Digital Hundi threatens mobile banking success

Md Sumon (30), a RMG executive, living in Dhaka, received a phone call from his village in Bagerhat Friday morning. His mother fell sick and urgently needed money for treatment. As it was a government holiday and the banks were closed, Sumon transferred the money through bKash – the largest mobile financial service (MFS) in Bangladesh. “The situation was tense, my mother’s treatment was stalled. But bKash saved the day for me with their prompt service,” Sumon told the Dhaka Tribune. Countless others like Sumon have benefited from the MFS providers. Millions of Bangladeshis do not have bank accounts, for them, mobile banking is the way to go. The reality is too many people from lower income groups and rural areas are still outside conventional banking system. These digital financial services have rapidly expanded, bringing the unbanked and lower income people under a structural financial system. In 2011, the Bangladesh Bank (BB) introduced MFS as a part of a financial inclusion plan aiming to bring unbanked people to the national financial network. The target customers for MFS are mainly people with limited to no access to banking services. Currently, they provide several services including inward remittance, cash-in transaction, cash-out transaction, person-to-person (P2P), salary disbursement, utility bill payment, merchant payment, government payment, purchasing from brands or outlets. Mobile banking has rapidly grown in popularity in Bangladesh. At present, 19 banks have the permission to operate MFS and all but one of them provide these services. Brac Bank’s bKash and Dutch-Bangla Bank’s Rocket are the most popular services. Former Bangladesh Bank governor Atiur Rahman, who introduced mobile banking to Bangladesh, claimed, “No other country has more mobile banking customers than Bangladesh.” He told the Dhaka Tribune: “Consumers can receive information about their accounts and conduct transactions with their financial institutions using their mobile phones. They can pay and receive money with these simple mobile payments.”The service is widely praised, with the State Minister for ICT Zunaid Ahmed Palak declaring mobile banking is helping Bangladesh march toward a cashless economy by providing e-wallet facilities. “We are moving quickly towards a cashless economy and our vision of ‘Digital Bangladesh.’ Thousands of rural households now receive money from their sons and daughters in the cities,” Palak told the Dhaka Tribune. The state minister also said, “Thousands of RMG workers send back money home using mobile financial services. We are very close to end the cash transactions.” State Minister Palak said Bangladesh is launching PayPal to ensure smoother transaction with global clientele. “Years ago, it was very difficult to send money for my son’s education in the village. He lived with his grandmother, for whom it was impossible to maintain a bank account,” Safia Akter, a garments worker at a Chittagong-based factory, told the Dhaka Tribune. “But with a bKash account, I can send money any time and they can receive it sitting at home.” However, the accountholders think the transaction charge is high. Many recommend that reducing the rate, which is about 1.85% across all MFS, will encourage more people to use mobile banking services more. “As a student, paying Tk18.5 on a transaction of Tk1,000 is a little too much for me. I think, the government and Bangladesh Bank should take steps to lower transaction charges,” said Aminul Islam, a student at Dhaka University.

The threat of ‘Digital Hundi’ and other challenges

As mobile financial services grow with every passing day, the industry has not found it on a bed of roses. Many challenges still hold back the mobile banking, which are increasing alarmingly with the industry growth. From the very beginning, the safety of MFS was a major concern by various stakeholders of mobile banking. “There is no doubt that mobile banking is growing significantly in the country. It is a common tendency that corruption and irregularity will manifest when the services will increase very fast,” said former BB deputy governor Khondkar Ibrahim Khaled. “That is why it is very important to ensure security in a digital financial system,” said Khaled, urging the regulators to take effective measures to avert untoward incidents. On the other hand, stopping deceptive activities is a big challenge for operators. “Awareness is the tool to stop deceiving transactions. We are trying to create awareness through advertisement and other tools,” Shamsuddin Haider Dalim, head of Corporate Communications of bKash told the Dhaka Tribune. “As it is done through alluring promises and fake information, the client should check balance or call to our call centre to avert untoward transaction. There is not technical or technological issues linked to these kinds of transactions. If it is so, our system can identify and stop it,” he added. Recently, MFS activities have come under investigation due to allegations of fraudulent activities including illegal channelling of remittance, called “Digital Hundi” and terror financing. On September 14, the central bank asked the bKash authorities to suspend activities of 2,887 agent accounts, as they found an alarming amount of late night transactions by the agents, resulting in allegations of “Digital Hundi.” “The 2,887 accounts were used to receive money from foreign countries,” said a probe report by the Bangladesh Financial Intelligence Unit (BFIU), the anti-money laundering wing of Bangladesh Bank. On October 4, the BFIU ordered 17 MFS providers to scrutinise the information of their agents, especially the 2,887 bKash agents, to find out if those blocked bKash agents are using other MFS accounts for suspicious transactions. When contacted, BB Executive Director Subhankar Saha, told the Dhaka Tribune: “We are very vigilant to prevent misuse of MFS facilities. We are already taking actions against anyone involved in any suspicious transaction using MFS.” “These accounts, which are operating in breach of the guidelines for MFS operation, will be closed. We are also inspecting the MFS providers’ activities strictly,” added Saha. However, to target the rising illegal use of MFS, the central bank lowered transaction limits on February 1, 2017. Now, a user can cash-in Tk15,000, instead of Tk25,000. Cash-out limits have also been lowered from Tk25,000 to Tk10,000. The monthly maximum cash-in limit was slashed to Tk100,000 from Tk150,000 and the maximum monthly limit on cash-out was brought down to Tk50,000 from Tk150,000. With these challenges looming over a burgeoning industry, it remains to be seen how the MFS providers and the regulatory agencies tackle the problems. Mobile banking is increasingly popular in Bangladesh, and the risk of its misuse cannot derail something that has proven endearing to the population and backed by the government.