Mobile banking key to financial inclusion
Mobile banking is the perfect platform for Bangladesh to take financial services to the country's largely unbanked population in an efficient and low-cost manner, an analyst said.
"Countries across the globe are moving to doorstep agent banking. It is the best way to go. This is the future," said Uttam Nayak, group country manager of Visa Inc for India and South Asia.
He said Bangladesh has 68,000 villages, but it cannot have bank branches in every village. "You can only do it through agent banking. Mobile banking is going to be significantly important for financial inclusion in the country," he told The Daily Star in an interview recently.
His comments came as a new study shows mobile banking in Bangladesh is gathering momentum after the number of subscribers soared more than threefold to 13.2 million last year.
There were more than 13.2 million registered users as of December 2013, transacting around Tk 6,600 crore per month through 182,000 agents, according to the study, Mobile Financial Services: Consumer Insights, by Pi Strategy Consulting and the World Bank.
Nayak was in Dhaka to meet his 20 partner banks. During his visit, Pubali Bank and Islami Bank Bangladesh, two top private sector banks, launched debit cards for their customers.
Visa has already had a product called mPOS (mobile point of sales) to cash in on the huge potential for mobile banking in Bangladesh.
"In developing countries like Bangladesh, Visa has a tremendous opportunity to deliver new payment products with mobile technology," Nayak said.
Through mPOS, Visa is working to enhance consumers' purchase experience by making mobile payments and services broadly available across many different handsets and operating systems.
Nayak said banks' terminals are expensive, and need telephone lines to connect. Bangladesh is not a completely connected market, but the country has made tremendous progress in mobile phones.
"By getting alternate delivery channels, the pressure on bank branches will go and it will also enable bank staff to go for consumer education and financial literacy rather than spending time only on counting cash and handling customers."
Nayak said Bangladesh should adopt electronic banking and card payments as they reduce cost for banks by up to 90 percent. "It allows banks to cut costs and reach more people."
He said Bangladeshi consumers spend Tk 10,000 crore a year in cash to make their everyday purchases. Only 1 percent of the amount happens electronically.
Consumers in India and Sri Lanka spend 3 percent of their total annual purchases electronically while the global average is 16 percent. Consumers in countries such as South Korea, Canada and New Zealand make 50 percent of their purchases electronically.
"The cash transfer of money is not productive. If there is more money lying in bank accounts, it means customers are earning more interest and banks have more money to lend."
"It is very important for any South Asian country as inefficiency is a worry in all countries. Cash also leads to corruption, leakage and pilferage. Moving to the electronic form makes it much more efficient."
The senior official of Visa Inc, which operates the world's largest retail electronic payments network and has been in Bangladesh since early 1990s, said banks would be able to do inclusive banking if they adopt electronic payments.
He said Bangladesh will go through a transformation in the next five years mainly due to an active role of the central bank.
The banks are going to introduce ecommerce which, Nayak said, would accelerate card payments significantly.
Without disclosing any specific numbers, he said the number of Visa card-holders is growing at double digits.
A market leader in Bangladesh, Visa cards are accepted by 20,000 merchants and 4,500 ATMs, with more than three million people carrying Visa card in a market of four million.
"It is a fast growing economy with young demographics. There is rapid penetration of mobile phones and the regulator is keen on cashless payments."
Nayak, who studied electronic engineering in India and the US, said checking fraud and money laundering is the beauty of electronic payments.
"You can monitor every transaction. Electronic payments help ensure transparency and prevent money laundering. It automatically happens in agent banking and electronic banking."
Nayak, who has been working with Visa for 18 years, said consumer education is important as most consumers use mobile money for only money transfers.
"You should be able to pay school fees and utility bills. Under the current system, you are giving money and receiving money. Thus you are reducing inefficiency, not eliminating it. The job of electronic payments is not to reduce inefficiency, but eliminate."
Electronic payments are not just convenient, they help stimulate growth for economies as well.
Electronic payments contributed to 0.8 percent increase in gross domestic product (GDP) in emerging markets and 0.3 percent in developed markets, according to a study by Moody's Analytics between 2008 and 2012 in 56 countries that make up 93 percent of the global GDP.
As of September 2013, the Visa's global network processed 87.5 billion transactions, $6.9 trillion total volume and $4.3 trillion payments volume.
On fraud control, Nayak said, “We score every transaction. We know in which country the fraud is happening and which merchants are doing fraud. We have the intelligence in the system to be able to decide whether it is a genuine transaction."
"Banks report all the fraudulent transactions to us. So, we are able to see a pattern of fraud coming in, and we are able to block the fraud."
Visa is trying to sign up all the banks and make them implement electronic payment technology.
"We are providing them with the best practices and case studies to show how the balances and profitability of the banks go up through alternative delivery channels. Branch transaction is the most expensive, while mobile transaction is the cheapest."
The 45-year-old said credit card is the most misunderstood product.
"For every product, there will be some people who will not understand how to handle credit and misuse it. In Bangladesh, banks have been extremely careful about giving credit cards to people who have repayment credibility. That is why the card penetration is very low in Bangladesh."
He said if credit cards are not handled properly by consumers it can create problem for banks.
"Some countries got carried away with credit cards. Ten years ago South Korea faced problems, as it gave too many credit cards and they had a crisis of non-payment. India also faced the same crisis stemming from credit cards in 2009 when one out of four customers was not paying the bills as they were over-leveraged. India had to slow down the business and close 10 million accounts and banks incurred huge losses."
Bangladesh has 700,000 credit card holders and about three million debit card holders. The sales volume stood at about $1 billion per year.