Shaping the operation of Mobile Financial Service

CHALLENGES IN FOSTERING COMPETITION: a. Dependency curtailing strategy: Mobile Financial Service (MFS) providers are bulk customers of Mobile Network Operators (MNOs) and utterly dependent on MNOs for their connectivity. As a result, if MNOs are licensed to MFS, they would be competing with their own bulk customers. That situation is unlikely to lead to fair competition. A supplier may not supply connectivity adequately to its competitors or to bulk-customers it does not own. Again, unless the border between customers and suppliers are very clearly defined, either the ensuing problems will choke off the MFS providers and leave problems unattended, or regulators will spend endless hours sorting out disputes that will routinely arise.
b.    Anti-competitive strategies: MNOs apparently wish to enter into MFS not necessarily for profits, but to better control and expand their existing business; in economic magnitude, the MFS business may be a tiny fraction of the MNO business. Entry by MNOs will enable them to pursue "dumping" strategies by bundling airtime (selling at below the marketing price) with MFS, driving out MFS ventures that are not protected by MNOs. Bangladesh Bank must intervene in this situation as regulatory body to protect the customer interest. In addition, MNOs may harbour other anti-competitive strategies.  The former chief of Telenor (the largest shareholder of MNO industry in the country) was quoted by a newspaper saying that an MNO "can offer integrated mobile financial services in-built in the handsets." In fact, this fence-your-own-garden attitude cannot go well in creating hubs for other MNOs, banks, or yet other payment businesses. This type of attitude destroys the competitive environment of the market.  They could bundle multiple services together, with only one of them being MFS. In other words, MNOs could choke off small burgeoning MFS providers with their bundling and locking-in power.
c.    Discouraging Investments in MFS: MNOs have been posturing for some time to break into MFS, a behaviour that has been discouraging serious investment in this area. This, in effect, curtails competition. Ironically, after scaring off potential investments, MNOs are claiming that they should be allowed to enter the MFS business. However, an entry by MNOs would not only lead to unfair competition, but would also retard growth of the budding MFS business that is likely to benefit millions who had no access to financial services. Completely barring off MNOs-very clearly-would create the level playing field necessary to attract investment and foster competition.
CHALLENGES IN ADDRESSING CUSTOMER'S INTEREST:
a.    Challenges of interoperability: When an end user of MFS (Mobile Financial Service) seeks to make a financial transaction with another end user of MFS, they should be able to make this transaction seamlessly, irrespective of the MNOs to which they subscribe. This seamless interoperability will be hampered if a specific MFS provider is owned by an MNO (Mobile Network Operator). In such a case, other MNOs may not wish to connect with this MFS provider. If some MNOs are also MFS providers, problems of favouritism, suspicion, and disputes will ensue; the necessary interoperability will be interfered with and, in general, be problematic.
b.    Contrary to market needs: MNOs serve people in all walks of life. Some chat with friends, some need a lot of data delivery for internet browsing or emailing. MFS subscribers, on the other hand, generally need to make small transactions. While MNO service and MFS may intersect, more often than not, they are different markets.
c. Poor track records: While MNOs are large powerful companies projecting an image of success, they are not actually designed to serve the unbanked people perhaps because MNO-owned MFS operations do not interoperate well with one another, or MFS is only a marginal business for them, or they do not focus enough on the unbanked. MNOs do not perform well in providing MFS. For instance, Telenor has an MFS operation in Pakistan. This operation is much older than that in Bangladesh but Telenor's performance there in terms of actual volume of transactions is no better than one quarter of the best performing Bangladeshi MFS provider.
d.    CHALLENGES IN ACCOMMODATING SMALL PASSIVE INVESTMENTS BY MNOS:
1. Lack of interest: As mentioned earlier, the central bank had barred MNO-led MFS in 2011. However, because of the repeated pursuance of the MNOs, the central bank started exploring an option for them, since July 2015 if MNOs could acquire small equity stakes in MFS providers. The response from MNOs has not necessarily been positive. According to Tore Johnson, a senior official of Telenor, as quoted in an October 3, 2015 in an English daily, "The government should decide whether the consortium will be led by banks or mobile operators. Split ownership is not a good way." Another Telenor official opined that they should be allowed to own a bank.
2. Increased complexity: A small stake by MNOs increases the complexity in MFS shareholding. The proposed guideline might have good intention but it further complicates the shareholder issue. Although the MNOs will own smaller share but they have larger corporate muscle due to network access relevancy.  Because of this dependency, even if an MNO is a minority shareholder, it will have a greater power than other shareholders, creating imbalance of power among shareholders. Besides, if an MNO is not a shareholder of an MFS, then the MFS may go to the regulator for a resolution. However, if the same issue is created by an MNO who is a shareholder then before taking the issue to the regulator, shareholders would try to balance this through different masking (for example, by differentiating economic share and voting share or by segregating ownership and operational control) arrangements. These sorts of arrangements generates suspicion and conflict among the shareholders which would hamper growth and competition in the industry.
CHALLENGES IN PROMOTING FUTURE MOBILE-BASED INDUSTRIES:
1. Fundamental shift: If MNOs provide MFS, it will mean a fundamental shift in the nature of their business. Generally speaking, MNOs provide connectivity, not conversation; it is the customers who produce conversation. The MNOs role is to provide platform for conversation. Those who converse using connectivity pay MNOs for this connectivity. MFS providers are simply big customers who converse with MFS's end users, albeit through MFS computers and servers, and help complete end users' financial transactions. In other words, MFS providers are simply large users of connectivity who pay proportionately large fees to MNOs. By seeking to do MFS on their own, MNOs are fundamentally proposing to depart from their original mandate; they would be going beyond connectivity and insert themselves in the realm of conversations. This fundamental shift requires serious thinking before permitting it.
2.    Risky examples for other budding industries: Like MFS, new innovative activities (distribution of information, delivery of entertainment, medical diagnostics, retail and inventory management, agricultural market information, and many others) can emerge through mobile phones utilising the connectivity that MNOs provide. In return for this connectivity, MNOs should and do earn healthy revenues. If, in the case of MFS, MNOs are permitted to go beyond connectivity, it will create an unfortunate precedent for other new innovative industries. Without proper limits on MNO activities-i.e., limited to connectivity-many other innovative industries may be prevented from emerging, while MNOs will keep advancing into ever-growing giants since they would always have an advantage over any other service providers.
CONCLUSION: What should regulators and policymakers do? It is clear that the solution largely depends on the policy the regulators determine which in effect will shape the operation of MFS and the impact on the economy. Among other things, it is clear that part of the solution is to have separate entities focused exclusively on MFS, whose economic well-being depends on performance in MFS alone. This also means that the central bank should regulate MFS providers directly, and if needed impose reasonable tariff ceilings, and require performance metrics vis-à-vis the availability, as well as, further development and diversification of financial services throughout Bangladesh.
Firm and definite decision must be taken about the MNOs in order that a level playing field is created to ensure fair-play among existing MFS providers and new entrants. A framework must be devised so that the industry becomes investment-friendly and offers business potential for participants in an even playing field. Various government and private banks and the local investors must be encouraged to invest in this sector. New investment will be attracted to MFS for two additional reasons: (a) market is already proven and the agent network is already built, and (b) consumers are educated about the functioning and usefulness of MFS. All these reasons will allow banks and other investors to start MFS ventures with significantly smaller investment than before. As a result, a very competitive industry will emerge if Bangladesh Bank takes the necessary steps for a new set of guidelines.

The writer is a sociologist and social researcher; Fellow of PPRC; Member, Bangladesh Bank USSD Technical Committee 2014.  [email protected]