TechViewsMobile Payments
A technology for Digital Bangladesh
Photo: MUMIT M.
Bangladesh has a nascent financial market. To achieve the goal of Digital Bangladesh, we have to turn this into a thriving financial market with real-time transactions and secure, trusted payment systems. We are already sitting on an infrastructure and consumer-base: the vast mobile communication network and 45 million mobile users that is growing 30% each year. With that in mind, lets see how mobile payments work, and how it can improve lives in Bangladesh. Newspapers are full of stories of customers walking out of banks and getting robbed. Wouldn't it be wonderful to not have to carry a lot of money, instead just carry a means to be able to give the money to others? Rest of the world does this with cheques, electronic funds transfers (EFT) and credit/debit cards. But in Bangladesh, we are still a cash-based society. The Governor of Bangladesh Bank recently stated that only 13 percent of the country (19 million accounts) utilizes banking services. Cheques are not trusted, EFTs require too much time, and the infrastructure for wide acceptance credit cards do not exist. We used to wait for hours to pay an electricity, telephone or gas bill. What if those bills could be paid from the comfort of our home? For small business owners or microcredit borrowers, going to the bank means loss of productivity. Buying something often means carrying large sums of cash across unsafe areas--the list of risks and inconveniences is endless. The solution does not lie in the develop world's credit card or web-based e-payments, since Bangladesh lacks the vast infrastructure required for that. The answer lies in our pockets: our mobile phones. With extensive adoption in India, Nepal, Sri Lanka, Pakistan, South Africa, etc, mobile payments have been proven to be a mature technology, and can open the door to electronic money transfer and solve all these problems. Want to pay your electricity bill? Pick up the phone, enter your password, enter the account number and amount of the bill. Instead of 5 hours in a line, you are done in a minute. Want to buy a TV? Just pay using your phone. The microcredit borrower can get account balances, pay a merchant, repay the bank, and receive payments, all through her mobile phone. During the last 16 months, Bangladesh received US$685 million per month in remittance from abroad. (Source: Bangladesh Bank). With the convenience of Mobile Payment, it would be simple to send and receive funds, saving trips to the banks. The technologies involved are simple and available today. We will discuss some of the common ones here. To start, the payer (mobile subscriber) registers with a mobile payment service provider (MPSP), and deposit funds in a bank account. When registering, s/he also selects a personal identification number (PIN). Payments can work over SMS. A SMS message could say, "Pay GAS 123-456 500" and the MPSP would know that the payer is paying his gas bill of Tk. 500 for account 123-456. Software loaded on the phone or SIM can also do the transactions, but that will require high-end phones or new SIMs, which are expensive. Browsers running on mobile phones also work, but that means additional cost. USSD (Unstructured Supplementary Service Data) is a SMS-like solution that is available on all GSM phones. Using USSD, the payment process works like SMS, but be more secure. The last option is interactive voice response (IVR). The payer dials a number, the system recognizes him from his caller ID, and calls him back. Then he enters his PIN, and responds to the prompts to make the payment. A very important question with any electronic transaction is, how secure is the account-holder's funds? The answer changes with the technology involved. It is possible to fake SMS messages or caller ID. Requiring the use of a PIN solves this issue. A well-designed IVR system will note the caller-id, hang up, and call that number back. If caller-id has been faked, the call will go to the actual phone. Mobile payment is a true win-win situation for all concerned. The merchants win: they do not have to store large amounts of cash or provide change. The utilities win: they get prompt payment of their bills. Of course, the biggest winner is the consumer: no risk of robbery because large amount of cash is not carried, and bills and other payments can be made quickly and efficiently. We expect that Bangladesh Bank will regulate this business. The model to adopt already exists: debit and credit card payments. Instead of a piece of plastic, people will be carrying an electronic device, their mobile phone, that can act like a debit card. Technology Selection: Any company that proposes a solution that requires specialized software loaded on the phone or SIM will greatly limit its user-base. MPSP licensees should only partner with companies that can serve any mobile phone customer in any network. It is also vitally important to pick companies certified against international security standards. We recognize that banks will be critical for the success of an MPSP. They have the expertise, structure and trust of their customers. Hence is it natural for banks to become MPSPs. Mobile operators are not licensed to perform financial transactions, rather to provide telecommunication services. They control access to the mobile sets, and as such would enjoy an unfair advantage, creating a conflict of interest. A mobile operator that is also a MPSP can hamper connectivity to a competing MPSP to force its customers to switch. It may provide preferential routing and better quality for its own MPSP, or provide bundled pricing for its mobile customers. Only financial institutions have the regulatory and compliance framework necessary for providing safe and transparent financial transactions. As such, it is important that Bangladesh Bank excludes MNOs from the MPSP license, and that Bangladesh Telecom Regulatory Commission compel them to provide equal access to all MPSPs. Competition is good for consumers, and more choices will keep the prices low and services better. For this reason, current ATM, Credit/Debit card networks should also be excluded from the MPSP licenses. Bangladesh Bank has a huge role to play in shepherding this process. We hope it will soon come out with guidelines for MPSP licensing that sets the criteria for capability and security. With a well-balanced mix of free competition and consumer right, the guidelines would pave the path to wide adoption of mobile payments in Bangladesha path that will lead us to a Digital Bangladesh.
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