Assignment report on

A CRITICAL STUDY ON POSSIBILITY OF IMPLEMENTATION OF MOBILE BANKING SYSTEM IN BANGLADESH THROUGH RURAL PEOPLE

A study on Mobile banking and Dutch-Bangla Bank Limited

For the partial fulfillment of the course ‘Research Methodology’.
Code: MGT-411

Under supervision of:
Md. Shahidul Islam Fakir
Assistant Professor
Department of Management Studies
Jagannath University, Dhaka

Prepared by:
Md. Rajiul Alam
ID: 06671740
BBA 4th year, 2nd semester
Department of Management Studies
Jagannath University, Dhaka

Publisher: Department of Management Studies. Jagannath University, Dhaka
Date of publication: 12/07/2012

Executive summary

Banking can simply be expressed as the business of keeping, lending, exchanging and issuing money. The Mobile phone has started a new dimension for transaction and banking system. We call this system as Mobile Banking System. Mobile Banking System ensures the use of the cell phone in several types of banking transactions. I want to understand the current situation of mobile banking system in Bangladesh and also want to share this knowledge with others. This report will help its reader to understand the mobile banking system and its future in Bangladesh specially through the rural people, and to understand how to overcome the problems of mobile banking system through rural people in Bangladesh.

Objectives of the study:

1. To prepare a formal study on Mobile Banking System in the perspective of Bangladesh.

2. To know the acceptability level of transaction by Mobile Banking by rural people.

3. To find out the way of increasing the operational area of Mobile Banking in Bangladesh.

4. To identify the level of security and confidentiality of Mobile Banking in Bangladesh.

5. To find out the reasons of backwardness of Mobile Banking in rural area of Bangladesh.

6. To find out the remedies of the problems to implement mobile banking for rural people.

Table of content

|Sl no. |Topics |Page |
|1.1 |Methodology of the Study | |
|1.2 |Limitations of the study | |
|2 |Mobile Banking System | |
|3 |Current situation of Mobile Banking in Bangladesh | |
|4 |How to implement Mobile Banking through the Rural People | |
|5 |Benefits of Mobile Banking in perspective of rural people | |
|6 |Problems to implement of Mobile Banking through rural people | |
|7 |Recommendation | |
|8 |Conclusion | |

Methodology of the Study:

The methodology exercised for this study is as follows:

Types of Data: For this study both primary and secondary data has been used.

← Primary Source: Primary data have been collected form general people and user of cell phone and bank users. In order to collect the detail data, participatory observation method has also been used.

← Secondary Source: Beside primary data, necessary secondary data have been collected from the Newspapers, websites, textbooks, research articles, government publications and various published research works on mobile banking.

Limitations of the study:

Maximum effort was given to make the study a successful one, but it suffers from some limitation those were apparently unavoidably. The major ones were:

▪ Shortage of time period: The major limitation faced to carry out this project was mainly time constraints. The time constraint of the study hindering the course of vast area and time for preparing a report within the mentioned period is really difficult.

▪ Secrecy of Management: The authority of DBBL did not disclose much information for keeping the organization confidential. They have restriction to disclose some secrete information to other. So, some data could not been collected for confidentiality or secrecy of management.

▪ Green field sector: One of the major limitations of this report is that no previous study is done before. So, secondary information was scarce.

▪ Busy working environment: The officials had some times been unable to provide information because of their huge routine work. That is why we do not gather vast knowledge about the critical issues. It is really difficult to gather data from the place where people do not know me for a long time.

▪ Lack of information: In the website, Mobile banking related information was limited.

Mobile Banking System:

Mobile Banking is a Banking process without bank branch which provides financial services to unbanked communities efficiently and at affordable cost. Mobile banking is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant. The mobile banking services were offered over SMS, a service known as SMS banking.

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Figure: Mobile banking system technique

Bangladesh entered into the ear of mobile-banking when Dutch-Bangla Bank Ltd (DBBL) introduced the service for the first time in the country with the support of mobile phone operators Banglalink and Citycell.

Mobile banking services:

Mobile banking can offer service such as the following:

← Account information:

i. Mini- statement and checking of account history ii. Alerts on account activity or passing of set thresholds iii. Monitoring of term deposits iv. Access to loan statements v. Access to card statements vi. Mutual funds/equity statement vii. Insurance policy management viii. Pension plan management ix. Status on cheque, stop payment on cheque.

← Payment and transfers:

i. Domestic and international fund transfers ii. Micro-payment handling iii. Mobile recharging iv. Commercial payment processing v. Bill payment processing vi. Peer to peer payment

← Investment:

i. Portfolio management service ii. Real-time stock quotes iii. Personalized alerts and notification on security prices

← Support:

i. Status of request for credit including mortgage approval, and insurance ii. Coverage iii. Check (cheque) book and card requests iv. Exchange of data messages and email, including complaint submission and tracking v. ATM location

← Content service:

i. General information such as weather up dates, news ii. Loyalty-related offers iii. Location-based services

Mobile banking business models:

Banking models is evolving. If mobile banking is being used to attract low-income populations in often rural locations, the business model will depend on banking type. These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer.

← Bank-focused model

The bank-focused model emerges when a traditional bank uses non-traditional low-cost delivery channels to provide banking services to its existing customers. Example: range from use of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to bank’s customers.

← Bank-led model

The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions through mobile phone instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using retailers or mobile phones.

← Non-bank-led model

The non-bank-led model is where a bank has a limited role in the day-to-day account management. Typically its role in this model is limited to safe-keeping of funds. Account management functions are conducted by a non-bank who has direct contact with individual customers.

Mobile Banking can be said to consist of three inter-related concepts:

• Mobile Accounting • Mobile Brokerage • Mobile Financial Information Services
Most services in the categories designated Accounting and Brokerage are transaction-based. Information services may be offered as an independent controller. Mobile phone banking may also be used to help in business situations as well as financial

Current situation of Mobile Banking in Bangladesh:

Mobile banking is a new technology in Bangladesh. Mobile banking is a term used for performing balance checks, account transactions, payment, etc via mobile device such as mobile phones. Most people heard about it but not have a clear idea, almost 94% people heard about mobile banking and 6% haven’t heard about mobile banking.

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Figure: Mobile banking users in several sub-continents

Mobile banking started from 31st March 2011. Dutch Bangla Bank Limited pioneered in mobile banking services in Bangladesh. Dutch-Bangla Bank Limited launched the service in collaboration with mobile phone operators Banglalink and CityCell. Primarily mobile banking will provide the clients with cash deposit, cash withdrawal, merchant payment, utility payment, salary disbursement, foreign remittance, and fund transfer services.

Nine other banks have also been licensed by the Bangladesh Bank to introduce mobile banking. Bangladesh Bank governor Atiur Rahman inaugurated the service through depositing money in and withdrawing cash from two DBBL-authorised mobile service centres at Naya Paltan and Purana Paltan areas in the city. Mobile banking is a new concept, because of this, it would be a little more expensive for the users.

The aim of mobile banking is to bring more people under the umbrella of banking service. Government thinks it has a great prospect as it is a new technology in digital Bangladesh. But in Bangladesh many people think traditionally, because they cannot think it has any facility to use mobile banking. 69% people feel mobile banking has prospect in Bangladesh whereas 31% think it has no prospect in Bangladesh as many people will not feel interest or have belief on mobile banking.

← DBBL’s mobile banking Services and offers:

a) Customer relation b) Cash deposit c) Cash withdrawal d) Foreign remittance e) Salary disbursement f) Person to person transfer (P2P) g) Air time top up h) Balance inquiry

← DBBL’s Mobile Banking Procedure:

The users will have to pay a service charge of Tk 50 for depositing Tk 5,000 and Tk 100 to withdraw the same amount of money. The service charge will be whichever amount is higher between Tk 5 and 1 percent of the deposited money at the cash-in end and whichever amount is higher between Tk 10 and 2 per cent of the money withdrawn from the cash-out end.

Any Banglalink or CityCell mobile user can register as a recipient of the service by paying a Tk 10 fee to any authorised agent point of the DBBL or any retailer of CityCell and Banglalink.

After registration, the users will be given a personal identification number and a check digit ranging from one to nine which will be added to his/her mobile number that will act as security measures. Every user will need his/her mobile set, check digit and PIN for making any transaction.

“Customer’s money is safe as no one can withdraw money without taking possession of the mobile set, PIN and the check digit all together, no one will be able to deposit unwanted money into a mobile banking account without knowing the check digit, although the mobile number is publicly known.”

The mobile banking is a part of digitalizing the banking sector and the central bank’s plan to bring the masses under financial inclusion.

How to implement Mobile Banking through the Rural People:

Rural poor people living on less than 140 taka a day, they can receive banking services via their mobile phones. It probably won't happen, but it would be amazing if it did.

✓ Increase Interest to Use: Many rural people heard about mobile banking. But they yet have not felt that they should use it as they are happy to use traditional banking system. Some people feel interest to use it. About 55% people feel they should use it and 45% people haven’t feel to use mobile banking.

✓ Make easy transfer of money: The problem of domestic remittances is often overlooked. large cities like Dhaka are home to millions of migrants who would love to send money back to their families elsewhere in the country but who are unbanked and have no real means of doing so. But they want to send money to village. The ability to remit money domestically with little more than a text message could be revolutionary.

✓ Transfer international remittance: People’s international remittances, which already a big part of national income, can be transferred by mobile phone to their relatives. Mobile banking has ability to send money directly from mobile phone to mobile phone is orders of magnitude easier and cheaper.

✓ Reduce Cost and increase saving: About 75% rural people are poor, they lives under poverty line. It is convenient, affordable and it is much more effective in developing savings habits, it will make access to banking and advanced payment transactions at affordable cost. All people know that its cost is not higher than traditional banking. Around 56% people say its cost is lower, 20% say same and 24% say it is affordable than traditional banking.

✓ Make them banked: Then there's the emphasis on the rural people to introduce in banking. Although the rural people are more likely to be unbanked and therefore in need of mobile banking services, they haven't been directly targeted by many of the first wave of mobile banking providers.

The rural people, of course, are both a new customer segment and generally the very last adopters of any new technology. It's hard to sell banking services to someone who neither knows nor understands what a bank is.

✓ Motivate them to use their Accounts: Another risk is that the goal will be reached but in name only, people might have mobile-banking accounts, and might even automatically get such an account when they get their phone. But the accounts might not be used, and in so far as they are used, they might be used only for payments and not for real banking services. So they have to be motivated.

✓ Make it easy to use: It is much more effective in developing savings habits. Its using system is also easy. Anyone can use it. Poor rural people are often not considered viable customers by the formal financial sector as their transaction sizes are small, and many live in remote areas beyond the reach of banks branch networks.

✓ Aware them that Mobile Banking is better than Traditional Banking: Mobile banking is real time on-line banking. Show them how mobile banking is on-line banking and it takes less time than traditional banking. It will make access to banking and advanced payment, transactions at affordable cost.

✓ Introduce Time Saving banking: Mobile banking is available anytime, anywhere throughout the country. So it can save one’s time. But about 70% people think that mobile banking can save their time, where as 30% think it cannot save time.

✓ Make secure and trust worthy banking: Make mobile banking much safer and safeguard against fraudulent transactions, and one can trust mobile banking as traditional banking system. Show them it has secured pin code which is known by the user, and also has a check digit without it no one can deposit money. The poor rural people often have greater familiarity and trust with mobile phone companies than formal banking institutions.

✓ Save them from unnecessary harassment: Informal banking services such as microfinance and village savings and loan associations remain limited in their reach. So, mobile banking system develops to bring poor rural people into banking system. 83% people face or heard no problem to use mobile banking. But 17% people heard or face problems to use it like sometimes transaction do not reach at time, cannot operate it easily as traditional banking.

✓ Make a promise to serve better: The promise of mobile banking for the rural people is that mobile phone providers have managed to get a degree of penetration among the country's rural people. Mobile phone providers are likely to continue in the direction they're headed in at the moment, staying away from banking regulation, confining themselves largely to payments rather than fully-fledged banking, and targeting their entire customer base without any particular emphasis on the bottom of the pyramid.

Will the mobile phone companies sign on, even if they see lots of regulatory headaches and very few profits by doing so? The answer to that question could be the given by the mobile companies and banks.

Benefits of Mobile Banking in perspective of rural people:

Mobile banking has several benefits for peoples, specially for rural poor people:

➢ Mobile banking Makes Life Easier: It is real time on-line banking, available anytime, anywhere throughout the country. It is convenient, affordable and secure; it is much more effective in developing savings habits

➢ Speedy and safeguard: It will make access to banking and advanced payment transactions at affordable cost. It is much safer, speedy and safeguard against fraudulent transactions. All of the characteristics of mobile banking make life easier.

➢ Secure: In mobile banking is Secure, a confidential pin code is used by the user. PIN ensures security of money and protects fraudulent transactions. So mobile banking is fully secured.

➢ Any time access: One benefit of mobile banking is a very speedy process. Transaction can be done anytime anywhere quickly in less time. 100% people believe that it is a speedy process.

➢ Small account for poor: Mobile banking started with the idea to bring the poor rural under the umbrella of banking sector especially rural poor as there are not much bank facilities, also there savings is low so they feel shy to go to bank.

➢ Easy to use: Its using system is also easy. Anyone can use it.

➢ Easy way to send money: People are like to send money easily to their relatives; Mobile banking has ability to send money directly by mobile phone. People can get the service of easy transferring money through mobile banking.

➢ Remittance transfer: International remittances can be transferred by mobile phone to one country to another. Mobile banking has ability to send money directly from mobile phone to mobile phone.

➢ Increase banking activities: Although the rural people are unbanked by mobile banking services they are converted into banked people. It is developing savings habits, it will make access to banking and advanced payment transactions.

Problems to implement of Mobile Banking through rural people:

Key challenges in developing a sophisticated mobile banking application through rural people are:

← Poverty: Poverty is a main problem of 3rd world country like Bangladesh. Rural people are not able to buy their food easily, so how they can buy a mobile phone or open a account in bank?

← Illiterate people: A big amount of rural people are illiterate, so they are not aware of banking system yet. So they are not interested in mobile banking system.

← Weak infrastructure: The socio economic infrastructure is very weak in Bangladesh. About more than 80% rural people has no account in traditional banking system, where mobile banking is a new concept, people have doubt about mobile banking.

← Lack of trust: As it is a new method of banking people haven’t 100% faith on it. So, people don’t want to take any risk by giving suggestion to use it.Rural people feel it will not make life easier as it may not be trust worthy and it is not secured as they cannot fully trust on online banking than traditional banking system.

← Lack of awareness: The rural people have lack of awareness they feel upper class or middle class people can use mobile banking.

← Operating complexity: Handset operability is a vital problem of Mobile Banking There are a large number of different mobile phone devices and it is a big challenge for banks to offer mobile banking solution on any type of device. There is a problem that there is a challenge of interoperability between mobile banking applications due to perceived lack of knowledge in technology standards for mobile banking.

← Security: Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments. When Security of any thick-client application running on the device. In case the device is stolen, the hacker should require at least an ID/Password to access the application. Banks unable to meet the performance and reliability expectations may lose customer confidence.

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Figure: Some causes which affect on using mobile banking.

Recommendation:

After reviewing these problems, we can follow the following recommendations:

❖ Increase Awareness: The rural people have lack of awareness and they haven’t much faith on it. So banks and mobile phone companies and government have to make them aware about mobile banking.

❖ Interest to Use: Banks and mobile phone companies and government have to promote the mobile banking system and grow interest in peoples mind.

❖ Develop infrastructure: The socio economic infrastructure is very weak. Government has to develop the infrastructure to ensure education to all and then people can gather knowledge and they can remove their doubt about mobile banking.

❖ Make easier to use: Mobile banking system is easy, but to rural people it is not so easy to use. Mobile companies and banks have to make the process easier than now.

❖ Reduce cost: I think the current mobile banking provider DBBL charge much for transaction. To grow interest in peoples mind transaction cost has to reduce.

❖ Security: Security is the main barrier which has to ensure for mobile banking process. And many people have doubt in their mind about that. So the process has to make more Trust Worthy

❖ Campaign: Rural people are not aware about banking system. About more than 80% of people has no account in traditional banking system, where mobile banking is a new concept. So it is essential to make campaigns in village to village to aware them.

❖ Tell the people about the benefits: Mobile banking is a banking process that offers financial services like cash deposit, cash withdrawal, merchant payment, utility payment, salary disbursement, remittance inflow and outflow and government allowance disbursement through mobile gadgets.

❖ Develop operability: Make easy and effective operating of mobile phone to banking like using Short Message Services (SMS), Mobile Web, Mobile Client Applications, SMS with Mobile Web and Secure SMS will increase mobile banking activities.

❖ Ensure security through wireless network: The physical security of the mobile device is more important. Security of any ID/Password is more important.

❖ Ensure reliability: With mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion will increase banks performance and reliability of customer.

Conclusion:

The growth of mobile banking technology is increasingly hard to ignore. Analyst firm & Research reports that nearly 50 percent of all mobile users in the United States will be using mobile banking within four years use mobile financial services today. With the advent of technology and increasing use of smart phone and tablet based devices, the use of Mobile Banking functionality would enable customer connect across entire customer life cycle much comprehensively than before.

Mobile banking can play a vital role both banking and mobile sector. It has also impact on social sector too. One day Mobile banking will make rural people’s life easier than today.

Although it has been tried on the best level to make this report informative and better but limitations are inevitable for any report.

References:

(2012, June 27) http://www.marketresearch.com

(2012, June 27) http://www.dutchbanglabank.com

(2012, June 27) http://www.dutchbanglabank.com/mobile_banking.html

(2012, June 27) http://www.bankinfobd.com/banks/17/Dutch_Bangla_Bank

(2012, June 28) http://en:wikipedia.org/ wiki/mobile banking

(2012, June 28) http://en.wikipedia.org/wiki/smsbanking

(2012, June 28) http://en.wilipedia.org/wiki/online banking

(2012, June 28) http.//en.wikipedia.org/wiki/telephone banking

(2012, June 28) http://en.wikipedia.org/wiki/automated-tellermachine

(2012, June 30) http://www.enterpriseinnovation.net

(2012, July 02) http://www.sybase.com

(2012, July 02) http://www.mbanking.blogspot.com

(2012, July 04) http://www.grameen-info.org/index.php

(2012, July 07) http://www.mobilebankingsystems.com

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