Large numbers of MFS accounts were without regulatory compliance set by regulation to protect against fraud, ensure consumer rights and also stop money laundering and financing of terrorist groups. Besides, some operators have opened MFS accounts based on mobile user lists supplied by mobile network operators, which may allow fraudsters and hackers to grab the money of genuine recipients.
When the world is moving toward a “less-cash” society, Asia is leading the queue and Bangladesh is moving fast driven by its robust mobile financial services (MFS) under a conducive regulatory environment. Bangladesh Bank data shows that the average daily transaction of MFS operators has crossed Tk3200 core and its volume shows a growing trend. Experts predicted that MFS will get the better of all other methods to push forward the Bangladesh journey towards a cashless nation for the better thanks to the spread of smartphones among anyone and everyone.
But the path is not a bed of roses. When good things happen slowly then bad things happen quickly. Since technology is evolving, scammers and fraudsters are not sitting idle. They are using increasingly sophisticated tactics to steal money from common people who are mostly less literate, remain excluded from financial services and now enjoying the benefits of mobile banking services. But the role of MFS players is inadequate as most of them are engaged in fighting each other to grab the market share leaving their innocent users- mostly poor and low-income people in the hands of fraudsters who are smart, talented and clever.
Industry experts have already expressed grave concern the incidents of mobile banking fraud are rising alarmingly across the globe even in developed markets which prompted the UK to decide to ban all cold calls for financial products. The new British Prime Minister Rishi Sunak already has launched a plan to tackle scams: "Fraud accounts for over 40% of crime." For developing markets, like Bangladesh and India, the situation is too cautious. According to Reserve Bank of India data, 2,331 fraud cases involving Rs 87 crore were reported by banking entities during the six months as against 1,532 frauds involving Rs 60 crore. In Bangladesh the situation is no doubt, more worsen. Bangladesh Bank has yet to release such data on MFS fraud incidents and all MFS operators are yet to be united to fight frauds.
Bangladesh is not out of this purview. Rapid Action Battalion (RAB) recently arrested 13 members of a mobile banking and debit or credit card forgery ring from Dhaka and Bhanga Upazila of Faridpur. Readymade garment workers, small entrepreneurs, and low-income and less-educated people were the victims of the forgery ring. A senior RAB official has said 10-12 cases of extortion using mobile banking services are reported every day, according to reports published in dailies.
No doubt, Bangladesh’s journey towards a cashless society has gained momentum after the entrance of bKash, the leading mobile financial service in the country. Now more than ever millions of people are using MFS to send and receive money, save money for their future needs and buy essentials, goods and medicines from markets and stores as they have learned that carrying cash is risky and unhealthy.
With this MFS tool, they are receiving remittances and gifts instantly from their relatives and friends. The government as well as Bangladesh Bank are promoting this cashless transaction which has ignited a revolutionary journey towards a digital economy for a better and smarter Bangladesh. The central bank has set a target to have 75 per cent of transactions settled digitally by 2027. Keeping it at the forefront, various initiatives have been taken to encourage the use of digital payments in the country.
In line with government aspirations, banks and financial institutions have committed themselves to promoting easy, safe, and secure cashless transactions for all. Card offerings, easy-to-use online services, and best-in-class mobile applications have been introduced and revamped to suit newly minted purchasing habits. This diverse range of options gives customers the flexibility to choose what truly fits best. This shift means better, cheaper and faster access to money for people. The proliferations of mobile phones has, in some developing countries like Bangladesh, allowed payment systems to leapfrog those in more advanced economies.
But some recent incidents of fraud, account opening by some mobile financial services (MFS) operators without regulatory compliance, lack of a level playing field and unethical actions by some market players to outflank competitors lead inadequate effective measures to educate consumers. This is no doubt, a window of opportunity for mobile banking fraudsters to steal money from the pockets of innocent users- a red alert on the journey.
Fraudulent activities, in whatever form or shape, are bad for the country’s MFS industry growth and a stumbling block in the way of a cashless journey. Lump was at the base when a new entity entered the market with the government’s support to do MFS business without regulations. A large numbers of MFS accounts were without regulatory compliance set by regulation to protect frauds, ensure consumer rights and also stop money laundering and financing of terrorist groups. Besides, some operators have opened MFS accounts based on mobile user lists supplied by mobile network operators, which may allow fraudsters and hackers to grab the money of genuine recipients.
To mitigate risks and fraud in mobile banking, strict enforcement of the regulation is urgent. Here KYC comes to the fore. After thorough research, Bangladesh Bank issued a guideline for operations of mobile financial services and introduced KYC protocol in line with the Financial Action Task Force (FATF) where e-KYC is mandatory for all MFS providers. KYC or 'know your customer is a mandatory verification procedure carried out by any banks, financial institutions, and other organisations to minimise illegal activities like money laundering. Banks follow this process while opening of accounts and periodically update the same. For KYC in Individual bank accounts, banks ask for a specified proof of address and Identity, with the latest photograph of the customer. For current accounts, requirements vary.
Seasoned bankers say any banking account without proper validation of customers through face-to-face interactions is risky and a big challenge for mobile banking. Therefore, regulators across the globe have imposed on MFS providers to identify and validate their customers properly through face-to-face interactions and follow KYC/e-KYC rules to avoid any deviations.
One of the major pillars on which this MFS industry is standing is the simplified KYC introduced by Bangladesh Bank and the BFIU. As per BB guidelines, banks and MFS operators are required to periodically update the KYC records. This is a part of the banks due diligence framework.
If a KYC document is not in place, any person can do any financial crime through the acquired MFS account. As per BB guidelines, banks are required to periodically update the KYC records. And KYC is required to be done at least every 2 years for high-risk customers, every 8 years for medium-risk customers and every 10 years for low-risk customers.
With its Digital Bangladesh Vision, the government is encouraging people to adopt digitalization in all operations and promoting mobile banking disbursing millions of taka aids and allowances to people across the country through mobile financial services operators which helped MFS innovations to accelerate the journey and boost financial inclusion. With increased access to person-to-person (P2P) payment services, more consumers across generational lines are now preferring to use mobile applications when paying other people as opposed to cash. Millions of young consumers are avoiding cash and using cards to buy food in restaurants and shopping malls, which is pushing forward the Bangladesh journey towards a cashless nation. MFS customers who are in front of Bangladesh’s journey toward a cashless society are poor and low-income citizens. Rising fraudulent activities may discourage them to shy away from using MFS tools which ultimately will jeopardize the Bangladesh cashless journey. This is high time for all MFS operators to work together to fight fraudsters by educating consumers.
(The writer is the Editor of THE BANGLADESH EXPRESS and the Chairman of the Bangladesh Journalists’ Foundation For Consumers & Investors-BJFCI).
