[Type the abstract of the document here.

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Mobile Financial Services

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REPORT ON
Mobile Financial Services Grameenphone

SUBMITTED TO: HEAD, PEOPLE AND ORGANIZATION GRAMEENPHONE

SUBMITTED BY

Zubairia Khan

Prepared By Zubairia Khan Financial Services, Grameenphone

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Letter of Transmittal
2 February, 2012 Head, People and Organization Grameenphone GP House, Baridhara, Dhaka Subject: Submission of the report on Mobile Financial Services focused on Grameenphone Dear Sir, It gives me immense pleasure to submit the report on Mobile Financial Services in Grameenphone as a requirement of the BBA program of the Department of Finance, University of Dhaka. Apart from the academic knowledge, I have got the golden opportunity to acquaint myself with the mobile financial services provided by GP as well as getting my first-hand work experience. I believe that the experience of corporate world I have acquired from this study will be an invaluable asset throughout my life. It expresses me gratitude to you and my supervisor Mir Rashedul Hossaim, MD Financial Service, for providing me desired chance to learn about the mobile financial services provided by the largest telecommunication company Grameenphone. In spite of my limitation of short duration, I have devoted to find out the core operations and analytical procedures through my works. I hope you will appreciate my endeavor and find the report up to your expectation. It has to be mentioned further that without the expert advice and guidance of the Grameenphone family, it would not have been possible to complete this term paper. I will be pleased to answer any sort of query you may have regarding this report. Thanking you

Zubairia khan BBA 14th Batch

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Department of Finance,University of Dhaka

ACKNOWLEDGEMENT
It was the never ending efforts and ever increasing curiosity in preparing a term paper on Mobile financial services focused on GP . I strongly believe works like this will surely help me to have a clear concept about mobile financial services existing in our country. I would like to thank Almighty Allah, the all knower & best of the helpers to make my term paper a comprehensive one by providing us the mental & physical toughness in course of its preparation. My next honest & heartiest gratitude goes to Mir Rashedul Hossaim, MD Financial Service and my supervisor as well as all the members of Financial Service for their sincere and utmost guidance to prepare this report & to gather huge practical and realistic knowledge, to make me understand the topics, terms & make me familiar with the mobile financial services provided by Grameenphone.

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Executive Summary
Grameenphone Ltd., the largest telecommunications service provider in Bangladesh provides services to rural and urban customers across Bangladesh, where mobile telephony is acknowledged as a significant driver of socio-economic development, both for individuals and the nation. The Company was successfully listed in November 2009 which was the largest IPO in the history of the Bangladesh capital market. A significant development of mobile financial services in Grameenphone is an electronic ticketing service with data support from Bangladesh Railway and CNS, the authorized ticketing partner of the Bangladesh Railway. Using the MobiCash service, a traveler can purchase electronic railway tickets at anytime and from anywhere from his/her mobile phone and avoid the hassle of travelling to the station during working hours or standing in queue for long. Apart from train tickets, different lottery tickets have also been made available through MobiCash service. Mobile money services broaden the scope of development in our economy which includes Domestic and international remittances, Bill payment, Payroll deposit, Loan receipt and repayment, Purchases of goods and services ranging from prepaid airtime to groceries to bus ticket to micro- insurance etc. The core assets of GP are its strongest points to outperform over its competitors in the mobile financial sectors in Bangladesh. Grameenphones long term focus of its mobile financial services is on customers and the convenience of other stakeholders including banks, merchants & agents. Three core mobile financial services of Grameenphone are fund transfers, payments of utility bills and mobile banking services. In Greameenphone, mobile money ecosystems are networks of organizations and individuals that must be in place for mobile money services to take root, proliferate, and go to scale. Mobile money eco- system span a wide range of different players, including itself as mobile network operators, banks, airtime sales agents, retailers and so on; details about these players are mentioned in this paper. The foundation of Eco-system of Grameenphone lies on three core aspects, namely utility, capacity and an enabling environment.
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Grameenphone is constantly trying to improve itself through maximizing utility of its customers, enhancing its capacity through technological innovation and contributing to socio-economic factors which are surrounded by this organization. After the detailed report, real world business cases has been supplemented to gain insights on GPs recent business activities that includes Train ticketing from retail outlet GP charge from Bangla Lion

Table of Contents
CHAPTER I:
1.1 1.2 1.3

BACKGROUND OF THE STUDY

Origin of the Study 2 Methodology of Study Objectives and Limitations of Study 3 2

CHAPTER II: GP At a glance

2.1 2.2 6 Mission, Vision, Values Recent Development in MFS 5

CHAPTER III: Structural Aspects of MFS

3.1 8 3.2 9 3.3 11 3.4 13 3.5 17 Long term goals of MFS in GP Eco- system of MFS Foundation of Eco- system Mobile Money Opportunity MFS in GP

CHAPTER IV: MFS Development

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4.1 26 4.2 28 Lion 4.3 35 4.4

Offering of MFS Business case: Train Ticketing from Retail Outlet Business case: GP Charge from payment of Bangla Bill Tracking: Hypothesized Example 40

Chapter 1

Background of the Study

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Origin of the Report

In the way of attending the BBA Program in the one of the finest university round the globe we are to get acquainted with the best knowledge and techniques. In such case, regarding the academic requirement, we were assigned to prepare a report on two important updated issues of the banking world among which we chose the issue of Basel from the viewpoint of Bangladesh. We were to select a bank to represent the implementation of Basel on it; and we had selected one of the high profile banks of the country called Dhaka Bank Ltd. (DBL) for our report purpose. After number of discussions with the officials of DBL we have prepared this report titled as Is the Basel Compatible: Focus on a Bank.

Methodology of the Study

The study requires a systematic procedure from the selection of the topic to final report preparation. To perform the study data sources are to be selected and collected, they are to be classified, interpreted and presented in a systematic manner and key points are to be found out. This overall process of methodology is given in the following page in the form of flowchart that has been followed in the study.
A. Selection of the Study: This topic was assigned by our honorable

B.

C.

D.

E.

teacher Dewan Mustafizur Rahman and the Company (Grameenphone) was selected by me. Before assigning this report I have discussed with my instructor about the subject. Identifying the Data Sources: Essential data sources were needed to be identified to prepare the report. And to meet up the need for the primary data I had taken several appointments with the high officials of GP. Collection of Data: Primary data were collected through 100% physical inspection. And interviewing is predominantly required to collect the primary data. Classification, analysis, interpretation and presentation of Data: To classify, analyze, interpret and presentation, I used some analytical tools to understand them clearly. Findings of the study: After scrutinizing the data problems of the study are pointed out and they are shown under concerned heads. Recommendations are suggested thereafter to overcome the problems.
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F. Final Report Preparation: On the basis of the suggestions of our

honorable instructor and officials of GP thereafter in a comprehensive manner.

this report is prepared

Objectives of the Report

It is important to define the perceived objectives behind preparing this paper to make this a meaningful effort. The objectives of the study are given bellow: Exploring different mobile services provided by GP Analyzing the current polices taken by GP. Status of GP in Bangladesh. Finding out the performance of GP.

Limitations of the Study

This report is focused on Mobile Financial Services provided by GP. This report is extensively dependent on secondary data such as annual report of GP, published materials, different internet sources. Primary information in investigating the report findings is difficult for time constraints. Interviewing technique was used in collecting primary data. This study report is based upon secondary source of information from the documents and databases of the GP. Though I tried my level best in preparing this report some limitations were yet present there:

i.

Information from Annual report regarding mobile financial services is not sufficient for in depth analysis.

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Chapter 2

GP at a Glance

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Grameenphone: At a Glance
Grameenphone Ltd., the largest telecommunications service provider in Bangladesh, received its operating license in November 1996 and started its service from March 26, 1997, the Independence Day of Bangladesh. Grameenphone provides services to rural and urban customers across Bangladesh, where mobile telephony is acknowledged as a significant driver of socio-economic development, both for individuals and the nation. Grameenphone has played a leading role in increasing the countrys telepenetration rate in mobile industry from less than one percent in 1997 to over 40 percent as of 2010. After 12 years of successful operations, Grameenphone is the largest mobile phone service provider in Bangladesh, with more than 23 million subscribers as of December 2009. The Company was successfully listed in November 2009 which was the largest IPO in the history of the Bangladesh capital market.

Vision
GP exists to help the customers get the full benefit of communications services in their daily lives. The company always ready to help.

Mission
Grammenphone is the only reliable means of communication that brings the people of Bangladesh close to their loved ones and important things in their lives through unparalleled network, relevant innovations & services.

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Values
MAKE IT EASY

Everything GP produces should be easy to understand and use. The company should always remember that it tries to make customers lives easier.
KEEP PROMISES

Everything GP does should work perfectly. If it doesnt, the company is there to put things right. The company is concerned about delivery, not overpromising. It cares about actions, not words.
BE INSPIRING

The valued members are creative. They bring energy and imagination to our work. Everything they produce should look fresh and modern.
BE RESPECTFUL

Although being a multinational company, GP acknowledges and respects local cultures. The company wants to be a part of local communities wherever it operates. Moreover, it wants to help customers with their specific needs in a way that suits way of their life best.
Recent Development: Mobile Financial Services

The electronic ticketing service was launched by Grameenphone with data support from Bangladesh Railway and CNS, the authorized ticketing partner of the Bangladesh Railway. Using the MobiCash service, a traveller can purchase electronic railway tickets at anytime and from anywhere from his/her mobile phone and avoid the hassle of travelling to the station during working hours or standing in queue for long. Apart from train tickets, different lottery tickets have also been made available through MobiCash service. In another business development, Grameenphone signed agreements with different mobile phone operators to share its infrastructures. Leading mobile operators Orascom Telecom Bangladesh Ltd.(Banglalink), Axiata (Bangladesh) Ltd.(Robi) and Airtel Bangladesh Ltd. (formerly known as Warid) are among the major signatories. WiMax operators, Augere and Banglalion also opted for Grameenphones infrastructures to expand their services around the country.

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Infrastructure sharing agreements, done in compliance with the guidelines issued by BTRC, enabled all parties to optimize their resource utilization and minimize cost of network deployment as well as of operations and maintenance. As a result, it would ensure sustainable utilization of national resources and reduce deployment of unnecessary infrastructural facilities in future.

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Chapter 3

Structural aspects of MFS

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Mobile Money Opportunity in Bangladesh

Mobile money is money that can be accessed and used via mobile phone. There is no limit in range of transactions and services for which mobile money can be used. Thus mobile money has significant implications for economic activity across the board, particularly in case of pre- emerging like Bangladesh. In the developing socio- economic scenario, most important thing of mobile money can be said as it reduces cost and risk inherent in dealing with cash. Besides, it facilitates the flow of money from one party to another using a communications infrastructure that already connects billion of customers throughout the world. Scope Use of mobile money for transactions and services in a developing country like Bangladesh includes Domestic and international remittances Bill payment Payroll deposit Loan receipt and repayment Purchases of goods and services ranging from prepaid airtime to groceries to bus ticket to micro- insurance

Motivation for the poor people GP recognizes that financial services can help poor people who are the majority in Bangladesh forge their own paths out of poverty in 2 ways They enable one to obtain through savings or credit sums of money large enough to invest in income generation and asset creation (through enterprise, housing, education or training which involves ones job market prospects). They help reduce vulnerability to unexpected events such as accident, illness, thefts, or droughts. In addition in many countries, poor people are forced to rely on informal financial services, which may be unsafe or fringe formal financial products which may be expensive as well as unsafe.

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Financial inclusion bolsters both the access to resources and he ability to transform resources into opportunities. Thus inclusion in financial sector is a critical prerequisite for effective market participation in its broadest sense from being able to integrate send a utility bill payment by mobile phone instead of losing half days work in the line of the bank, to being able to integrate ones small business into the value chains of the larger market players.

Socio economic Agents

Population 164.4 mn (UN estimated)

Population living below $ 2 82.8% per day Urban population Per capita Income Annual GDP growth Labor Force 27% $ 580 (nominal) At least 5- 6% since 1996 75 mn

Communication & Connectivity

Mobile Phone Penetration Mobile Phone Subscribers Mobile Network Coverage PSTN Subscribers No of mobile networks Internet Users 44% 76.43 mn 99+% 1 mn 6 <1%

Inward Foreign Remittance

Number of Workers abroad Remittances 6- 7 mn >$10 bn (9- 13% of GDP)

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GP and Mobile Financial Services

Core Assets
The core assets of GP are its strongest points to outperform over its competitors in the mobile financial sectors in Bangladesh. The industry specific assets GP has are not attainable by the other banking organizations. Brand No 1 Telecom brand in Bangladesh Among top 100 most valuable brands in the world

Network 99% geographic coverage Over 12000 base stations Nationwide fiber optic network

Distribution 300000 points of sale 12 logistics centers, 100 distributors 100 nationwide GP Centers 500 GP Community Information Centers

Subscriber Base 35.69 mn active (Oct 2011) 44% market share Customer Usage Data

Grameenphone stands on the strong foundation because of these four valuable assets.

Mobile Financial Services

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Grameenphone has launched such financial services for the favor of the convenience of the people of Bangladesh. By the time, it has been evolving its development cycle of being the provider of top class financial services.

Pioneering Experience & Knowledge Launched Launched Launched Launched first MFS in Bangladesh, BillPay, in 2006 first mobile e- ticketing for Bangladesh Railway lottery e- ticketing for charitable organization inward foreign remittance services for the 2 banks

Technology Platform World class MFS technology platform based in international standards (transaction engine and prepaid stored value accounts) Access and use of GP network

Distribution and Agent Network 5000 retailer agents serving Dhaka, Chittagong, Rajshahi, Sylhet and BillPay service

Operations and Back Office Financial operations, accounting, reconciliation Customer service requests Reporting

Long term goal: GP MFS

Grameenphone is a customer focused company which introduced the mobile financial services with long term goals for different stakeholders, particularly for the customers. Two banks are the associated partners of the Grameenphone. In most cases, banks think that MFS will harm their business in the long term; but this is completely a wrong concept. MFS opens new opportunities for the Banking sectors.
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GP intend to achieve these goals for its three prime stakeholders.

Moreover its supplementary goals are mentioned here:

United Nations Development Programme (UNDP) articulates, financial inclusion bolsters both access to resources and the ability to transform resources into opportunities.

Mobile Financial Services has become a highly regulated sector in Bangladesh. As this is a new concept in our developing country, necessary independence is required for the experiment. Recently, the central bank Bangladesh Bank has published the rules and regulations regarding Mobile Financial Services which are to be in application from now.

Non bank retail agent outlets are used to convert monetary value (cash) into electronic value

ile phone used to identify customers, authorize transactions and to enable customers to initiate transactions on

Transaction processed against stored prepaid electronic value

GP Mobile Financial Services: Eco- system

The three rules of mobile money are partnership, partnership and partnership. We need to create a mesh of partnerships covering various networks of relationships. Nepoleon Nazareno, president, SMART Communication

In Greameen Phone, mobile money ecosystems are thus the networks of organizations and individuals that must be in place for mobile money services to take root, proliferate, and go to scale.

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Mobile money eco- system span a wide range of different players, including itself as mobile network operators, banks, airtime sales agents, retailers, utility companies, employers, regulators, international financial institutions and donors, and even civil society organizations.
Players MNO (GP) Assets & Capabilities Mobile infrastructure Extensive Retail Outlet Massive Customer bases Strong branding Customer Service Structure Incentives Acquire customers Manage churn Capture additional opportunities Increase ARPUs revenue

Reduce airtime distribution Ability to make good margins cost on low ARPUs Meet service obligations & CSR goals Bank Banking License infrastructure Regulatory Expertise and Appearing in new customer segments and new geographic areas Compliance Capture additional revenue

Ability to facilitate foreign Reducing cost of delivering exchange, clearing, financial services settlement Distributor Physical points of presence Earn commissions transactions & on sales

Aware of customer habits & usages Increase traffic potentials Retailer Physical points of presence

Reduce cost of handing cash Reduce queues at peaks in peak times Manage inventory effectively

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Regulator (BB)

Authority to impose National socioeconomic regulation, monitor & enforce development compliance Enable wider range of payment choices Address AML/CFT concerns by moving cash into more visible channels

End user

Relevant needs

Convenience of remote payment, remittance & financial services Increased affordability services access & of financial

Reduce risk of carrying cash

Players MNO (GP)

Roles Provide infrastructure communication services Issue e- money

Limitations & Constrains & Regulatory limitations on providing financial services, such as taking deposits and issuing e- money

Agent oversight & quality Strategic focus may not be control mobile money Exercise leadership in Shareholder pressure for quick drawing mobile money eco- increased returns system together Bank Offer banking services via Lack of experience with and in mobile some cases interest in, low income customers Ensure compliance with financial sector regulation Narrow customer base Handle crosstransaction Hold float name in border Stringent regulatory requirements with significant compliance burdens customers

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Distributor

Indentify potential new Inefficient practice of business mobile money applications skill Perform cash- in & cash- out Liquidity problem transactions Lack of customer trust very Report suspicious often transaction accordance with Limited ability to partner with AML/CFT large corporations

Retailer

Accept mobile payments Build customer mobile money trust

Customer payments in channel

demand for through mobile

Business partner willingness to Use mobile payments in B2B transact by mobile transactions Regulator (BB) Provide environment money for enabling Lack of financial and technical mobile capacity

Lack of experience with Protect stability of financial convergence of financial and system telecommunication regulatory regimes Demonstrate leadership to encourage & protect behavior change End user Going for the use of mobile Limited financial literacy money for convenience Lack of awareness Cultural and resistance psychological

Mobile Network Operators As a Mobile Network Operator Grameenphone is playing leadership role in this eco- system. It spins the threads that knit all the relationships together. What gives MNOs the impetus and ability for leadership in developing mobile money eco- system is their reach across customers in all income segments. In Bangladesh, about 1/10th of the population has bank accounts while nearly
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1/3rd has mobile phones. As an MNO, GP is able to provide not only the infrastructure and a large pool of potential users of mobile money but also advisory services to other companies banks, insurers, utilities, and so on seeking to develop their own mobile money models.

Distributors & Retailers GPs network of sales agents and retail outlets, where customers can sign up for services, purchase phones and accessories and top- up their pre- paid airtime accounts, give them their reach geographically and across income segments. These people are called as the backbone of any mobile ecosystem. In case of further eco- system expansion, the agents and retailers play the most significant role, no doubt. Another thing is recognized that expanding the mobile money eco- system depends on good information about the flows of money. Thus these people are placed to follow the flow of mobile money and identify points at which cash is taken out and used instead. Besides these points are opportunities to bring new members into mobile money eco- system. As these people do operations being close to the customers, they get the chance to observe the habits and needs of the customers and therefore identify and suggest new ways of use of mobile money.
Vodafones Hughes considers the agents and retailers absolutely critical. They are our touch points to our customers.

Banks According to the Grameenphone, mobile banking is approximately 50% cheaper than traditional financial systems, thus the argument for the mobile money is stronger than the others like banks. It is costly for the traditional banks to reach the remote areas of Bangladesh. Most of the geographical areas in Bangladesh are of rural segment where no bank operates its business. Moreover banks are supposed to abide by the rules and regulations (in case of deposit taking, lending money, cross border business) set by the government authority to run business. Thus doing business in rural area is not profitable for banks as the people in these areas are unable to pass the requirements to have relationship with banks. Mechanism of mobile money has coined the term called branchless banking. This facility of branchless banking offered by the Grameenphone has been providing more value to the
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low- income customers who have no other options whereas banks have been content to focus on highest income segments- whereas m- banking may only offer marginally more convenience or security compared with options already available.

Regulators In Bangladesh the regulatory role is played by the central bank called Bangladesh Bank. The role of Bangladesh Bank in Bangladesh cannot be overstated as it is responsible in providing feasible platform that enable ecosystem development to happen. Regulators can create space for experimentation and as experience accumulates, build the policy frameworks needed to undergird further growth. This is a very complicated exercise, with disparate and sometimes competing objectives that need to be reconciled. The challenge of shaping an enabling environment for mobile money is crucial in case of developing country like Bangladesh.

Current standing of Eco- system Mobile money is still in the emerging phase; most appropriately it is in chaos phase particularly in a developing country like Bangladesh. GP recognizes that there exists many opportunities for the growth of this industry; users need to be educated through a proper channel.
According to Vodafones Nick Hughes, No one knows what the ecosystem would look like in five years. We can imagine the end state closed loop, everyone connected, basically cashless but getting there is the challenge.

GP MFS: Foundation of Eco- system

For something to be ubiquitous the foundations need to be concrete, no doubt; thus scalable and robust technology will be required. The foundation of the Eco- system of GP lies on 3 pillars to work properly.

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A. Utility
According to the economic context, utility is the ability of a good or service to

satisfy some human want or need. For mobile money, utility is a function of the number of ways and places in which it is possible to use it. Today, remittances and remote payments are the most common uses of mobile money. Within these categories, different applications have experienced different degrees of uptake in different markets. This is partly because of differences in what mobile money providers offer and market. In Bangladesh, people typically must take three to four hours off work to travel back and forth and queue at designated banks-which are not necessarily the banks closest to their workplaces-in order to pay their utility bills. Consumers are using mobile money where there is a very clear, simple value proposition. So far, the predominant value proposition is being able to send money easily, cheaply and securely. According to experts in Grameenphone: In the early stages of mobile money ecosystem development, the key to success is simplicity It is important not to confuse the market with too many services and to take the necessary time to establish consumer trust as well as the interest and collaboration of the parties that would need to be involved in each new service. Leaders in the mobile money industry believe that remittances and remote payments will serve as effective catalysts, but that in the longer term, if mobile money is to be ubiquitous, it must offer even greater utility. The greater the utility, the greater the potential uptake; additionally greater utility requires greater integration into consumers economic lives. Its not just money in, money out; its what the customer can do with that money. Thus the future of Grameenphone is to be working to bring into the mobile money eco systems the schools, hospitals, retailers, and other merchants where its mobile money consumers must currently use cash. It can initially be an uphill battle to persuade merchants to accept mobile money, according to DoCoMo Managing Director Hiroshi Tamano. He stressed a number of factors which are also followed by many pioneers round the world like GP.

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Process speed Minimizing the time it takes to process a transaction at the point of sale Versatility Enabling customers to use a single device for multiple services from multiple service providers, as compared with plastic cards that apply to single service providers only Security: Allowing customers and service providers to view their transaction histories at any time via their mobile handsets, and reducing the chance of loss as compared with cash Mobile money providers increasingly recognize interoperability as part of the value proposition to consumer. Interoperability plays a role in both the remittance and remote payments space and in the emerging diversification of mobile money services.

Interoperability in remittances and remote payments

For customers, over time, it will be a lot cheaper and more powerful as a value proposition if you can send money to anyone with a bank or mobile money account, even if it is with a different provider.

Interoperability in the emerging diversification of mobile money service

Some degree of interoperability will be required if a critical mass of mobile money services is to develop. Mobile network operators and other companies are conscious of their core competencies and often, quite rightly, want to focus on their core business. As a result, some interoperability, in the sense of collaboration or partnership, will be needed to expose to a broad range of players so collectively they can get the full package of financial services. Interoperability in the diversification of mobile money services is also important from the perspective of consumer choice. Offering consumers choice can be a
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key part of the value proposition. Industry leaders seem to agree that interoperability is the key.

Bilateral agreements
Mobile money providers need time to experiment, learn, deploy and develop their models. In the short run, providers primary concerns have to do with consolidating their models. When the time comes to think about interoperability, the worry becomes whether or not interoperability will compromise their competitive positioning. The technologies are fairly similar. Competitive advantage comes from delivering better service to your consumers. Interoperability can be part of that better service. Consumers do not care about technological infrastructure-compete on product, price, and innovation, and not on the enabling technology.

B. Capacity:
Entrepreneurialism involves risk while the risk appetites of firms and their shareholders reflect differently and change time to time. For mobile money ecosystems to begin springing up everywhere, potential players will have to have enough prior knowledge and capacity to be reasonably confident they will succeed. Capacity is an important consideration not only for MNOs like Grameenphone but all across the mobile money ecosystem. It is particular issue for the large numbers of small-scale players involved, and this has the potential to become a bottleneck on overall ecosystem growth. Among these small-scale players are the agents and retail outlets that perform the critical cash deposit and withdrawal functions. But these agents often lack even the most basic business skills, such as business planning, accounting, and cash management.

Agents Capacity Agent capacity becomes increasingly critical with the diversification of mobile money services on offer. And diversification of mobile money services is itself dependent on the capacity of businesses of all kinds to make effective use of the mobile channel. There needs to be a push on the corporate side, for example to convinces employers to process their payrolls
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using mobile money and to convince retailers and other points of sale to avail them of mobile money payment acceptance mechanism.

Micro Finance Institutions Capacity As indicated above, much is made of the potential for microfinance institutions to adopt mobile money mechanism. But even though MFIs have strong local knowledge, product development and the ability to manage small transactions, most lack the stable core banking systems and specialized technical skill to implement branchless banking models or tap into existing systems. There is a big need for capacity-building for MFIs if they are going to participate in any way in mobile banking. Capacity issues are certainly not exclusive to MFIs .Some of the biggest banks in Bangladesh still keep track of deposits and withdrawals in hand-written ledgers, for instance, and certainly most companies have at least some work to do before implementing any new technology-especially one so central to the customer experience.

Regulators Capacity For regulators (Bangladesh Bank), openness and receptivity are an important part of the capacity that is needed. Mobile money is in its emerging stages as an industry, and while there are policy innovations out there, best practices are still evolving; thus regulators are to offer flexibility & help in flourishing mobile money business for its own sake. Because this would increase the economic and financial activity to accelerate the Bangladesh Bank to achieve its target of price stability and monetary sustainability

Capacity building is not only a technical challenge. Cultivating openness and receptivity is a significant part of the work a firm must do to implement a new technology. But in the mobile money ambit, cultural receptivity goes beyond mere tech-readiness. Big banks, for example, must drum up some interest in customer segments they have previously ignored, or make a strategic decision to let MNOs and others serve those segments without political interference.

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Leveraging strategies
Smart communications is using a train-the trainer strategy to train the smart money agents who sell airtime and perform cash deposit and withdrawal functions for its customers. Another very interesting leveraging strategy is bottom-up, collaborative self-help.

The role of IFIs, organizations

development

donors,

and

civil

society

Because of the positive social and economic impacts of mobile money, players such as IFIs, development donors, and civil society organizations have strong potential roles to play in capacity-building. Hers roles are especially important in mobile moneys current, emerging stage, while consultants and other commercial capacity-building groups are still scarce. in addition, both today and in the longer term, IFIs, developments donors, and civil society organizations will be uniquely positioned to take on nonrevenue generating bits of the capacity-building challenge, because they are accountable for social results in addition to or even instead of financial results. IFIs, development donors, and civil society organizations may be particularly well-suited to help build the capacity of some of the smaller members of the mobile money ecosystem, such as cash-in/cash-out agents and small-scale retailers.

C. An Enabling environment
It may sound weird but it is true that for many business people, there is an almost instinctive negative reaction to the word regulation. But regulation is essential to creating and maintaining an enabling environment for business, and mobile money is no exception. The first concern of the regulator in Bangladesh is to maintain and if necessary restore, public confidence is a perquisite for the uptake of mobile money. Public confidence is predicted on the stability of the financial system. As we have seen, mobile money, airtime is being traded like currency- with significant implications for the economy and for peoples lives.
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Grammenphones Delwar Hossain Azad agrees: We are talking about millions and billions from the base of the pyramid. we dont want to mess with these peoples money.

In addition to financial stability, the Bangladesh Bank is concerned with financial inclusion. As described above, billions of people are currently left out of the formal banking system, living in entirely cash-based economics at the expense of their full economic potential and often of their physical security as well. Their inclusions has implications not only for them individually but also for their countries nationally. The need for stability on the one hand and innovation for inclusion on the other hand requires regulators to strike a delicate and constantly evolving balance. Mobile money providers need some regulatory certainty in order to reduce the risk of investment. But rigidity in this emerging stage would stifle investment and innovation. Additionally, if the cost of compliance were too high, it could raise barriers to entry and jeopardize providers and regulators shared goal of reaching ever lower income clients. Striking the balance between the stability and innovation is particularly difficult in the mobile money space, because multiple regulatory domainsbanking and telecommunications are involved. It is surprising that many leaders in the mobile money industry view the regulatory environment as not particularly enabling at present. They cite regulation as a primary challenge to expanding mobile money ecosystems. Grameenphone believes, Except regulation, all other challenges are within our control. We cannot live with the present banking act- we cannot serve the population within its present parameters.

What is needed, then?

Instrumentality Leaders are clear that in mobile moneys emerging phase, the worst thing we could do is pretend we know all the answers in advance.
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Regulators are not futurologists. Take a relaxed, mature approach, and let the channels emerge. then add regulation as risks manifest.

Proportionality Regulators need to weigh the potential gain against the potential damage. Executives of Grameenphone think like this: the success of service can be realized only through a rational, proportionate, and risk-based regulatory framework. We have to understand and accept the differences in need and requirement.

Individual or bilateral engagement with regulators In Bangladesh, Grameenphone interacts regularly at various levels of Central Bank management. Collaborative or multilateral engagement with regulators There are a wide range of organizations mobile money providers can work with to collaboratively engage in dialogue with government. For instance: Other companies: Collective company action can take place on an ad hoc basis, as clusters of companies with complementary interests coalesce, or more systematically, e.g. through industry associations. Research institutions: Independent research institutions can objectively assess and present fundamental data, for example on consumer usage, needs, and benefits. These institutions do not usually advocate company specific position, but they provide credible information on which to base those positions and communicate them to regulators. Development agencies: Development agents can be effective partners in government engagement for a number of reasons. First, they often have their own channels of
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communication into regulatory bodies, in addition to those that private sector companies have. Second, they are generally perceived to have the public interest at heart, which gives them a certain legitimacy in the eyes of regulators. The public value that mobile company creates-in terms of financial inclusion and all its attendant benefits opens up the space for development agencies and companies to work together on advocacy. More recognition should be given to regulators for creating enabling environments that allow mobile money ecosystems to take root and to grow. The very nature of ecosystem development means that to be successful, it has to be a collaborative effort. While MNCs have played and continue to play important catalytic roles, regulators will, in large part, determine how ingrained, how ubiquitous, mobile money becomes. While mobile money is now in its emerging stages, it is rapidly moving toward consolidation and growth. Industry leaders are clear what is needed now is sustained action: experimentation and innovation by firms with mobile money business models and by government in the regulatory frameworks to make them possible. Communication and collaboration will be a key. It is important to sustain and even diversify the opportunities for mobile network operators, banks, technology providers, and other interested firms to share experience and learn about business and technology innovations in the mobile money space. At the same time, it is important to establish and support similar forums for regulators to exchange policy innovations across countries. And as business and government seek to interact more frequently and effectively in the policy-making process, more work should be done to learn from their efforts and spread best practice mechanism around the world.

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Chapter 4

MFS Development

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Offering of Financial Services by GP

Channelization of financial services takes this form:

The financial services can be divided in two payments of utility bills and ticketing. There are three types in ticketing, train ticketing, lottery ticketing and cricket match ticketing. 1. Bill Pay It is available to all GP subscribers and non subscribers. GP subscribers can go for it through their Mobicash wallet while non subscribers can avail it by showing the bill to GP retailers as retailers pay through their Mobicash. 2. Ticketing Only the GP subscribers can go for BCB Match Ticket and BTRB Ticket. But Ticketing for lottery is available for non subscribers. a) Lottery Ticket b) BCB Match Ticket c) BTRB Ticket

BillPay
Currently focused on utility bill collection in 9 localities of the country via GPauthorized agents and self- directed mobile wallet transactions executed by customers from their own handsets Partner Convenience Instant Information Automated bill posting Operational Efficiency Easy expansion into new territories

Customer Convenience
Convenient locations, open longer Easy to use
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 Access to relevant information 24/7 dedicated call centers Wider coverage: over 5000 GP- authorized agents for cash- in and bill payment Utility Partners
There are nine utility partners of GP; both GP users and non users are enabled to pay through this system. GP users can pay through their air time wallet while nonusers may pay through the retailers air- time wallet.

BPDB ctg BPDB Syl BPDB Raj

TTAS DSCO DPDC

BGSL CWSA KGDCL JGSL

Flow Chart GP settling the Bill Pay with Partner 5

MobiCash Ticketing
1

Bangladesh Railway

Partner Sends bills to the utility users

Utility users make payment through Bill P

Any registered GP subscriber can book and purchase a train ticket directly 3 from their mobile phone, up to 10 days before travel time Physical ticket collection against purchased e- ticket from selected GP centers Bangladesh Cricket Board

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GP has exclusive agreement with BCB to sell tickets for all international matches in the next three years. Lottery Government approved lotteries authorized for fund raising and philanthropic purposes. Any GP prepaid subscriber can buy a lottery ticket directly from their mobile phone.

Inward Forward Remittance

Agreement signed with 6 banks, service launched with 2 banks Currently focused on cash-to-cash disbursement in the last mile of distribution

Business Case 1: Train Ticketing from Retail Outlet

Grameenphone currently operates the train ticketing directly through its close supervisory procedure. The purpose of this business case is examining the feasibility of giving this train ticketing to be operated through the retailers outlet.

Endogenous Variables
GP earns BDT 20 per ticket regardless of the price of the ticket. Distributors and retailers are to get commission on the total value of the ticket purchased by the customer. BTRC gets a portion from GP after deducting VAT and CNS fees from the revenue. The proposal is the retailers are to be offered a flat commission of BDT 1.5 per ticket.

Variables (Per Seat) MobiCash Fee Per Seat: 20 37 | P a g e

Distributor Commission: VAT Rate: BTRC Fee on Revenue: Retailer Commission Per Seat Sold:

0.43% 13.045% 6.50% 1.50

Current Scenario
Mobile companies are allocated 25% of the total seats available by Bangladesh Railway. Along with GP, another mobile operator company named as Banglalink executes train ticketing through its mobile network system. A large portion is still untapped in this market of ticketing through mobile operators.

Variables (Addressable Market) Total Daily Seats: Mobile Quota (seats): Total Daily Addressable Market (seats): 4 24,097 25% 6,02

Variables (Current Market Share) BL Avg. Daily Sales: GP Avg. Daily Sales: Daily Untapped: 1,000 800 4,224 16.6% 13.3% 70.1%

Projection
Projection has been made about the growth of future sales under this service. This projection has not been made on basis of historical data rather it has been made on reasonable ground.

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This step of selling though retails outlet is to be initiated as it would increase the market reach of people. Thus the operational coverage of GP will definitely increase. There would be promotional activities to boost the sales revenue by capturing untapped market share.

Variables (Growth) Growth in Avg. GP Daily Sales: 50%

It is to be noted that the market share of Banglalink is higher than GP. This close competitor also operates the service of train ticketing by own self, not through retailers.

Daily Current GP Sales (seats): Target GP Sales after Launch (seats): Net Increase in Seat Sales:

Seats 800 1 ,200 400

Addressable Market Share 13.3% 19.9% 6.6%

According to the target market penetration, GP is going to achieve additional 6% market share by selling 400 more tickets from now.

Revenue Structure
There are tickets of Bangladesh Railway about 100 prices. Here the ticket of BDT 235 is chosen for the calculation procedure.

Avg. Seat Price: MobiCash Fee per seat: Transaction Value:

235 20 255 39 | P a g e

Gross Revenue: Distributor Com: VAT on Fee: Rev. Share to CNS: Rev. Share to GP: Net Rev. Share CNS: BTRC Fee on GP Rev: Retailer Com per Seat: GP Revenue on Avg. Seat Price: Margin:

20 1.10 2.61 8.70 1.00 7.70 0.63 1.50

6.47 32.34%

It is to be considered that if % of transaction value is offered as retailers commission, the revenue in case of higher priced ticket would be less for GP. In the extreme case, it is found that revenue becomes negative if for an example 0.54% of transaction value is offered like retailers commission for other GP financial services. Moreover, in case of crucial situation retailers would tend to sell only the higher priced tickets in order to gain higher commission as % of transaction value. This would irritate customers and become a threat of losing market share.

Measuring Profitability
There is net increase in revenue if proposal of commission BDT 1.5 is accepted. On the retailers point of view, there is increase in their revenues too. The ultimate bottom line is increase in net margin.

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Daily Net Increase in Revenue: Total Increase in Ret Com: Net Revenue: Margin:

BDT 2, 588 600 1, 988 76.81%

NOTES The maximum retailer commission per seat is BDT 2.45 to maintain non-zero income for GP on all seat prices. In future, it would be demand from retailers to increase the commission. GP can go for maximum BDT 2.45; a commission greater than this would provide negative net margin in case of higher priced tickets. Under existing commission structure, retailer earns BDT 1.46 in commissions on sale of seats worth BDT 250. Cost of purchasing printers will be borne by GPCFs. Average revenue per transaction was BDT 10, according to November 2011 P&L statement

Correct Equation for BTRC Fee (Service Fee - Net CNS Rev Share - VAT) * BTRC Fee Rate

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Flat Commission VS Commission as % of Transaction Value

1. If flat commission is offered

1.50

Average net margin is the average of net margin of around 100 tickets which are priced differently. Future GP Cash In means total customers coming to get the facility.

Average Net Margin Future GP Cash- in Avg Revenue per ticket

20.09 % High 1856 4.02 High

34.6% Low

4.90 %

7.05 Low

0.99

Total Average Revenue is found by multiplying Future GP Cash- In by Avg revenue per ticket. Total Avg Revenue 7457.02288

2. If commission is offered as % of Transaction Value

0.54%

Average net margin is the average of net margin of around 100 tickets which are priced differently. Future GP Cash In means total customers coming to get the facility.

Average Net Margin Future GP Cash- in Avg Revenue

5.31% High 1856 1.06 High

39.5% Low 7.9 Low

28.88 % -5.78

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Total Average Revenue is found by multiplying Future GP Cash- In by Avg revenue per ticket. Total Avg Revenue 1972.54288

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Comparing two possible options 1. If flat commission is offered 2. If commission is offered as % of Transaction Value Gain if Flat Commission is offered 1.50 0.54 %

Net Margin 20.09% 5.31% 14.78%

Total Avg Revenue 7457.02288 1972.54288 5484.48

After comparing two possible options, it is quite clear that it would be possible for GP to earn higher profit margin as well as higher revenue if flat commission is provided to agents.

Scenario Analysis
Under scenario analysis, three scenarios are in consideration; these are likely, worst and best scenarios. Two variables under this analysis are retailers commission and capturing addressable opportunity. All the values of the variables are taken on the ground of reasonability and reality. No structured logic is used while choosing values for variables. Notes: Current Values column represents values of changing cells at time Scenario Summary Report was created. Changing cells for each scenario are highlighted in gray.

Scenario Summary: Flat Commission

Current Values: Likely Worst Best

Changing Cells: Retailer Commission GP capturing addressable opportunity Result Cells: Net Margin

1.5 25%

1.55 30%

1.6 20% 19.59 %

1.45 35% 20.34 %

20.09%

19.84%

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Total Avg Revenue

7457

8202

6444

9268

Scenario Summary: Commission as % of Tnx Value

Current Values: Likely Worst Best

Changing Cells: Retailer Commission GP capturing addressable opportunity Result Cells: Net Margin Total Avg Revenue 5.13% 1973 4.90% 2026 2.84 % 934 5.31 % 2421 0.54% 25% 0.55% 30% 0.60 % 20% 0.54 % 35%

Gain if Proposal of flat commission is accepted

Current Values: Likely Worst Best

Net Margin Total Avg Revenue

14.96% 5484

14.94 % 6176

16.75 % 5510

15.03 % 6847

From the perspective of scenario analysis, it is still profitable for GP to go for the flat commission to the retailers.

Business Case 2: GP charge from Bangla Lion

Banglalion has proposed to use the infrastructure of Grameenphone in case of collecting this payment for providing internet facility. Now it is to decide how much GP is to ask for being in such an agreement.

Variables under 3 Scenarios 1. Growth of subscribers. 2. % that GP will earn from BL. 45 | P a g e

As the historical growth of the Banglalion subscribers is not available, the growth rates have been assumed under three scenarios; pessimistic, most likely and optimistic. These are in consideration on the ground of reasonability and reality. No logical structure has been used in this case.

Growth over 3 years

Year Pessimistic Most Likely Optimistic

2012 40% 50% 80%

2013 30% 40% 50%

2014 20% 30% 40%

No of Subscriber of BL

Year Pessimistic Most Likely Optimistic

2012 322949 346017 415220

2013 419834 484424 622831

2014 503801 629751 871963

At present the fraction of active subscriber is about 65%. But it can be assumed that the increase in population and the appearance of technological change would bring more people in this arena. Thus the fraction of active subscriber is supposed to increase. It has been assumed that active subscriber will be around 68%.

Present Scenario
Active Inactive Total

Number Fraction Future Fraction

149770 64.93% 68%

80908 35.07%

230678 100.00%

No of Active Subscriber

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Year Pessimist ic Most Likely Optimisti c

2012 219605 235292 282350

2013 285487 329408 423525

2014 342585 428231 592935

Bill collection through different channels Channel Avg. Bill Per Frequency Channel 9.96% 1260.09 1.15% 1327.17 1.42% 1337.17 87.44% 498.53 0.02% 913.06 100.00% 5336.01

POS Plaza Office Bank

Scratch Card
SMS TOTAL

Cost Structure
GP Dist Commissions Distributor: 0.43% Retailer: VAT Rate: BTRC: 0.54% 13.045% 6.5%

1 SMS is to be sent as an alert and another SMS is as a notification to the customers of Bangla Lion. Cost per SMS is BDT 0.45. So, per bill payment the amount would be BDT 0.9. Pessimis tic
GP Charge to Bangla Lion: Cost Per payment BDT

Most Likely 3.50% 0.90

Optimis tic 4.00%

3.00%

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Conversion to channels This is the projection on the ground of reasonability and reality.
% Conversion to GP Channel

Channel Plaza Office Bank Scratch SMS Final Outlay

2012 30% 20% 20% 20% 40%

2013 35% 25% 25% 25% 50%

2014 40% 30% 30% 30% 60%

BUSINESS CASE (OPEX) 2012 Pessimistic Most Likely 346,01 7 219,60 5 2 235,29 0 0 282,35 Optimistic 415,22

Registered Bangla Lion Subscribers: Active Bangla Lion Subscribers:

Active Subscribers Per Channel: Plaza Office Bank Scratch Card SMS

322,94 9

21,86 2 29 28 192,03 3 53 0 57 2,5 3,1 24 10 51

23,4 2,7 3,3 205,75 0 68 9 52 21

28,10 3,2 4,0 246,90

Average Bill Amnt Per Channel Per Month: BDT Plaza 1260.09 Office Bank Scratch Card SMS 1327.17 1337.17 498.53 913.06

1260.09 1327.17 1337.17 498.53 913.06

1260.09 1327.17 1337.17 498.53 913.06

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Annual Total Bill Collection Amount by Channel: BDT Plaza 330,581,376 Office Bank Scratch Card SMS TOTAL Amount Collected by GP Service 40,282,365 50,185,188 1,148,813,622 578,361 1,570,440,912

354,194,331 43,159,677 53,769,845 1,230,871,737 619,673 1,682,615,263

425,033,198 51,791,612 64,523,814 1,477,046,085 743,607 2,019,138,316

347261992.32

372066420.35

446479704.42

Amount collected by GP service has been found by multiplying annual total bill collection per channel with % Conversion to GP Channel. Revenue Model

Pessimistic

Most Likely

Optimistic

GP Income: % of bill collected Operating Expenditure SMS Sending Cost & OHC: Distributor Commission: Retailer Commission: VAT: BTRC Revenue Share: Total Direct Deductions:

10417859.7 7

13022324.7 1

17859188.1 8

46115.7674 49409.7508 5 4 1493226.56 1599885.60 7 7 1875214.75 9 2009158.67 1359009.80 1698762.25 7 9 588825.247 736031.559 6 5 5362392.1 6093247.84 48 6 5055467.62 2 0.48526931 6929076.86 6 0.53209215 9

59291.7010 1 1919862.72 9 2410990.40 4 2329731.09 8 1009414.71 7729290.6 42 10129897.5 3 0.56720929 5

Net Gain / Loss: BDT Margin on Revenue:

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Identifying the Floor of the charge on bill payment Initially, GP is optimistic to get the best possible option as 4%. Here, the least possible options are examined. If GP intends to gain net margin not less than 50%, it should not accept less than 3.2% of bill payment. Moreover, if GP targets to gain not less than 30%, it should not accept less than 2%. At any cost GP should not accept less than 1.215%, otherwise there would be negative net margin.

GP Charge to BL 4% 3.80% 3.60% 3.40% 3.20% 3% 2.80% 2.60% 2.40% 2.20% 2% 1.80% 1.60% 1.40% 1.215% 1.20%

Net Margin 56.72% 55.43% 53.99% 52.38% 50.58% 48.53% 46.19% 43.48% 40.33% 36.61% 32.14% 26.68% 19.85% 11.07% 0.37% -0.64%

BillPay Tracking: Hypothesized Example

One of the most popular financial services of GP is BillPay. Here through a format, it has been shown how GP records, analyzes and monitors the scenarios of this service day to day. All the values are hypothesized; nothing is real in this format. 50 | P a g e

January Day 29

Name BPDB ctg BPDB Syl BPDB Raj BPDB Total TTAS DSCO DPDC BGSL CWSA KGDCL JGSL

No. of Bills Paid today

No. of Bills paid on the previous day

Differenc e

20646 1645 1855 35 462 21 1025 219

3980 992 1288 6 163 25 501 95 653 567 29 299 -4 524 124

There are few due dates in each month. As the day is close to due dates, the number of payments increases as people usually makes payment just before due dates No. of Due dates till this day 6 8 10 24 0 11 4 0 0 0 0 No. of due dates till this day(last month) 7 10 10 27 0 13 4 0 0 0 0 Bills uploaded last month till this date 303893 116721 260843 681457

January Day 29

Difference -1 -2 0 -3 0 -2 0 0 0 0 0

Name BPDB ctg BPDB Syl BPDB Raj BPDB Total TTAS DSCO DPDC BGSL CWSA KGDCL JGSL

Day 18

Name BPDB ctg BPDB Syl BPDB Raj BPDB

Bills Uploaded till today 195275 71733 223617 490625

Difference -108618 -44988 -37226 -190832 51 | P a g e

Total TTAS DSCO DPDC BGSL CWSA KGDCL JGSL

January Day 29

Name BPDB ctg BPDB Syl BPDB Raj BPDB Total TTAS DSCO DPDC BGSL CWSA KGDCL JGSL

No. of Bills paid this month till today 45282 50914 50914 147110 9940 18065 87 1767 225 3243 876

Last month as of this day 63791 25208 61311 150310 12891 16838 16252 2125 747 4925 1068

Difference -18509 25706 -10397 -3200 -2951 1227 -16165 -358 -522 -1682 -192

Monitoring When there is significant decrease in bill payment in case of a specific utility partner for several months, the team of operations recognizes that there might be a need of promotional activities to encourage people to adopt this service. In this case SMS is sent to each GP subscribers with a message of paying bill through BillPay. Moreover, more banners and bill boards are posted to bring people under this service.

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