The financial sector is currently faced two crucial questions: Does mobile financial services (MFS) in Bangladesh being the fastest-growing financial service need a separate regulatory body? Is Bangladesh Bank an independent regulatory body?
As new initiatives to bank the poor are straining the financial regulatory systems, this question was raised in recent times after the learned High Court asked all concerned to explain why Nagad, an MFS operator of Third wave Technology has been operating its business without a valid license from Bangladesh Bank and now giving leads to a growing debate.
A senior banker has recently initiated the discussion at a function in the city, appealing to the Bangladesh Bank to introduce a separate regulatory body to supervise mobile banking. He argues that mobile banking is a great success story of Digital Bangladesh and millions of people are transacting billions of taka every day through this channel which needs special attention to ensure customers’ protection as well as promotion of this innovation. To keep its growth pace, a conducive regulatory environment is a must.
Mobile banking is now available in nearly 100 countries via 271 services. Mobile money has done more to extend the reach of financial services in the last decade than traditional “bricks and mortar” banking has in the last century. In Bangladesh, it has ignited a financial revolution is in progress everywhere. It is not happening under the skyscrapers of cities only but in villages, slums, rivers, agricultural fields and markets. This revolution is changing the landscape of financial inclusion too fast. Industry collaboration continues to gather steam. Cross-border transactions are the fastest-growing product. While mobile money is more accessible than ever before, several study reports say there is still an opportunity to reach underserved segments, particularly women and rural consumers. But some questions and uncertainties remain regarding the regulatory and policy environment that requires addressing to reap its potential.
More regulators are recognising the importance of creating an open and level playing field for mobile financial services. But operational foundations and agent management still remain critical to digitising cash, according to the GSMA report, while increased investment will be key for providers to compete in an online world. With an increasingly active customer base, further development of the mobile money ecosystem will be essential in the coming days to diversify customer usage. So, regulation’s role is crucial to this innovation- mobile financial service. The growing concern for the regulators is that mobile phones have enabled mobile operators to participate in the provision of certain financial services in various markets, simultaneously increasing competition and raising issues of regulatory scope. Proliferating business models and technology choices contribute to the complexity of the issues while the mobile phone itself plays two distinct roles, often simultaneously. With regulatory frameworks in place, the focus of attention is now moving towards the question of how best to oversee and enforce the application of the framework in the context of proliferating new mobile financial services providers.
In Bangladesh, currently, nearly ten million people mostly from low-income groups are using mobile money through 13 MFS operators to meet their financial dealings which helped the nation to reduce poverty level by approximately 15 per cent over the last five years. The journey started with DBBL Mobile Banking, now Rocket which experienced tremendous success along with the entrance of bKash, a subsidiary of BRAC Bank. For its impressive growth rate compared to its global and local peers, bKash is a global success story in mobile banking and as well as the unique symbol of the success of Digital Bangladesh. bKash is a joint venture between BRAC Bank and US-based Money in Motion, Bill & Melinda Gates Foundation and International Finance Corporation (IFC) of World Bank Group and presently is the market leader in MFS Industry. What M-Pesha did in Kenya has been outperformed by bKash in Bangladesh under the guardianship of Bangladesh Bank. The most notable thing is that the growth bKash made in 10 years is much more impressive than M-Pesha due to the unique Bank-led model regulatory environment. Most other countries are now eager to learn the bKash model as a case study and a role model. But some questions and uncertainties remain regarding the regulatory and policy environment that requires addressing to reap its potential.
The problem with mobile banking is that different players like mobile money operators, agents, payment service providers, technology service providers, and regulators all play very important roles in taking the service to its highest stage of success. So, the number of diverse stakeholders and solution providers creates many opportunities, but also some problems for regulations. In recent years, the convergence between new innovations in the technology and financial services industry has fueled robust growth in the Fintech space. The challenge for regulators is how well these players are made to work in harmony and how they set examples of commendable collaboration.
Industry collaboration is critical for domestic interoperability as well as the launching of new products. But the question is: who will regulate this disruptive technology innovation and how? This question is now the big concern of Mobile Financial Service (MFS) providers as the competition among the diverse stakeholders- banks, non-banks and technology firms has begun. Banks consider them a threat as some players have targeted profitable areas of the banking industry, offering low-cost lucrative payment services. Meanwhile, bank-owned payment platforms are likely to offer real-time payments as opposed to transactions that take up to three days to settle. So, the country’s MFS industry is likely to become a more crowded battlefield. In recent times, the government appeared both as a facilitator as well as a competitor. A new entity- Nagad entered the market as the service provider of Bangladesh Postal Services of the government without the license of Bangladesh Bank. Despite widespread criticism from all corners, Bangladesh Bank could not stop its operations rather than was bound to give it a temporary licence which was extended several times without any valid reasons. Finally, the central bank is considering its proposal to operate as a NBFI. So, the question has been raised: Is Bangladesh Bank acting as an independent watchdog body as per the constitution? And the curious question is: Is the existing regulatory framework enough to drive MFS operations properly?
Some MFS providers raised their concerns in the same lines. We should think about this issue. Hence, the issue of a separate regulatory body came to the fore. A separate regulatory body might be the solution to address the problems arising day by day to keep the MFS growth journey. Some questions and uncertainties remain regarding the regulatory and policy environment that requires addressing to reap up its potential from the MFS industry which is growing impressively.
Regulation is just a natural part of the financial services industry to ensure there is a level playing field, as it pertains to payment. Security is an important concern for all. From a regulatory perspective, the priority is maintaining a stable financial sector, alongside financial inclusion. That is what regulators and policymakers have to balance. All transactions through banking and mobile banking channels must follow international AML/CFT standards that require adequate customer due diligence (CDD) Know your Customer (KYC) norms. The risks which are inherent in mobile banking are those inherited from both banking and from telephone, as well as new risks unique to mobile banking. Here, the ability and capacity of the Bangladesh Bank are questionable as the central bank is not truly independent but dictated by political powers.
Over the past decades, financial sector providers and regulators have come to identify the risks involved in offering such services and to better understand how to mitigate these risks. Technology keeps moving forward, which makes it easier for artists to tell their stories and paint the pictures they want. At the same time, regulation is necessary, particularly in a sector, like the banking sector, which exposes countries and people to risk. Regulators are increasingly recognizing the role that mobile financial services can play in transforming access to financial services and they are seeking to unlock this potential by creating enabling environments for them to grow. Understanding the risks involved allows regulators to balance these with opportunities for greater access.
So, our goal should be to take advantage of these new technologies and regulate the industry smoothly, not only to improve service but also to raise the bar in security and privacy issues associated with transacting business in the digital world in which we live. A separate regulatory body or a separate department within the central bank with enhanced capacity might be the right solution.
(The writer is the Editor of THE BANGLADESH EXPRESS and the Chairman of the Bangladesh Journalists’ Foundation For Consumers & Investors (BJFCI). He can be reached at dhakamoney@yahoo.com).