to the retail agent's wallet balance, and processing time of transactions, among others.
Reputational risk. When an agent underperform or are robbed, banks' public image may suffer. Many operational risks such as the loss of customer records or the leakage of confidential customer data also can cause reputational risk, as can liquidity shortfalls in the retail agent's cash in hand. The prospects for damage to the financial institution's reputation from problems of this sort should not be underestimated, because many agents may be inexperienced in providing financial services, may not be accustomed to maintaining adequate cash to settle customer withdrawals, and may lack the physical security to protect the increased levels of cash they will have on hand if things are going well. Moreover, reputational risk can spread from one bank to another and take on systemic dimensions. In South Africa, mobile phone banking providers expressed concern that if even one young initiative failed, it could jeopardize customers' trust in the entire mobile phone banking business.
Consumer protectionisessential from service design to delivery to ensure thatcustomer's rights are appropriately protected. Use of agents may increase confusion on their rights and press claims when aggrieved. But, it is not always clear to customers how they will be protected against fraud when they use agents to conduct financial
transactions. For instance, it might not be obvious whether customers should hold the bank or its agents liable if they suffer a loss.
Proper agent selection criteria and ensuring quality standards can mitigate major business risks. Few widely used key criteria of agent selectionare discussed below:
Trust —history of the business, reputation of store owner within community; level of population's awareness about store; police record; quality of existing cash handling and control mechanisms nature of the business; safety of location.
Convenience —size, location, and cleanliness of the store; number and friendliness of staff; range of client needs the store can fulfil.
Technology ready business synergies —already in Airtime or transactional service business; level comfort with technology; potential for generating additional traffic and triggering additional sales.
Success of Mobile financial services also demands a good partnership and synergies on complimenting assets and core competencies from Mobile and Banking industry. Few critical assets from Mobile industry that can significantly uplift Mobile financial services are Access Technology (USSD, SMS, STK etc.), Distribution network and Cross & Up sales.Considering this, GP prepared its compliment enabler position (MobiCash) to create a winning partnership offering those three key assets.
Keeping the above risk factors in mind, GP uses its core strengths with specific focus to recruit qualified MobiCash agents from its large pool of time tested retail chain by unleashing its massive central, regional, distribution houses and thousands of front line sales force to reach out to inaccessible places using exclusive skills, subject matter knowledge and mechanics. Each agentis trained and profiled to deliver partner banks services ensuringprescribed compliances in line with Bank-led regulation allowing partner banks to focus more strategically in products and promotions to reap greater benefits.
Few advantages of MobiCash
– GP being one of the largest enterprises offers strong commitment to adhere to Bangladesh Bank's & BTRC's relevant regulation and compliance;
– Offerslargest customer base, network coverage and distribution network to its partner banks;
– Any mobile customer of partner banks can avail the services through MobiCash distribution network
– MobiCash enabling partnership offers to increase client base, both consumer and business-to-business;
– Volume of transactions and increased money flow for all parties due to the easy and simple integration;
– MobiCash brings know how and expertise on charging/billing technology and IT assets into the service chain which is extremely valuable for the partner banks;
The whole infrastructure and value proposition of Grameenphone did not come easy. It took us years to roll out and strengthen the distribution network along with expansion of our customer base. Other than the expense of expanding the wireless network, acquisition of mobile customers itself has its own cost. We have been training retailers about regulatory requirements and basic mobile transactions for years.
Grameenphone has invested not only in technology but as well in skilled people, knowledge, innovation and much more into the system. However, for sustainable business all parties need to understand and build viable position for major stakeholders.
The cornerstone of GP's MFS strategy is to support the partner banks to tap in the untapped market and expand their businesses in a viable way bringing in significant value into the partnership, which we consider to be more strategic than pure transactional. We are committed to explore all possible avenues and extend our maximum cooperation to the banks for the success of MFS in Bangladesh.
The writer is Head of Financial Services at Grameenphone Limited