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Guarding against risk in mobile banking

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Faruk Ahmed :
Mobile banking in Bangladesh is now at a crossroad as a new service from an unregulated environment has entered in this highly regulated market with unfair price offer. The leading dailies first brought this issue in their reports expressing concern of the industry experts and players over the possible risks of money laundering.  The questions have been raised ¾ 'Will the new entry in mobile banking bring money laundering risk? Is the most promising mobile banking in jeopardy?'
According to the reports, Nagad, a digital financial service, outsourced by Bangladesh Post Office to Third Wave Technologies has been setting up its operations to provide customers with services to send and receive cash and other payments through its digital channel. While Third Wave Technologies is defining its service as 'Digital Financial Services', in practice, it's virtually same as a mobile financial service, without any valid license. The story is not ended here. The new entity has started business without approval of Bangladesh Bank that offers higher amount of money transactions compared to transaction limit of other mobile banking operators set by the regulatory authority. According to the reports, Nagad customers can transact money in its different agent points named as Uddikta Points anywhere in Bangladesh even outside of post offices. One customer will be able to transact Tk 2,50,000.00 per day, which is 9 time higher than the limit set by the regulator for a customer of other operators of mobile banking for similar service.
Nagad is offering this service as a digital financial service provider of Bangladesh Post Office, which is ruled by the Postal Act primarily designed to operate Postal Savings Accounts, a department of the Ministry of Posts and Telecommunications and provide remittance services to rural people through postal accounts. The big concern is higher amount of transactions through unlicensed MFS channel may trigger money laundering in multifarious dimensions. When Bangladesh Bank, the financial regulatory authority of Bangladesh, has set revised limit of transactions for mobile banking and the existing players are doing business in line with the current limits. This unregulated transaction limits of Nagad sparks gloomy signal to the existing market players to keep their growth pace with regulated pricing policy.
Industry experts say transaction limits must be consistent and transparent for the market as it encourages firms to compete on quality and price, and lowers search barriers for consumers, facilitating their ability to exert competitive pressure on competing products. For any form of banking, transactions and its price should be regulated and its flow should be strictly supervised by the central banks which controls money supply and ensures financial stability. For mobile banking, it is more important, as its products are more sophisticated and complex and delivered via mobile channel, in some cases without face-to-face interactions like bank counters.
After the launch of Nagad, industry experts say the situation has become complex and the financial regulator should come up with its arms to protect the mobile banking industry which has played a revolutionary role over the years, thanks to pro-active role of Bangladesh Bank. The World Bank president Mr. Jim Kim during his last Dhaka visit in 2016 lauded its role in financial inclusion and termed it as a most successful cost-effective tool that helped Bangladesh to cut poverty rate significantly. An enabling environment and strict adherence of policy by service providers are urgent to sustain this success and make mobile banking a game changer for poor people. And the first and foremost task should be to create a level playing field and conducive environment for all market players so that transparency, efficiency and market dynamism are kept in uniform consonance and consumer rights are kept under due protection.
Given their general presence in rural and poor areas, finance industry experts say post offices can play an important role in advancing financial inclusion by acting as cash-merchants for transactional financial services, such as electronic government and remittance payments, and that partnerships between the post office and other financial institutions coincide with the possibility of higher bank account penetration. But it should be implemented under the direct supervision of Bangladesh Bank. Because of vulnerabilities of postal sector being used by money launderers and terrorist financiers, Bangladesh Bank, as part of its supervisory process, formulated a clear guideline for postal remittance services. This guideline was designed to enable post offices to function in consistence with the Bangladesh's AML and CFT regulations and to ensure that appropriate identification information is obtained in relation to the clients of post office and the payments made among them or remittances received on behalf of them.
Another concern is that Nagad is going to operate outside of post offices without any formal arrangements of supervision, monitoring and control as it has neither the partnership with any bank nor it is regulated by the Bangladesh Bank. It's just a digital financial service provider of Bangladesh Post Office primarily designed to operate Postal Savings Accounts, a department of the Ministry of Posts and Telecommunications. Industry experts say Nagad operations should come under the supervision of none other than Bangladesh Bank. It should remain in digital financial service operations similar to mobile banking operations rendered by other operators under the supervisory control of Bangladesh Bank and its transaction limit should be set in line with other market players to avoid any untoward situation.
Regulatory action is urgent
Technological nuances make the mobile channel a little different, and the financial industry is only beginning to wrap its brain around some of the fraud and security risk potentials. The relationship with the consumer through digital channels like mobile banking has disrupted not only the sector, but also the age-old practices of regulators and supervisors.  So, formulating appropriate regulations was a big challenge that Payment Systems Department of Bangladesh Bank has very successfully surmounted by Bangladesh MFS Regulations 2018. The regulations is applicable to all entities including Mobile Banking.
With the national regulations for MFS in effect, Mobile Money Service providers are now emerging as big market players in payment business. Hence, similar service with the garb of different nomenclature should not be gone without any supervision from regulatory perspective. So, regulators and supervisors have to evaluate these new initiatives in light of their well-formulated and established objective keeping in mind the discipline, financial stability, consumer protection and the integrity of the sector.  Therefore, in case of Nagad, regulatory intervention is urgent. Activities with similar levels of financial risks should have the same regulatory treatment, regardless of who performs them, in order to foment financial stability, consumer protection and the integrity of the system. Otherwise, industry experts fear that the mobile banking would head to money laundering risk and face severe situation, putting financial inclusion into jeopardy.
 (The writer is the chairman of BJFCI. E-mail-bjfcibd@gmail.com)

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