GLOBAL VALUE CHAIN ANALYSIS: MOBILE FINANCING INDUSTRY IN BANGLADESH

| Maleeha Tarannum

Table of Contents
1. Dimensions of Global Value Chain for Mobile Financial Service Industry: ........................... 2 2. Value Chain: Input-Output Structure: ........................................................................................... 2 2.1 Overall Input-Output Structure:................................................................................................ 2 2.2Input-Output Structure in Bangladesh ..................................................................................... 4 3. Value Chain: Institutional Context ................................................................................................. 5 3.1 Mobile Banking Value Chain (Bank-led) .................................................................................. 5 3.2 Mobile Banking Value Chain (MNO-led)................................................................................... 5 3.3 Payment Value Chain .................................................................................................................. 5 ................................................................................................................... Error! Bookmark not defined. 4. Value Chain: Governance Context .................................................................................................. 6 5. Value Chain Analysis: Value Addition Process ............................................................................ 7 5.1. Input-Output Structure: ............................................................................................................. 7 5.2 Institutional Context: .................................................................................................................. 9 6. Industry Dynamics & Market Structure ....................................................................................... 9 6.1 Market Structure: ........................................................................................................................ 9 6.2 Industry Dynamics: ................................................................................................................... 10 7. Value Chain Analysis: Governance & Power Structure............................................................ 11 7.1 Governance Structure: .............................................................................................................. 11 7.2 Power Structure: ........................................................................................................................ 12 8. Value Chain Analysis: Geographic Spread of Trade & Investment ........................................ 12 9. Value Chain Analysis: Industrial Up-gradation ......................................................................... 12 9.1 Partnership with single MNO: ................................................................................................. 13 9.2 Mobile Financial Service for Niche Market: ........................................................................... 13 9.3 Innovation in term of Value Added Service: .......................................................................... 13 9.4 Value Chain led by Development Organization: ................................................................... 13 9.5 Emergence of Technological Trainer as Value Chain Partner: .......................................... 13

Global Value Chain Analysis of MFinancing Industry in Bangladesh

1. Dimensions of Global Value Chain for Mobile Financial Service Industry:
GVC analysis provides a holistic view of global industries both from the top down and from the bottom up. In our country, mobile financial service is a growing industry with lots of potentials. To utilize different opportunities that technology and globalization offer, it is very important to understand the nature of the industry. Once the industry is dug in depth, challenges can be overcome and opportunities can be utilized in the best possible way. Global value chain analysis of mobile financial service industry is very significant because both financial services and telecommunication are growing across world. So in term of globe where we are standing and where we can go can be described through global value chain analysis. Like other industries, global value chain of mobile financial service industry in Bangladesh can be described in four dimensions: Input-Output Structure Geographic Context Institutional Context Governance

2. Value Chain: Input-Output Structure:

2.1 Overall Input-Output Structure:
Mobile financial service industry is a unique one where input and output is similar. The nature of input just changes. Basic input is financial services. In our country banks normally offer following services:

Financial Services provided by banks

Accepting deposit Withdrwing facilities Withdrawing via debit card Overdraft Overdraft via credit card Money Transfer Providing loan Interest on deposit

Mobile financial service industry is capable of offering these similar services but via mobile phone. Thus, the services are provided by financial institutions as input and consumers consume these services as output using their mobile phone. The figure represents a very basis structure of value chain of mobile financial service in term fed of into inputthe output. The the Financial services as input is system. to via Internet services reached

consumers network.

mobile service

Figure 1: Value Chain based on Input-Output Structure

provides and agents can act as channel facilitator. However, these two are optional in the value chain. Yet in our country agents are very important as most of the people especially in rural area are less technology conscious. o People can have virtual bank account where they can deposit money, transfer money from their accounts, receive money from other accounts, and withdraw money using mobile phone and identification number. o Agents mostly help people to gain access to these services where less technological knowledge hinders them to use mobile phone in order to gaining these benefits. o People may need to be online to in order services have where

access to banking internet service is a part of the value chain o Software provider can be active at any stage of the
Figure 2: Mobile Financial Service Value Chain in Bangladesh

system. They can develop software for MNOs as well as for handset provider. So their position in the value chain is not fixed.

2.2Input-Output Structure in Bangladesh

This figure represents the value chain of mobile financial service industry in our country in term of input-output structure. This extended version of the value chain mainly focuses on 4 issues: The value chain focuses on only mobile network Financial services provided in Bangladesh Institutions that can provide financial services in Bangladesh Organizations that offer mobile netwrok in Bangladesh Organizations that provide Wi-fi internet service in Bangladesh provider but not on mobile phone provider because in our country most provide organizations financial

4 Issues

services in such a way that enables any type of mobile phone to to the one

Figure 3: Focus of Extended Value Chain

gain

access Only

service. company is providing service which needs smartphone.

The value chain shows only Wi-Fi internet service providers because broadband internet or internet via modem is less compatible with mobile phone than Wi-Fi internet connection is. In our country, internet network service provider act as middleman to make financial services available to consumers via mobile. On the other hand, agents work as middlemen between consumers and mobile network providers.

3. Value Chain: Institutional Context

3.1 Mobile Banking Value Chain (Bank-led)

3.2 Mobile Banking Value Chain (MNO-led)

Figure 4: Mobile Financial Service Value Chain Bank-led Model

Figure 5: Mobile Financial Service Value Chain MNO-led Model

3.3 Payment Value Chain

Figure 6: Typical Payment Value Chain

Figure 7: Mobile Payment Value Chain

4. Value Chain: Governance Context

Figure 8: Mobile Financial Service Value Chain: Governance Context

5. Value Chain Analysis: Value Addition Process

5.1. Input-Output Structure:

5.1.1 Software Provider:

Software provider basically works with MNOs to provide software that makes the service accessible via mobile phone. They work to make the service compatible with phone. Also, they can work with handset
Figure 9 : Value Addition Process

manufacturers to build up apps which may make the service more

available or accessible. Finally, software provider can work with banks to help in maintenance. So basically software providers add the compatibility value to the value chain.

5.1.2 Mobile Network Operators:

Almost everyone now owns a mobile handset. Mobile network is thus always with us. So when services are offered through mobile network, two things happen: Services become more available because time frame does not exist anymore. Service becomes more accessible because we almost all have mobile phone which removes geographic parameter. Thus, MNOs add two values to the value chain: 1. Availability 2. Accessibility

5.1.3 Internet Service Provider:

Whoever is used to internet in our country at least owns a Facebook account or professional account. Basically, internet helps to form virtual account which means a virtual identity. So when services are offered via internet two things may happen: Services can be offered through a virtual account which can remove the essence of having physical bank account If one has internet service, she/he can enjoy the service. Thus, service becomes more accessible. Thus, internet service provides add the following values to the value chain: 1. Accessibility 2. Virtual Identity

5.1.4 Agents:
One can own a mobile handset, can have access to internet service and yet then may not enjoy mobile financial service if she/he has less knowledge regarding technology. Agents work to help people to reduce complexity regarding technology. When agents are nearby, one should not have problem to have access to the service. Thus, agents make the service more accessible.
Figure 10: Value Addition Process

5.2 Institutional Context:

In our country, only bank-led mobile financial service is allowed so far. In a bank-led value chain model mainly 3 institutions are involved as presented by the figure. When providing financial services via mobile phone, bank is held responsible to maintain the virtual wallet of their clients. Banks are involved in account and transaction management. So banks make the system more efficient in term of time. Because client does not need to spend additional time to manage account and transaction. The institution in the value chain is MNOs. When services are provided via mobile network, individual does not need to be physically present at banks to make transaction. It saves cost. At the same time it saves a lot of time that would be needed to be present at bank. Thus, MNOs make the system more efficient in term of time and cost. Also, MNOs add availability to the value chain. This is because people get the service at any places whenever required if only they have access to mobile network.

6. Industry Dynamics & Market Structure

6.1 Market Structure:
From the value chain we can identify following characteristics of mobile financial service industry in Bangladesh:

Currently all existing MNOs except TeleTalk are active in mobile financial service industry 7 banks are currently involved in providing mobile financial service bKash controls large market share DBBL and IBBL are trying to increase market share
We can conclude Bangladesh

mobile financial service industry in mostly reflects oligopoly nature of market. Here a few firms like bKash and DBBL controls large proportion of the market. However, number of firms or banks involved in providing mobile financial service in our country is also not that significant. Still then the market proportion of other firms are not noteworthy. Therefore, competition is mostly oligopoly in nature.

6.2 Industry Dynamics:

6.2.1 Industry Life Cycle:

Till the end of 2012 Bangladesh bank permitted 14 banks t provide full mobile financial services and gave 9 more banks permission to provide international remittance services. Currently 17 banks are operating mobile banking activities, while the the central popularity bank and has given permission to 26 banks in this regard. With
Figure 4 Industry Life Cycles for Mobile Financial Services Bangladesh

rising

government

support of the service this sector is growing

and getting more customers as well as competitors day by day. So, we can clearly see the industry is in the growth stage of industry life cycle model with a relatively new product, increasing numbers of customers and competitors.

6.2.2 Drivers of Change:

Involvement of Multinational banks in mobile financial services Diversified needs of consumers Value Added Service of MNOs Interest on deposit in virtual account

6.2.2. a Involvement of Single MNOs in Value Chain of Banks:

Mobile financial service industry in our country is Value added service of Banks in growth stage. Handful have banks started mobile

Involvement of single MNO with several banks

Drivers of Change
Figure 11: Drivers of Change in the Industry

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operation. So far, six mobile network operators have the capacity to meet the demand of these handful banks. However, situation will not be the same. When more banks will come to the industry, MNO itself can create competitive edge.

6.2.2.b Diversified Needs of Consumers:

People working outside the country will demand for mobile money transfer. Owner of a small enterprise will prefer overdraft or withdraw facilities. Young lady working in garments will want to save her small earning and at the same time to transfer some to her parents in village. Thus, different market segment are now emerging in our country with varieties of needs. diversified needs can bring change in the mobile financial service industry in our country. Such

6.2.2.c Involvement of Multinational banks in the Industry:

So far, no multinational banks are active in this industry in our country. But they can attempt to come to this industry. With their intervention market will become more competitive and fast paced.

6.2.2.d Value Added Service of MNOs:

Mobile financial service is now a value added service for the banks. But it is not for MNOs. This is because all MNOs can provide bKash facilities. So MNOs if think of adding their value added service to the basic mobile financial service, industry will face change.

6.2.2.e Interest on Deposit in Virtual Account:

This is a fact under consideration of government. Once government will allow paying interest on virtual deposit, number of consumer will increase rapidly. To keep pace with this increased demand, industry will have to be more diverse and bigger in size.

6.2.2.f Value Added Service of Bank:

Banks own value added services can drive change to the industry.

7. Value Chain Analysis: Governance & Power Structure

7.1 Governance Structure:
In our country, banks are guided by government and banking policy. At the same time, government controls the MNOs in the country by imposing guidelines, rules and regulations. However, at present, most MNOs in our country are
Figure 12: Governance Structure of Mobile Financial Service Industry

multinationals. Hence, those are guided by policies of parent companies.

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7.2 Power Structure:

Being an oligopoly market, customers are controlled by some firms. These firms are again controlled by MNOs and agents as MNOs and agents are their value chain partners. However, as consumers are growing in number, in near future they can gain power over banks. At the same time, while more banks will come to the industry they may gain some control power over MNOs.

8. Value Chain Analysis: Geographic Spread of Trade & Investment

Only local banks are active in our country Several multinational banks in Bangladesh Advancement in telecommunication across globe Active involvment of international development organization in the country Significant number of workers working outside Several countries are now allowing migration of workers at present. But with the introduction of multination increase. Geographic spread can also increase as telecommunication industry is growing across globe. So if different MNOs across globe join partnership, financial services can be offered to people outside the border of the country. NGOs and specialized development organization are active across globe. If any of these international development organization show interest to work with specific market segment in our country, geographic spread of trade and transaction will increase then. Significant numbers of workers are now working in foreign countries. Many countries currently are allowing migration of workers. When these workers will be offered more service other than money transfer geographic spread of transaction will increase manifolds. banks in the industry, geographic spread of transaction will

Factors to consider

9. Value Chain Analysis: Industrial Up-gradation

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Partnership with single MNO Mobile Financial Service for Niche Market Innovation in term of Value Added Service Value chain led by Development organization Emergence of technological trainer as a partner

9.1 Partnership with single MNO:

New This firms can can enter into the partnership with single MNO. increase commitment and efficiency of the MNO involved in the value chain.

9.2 Mobile Financial Service for Niche Market:

Across globe different organizations are active in program like micro credit or SME financing. These services can be made available via mobile phone. It has been described earlier how new market segment with differentiated needs are emerging. So new firms can focus on serving niche market segment.

9.3 Innovation in term of Value Added Service:

As described earlier, value added services of both banks and MNOs can be a force of change in the industry. So banks and MNOs can come up with innovative value added service related to mobile financial services.

9.4 Value Chain led by Development Organization:

In our country only bank-led value chain model exist. MNO-led value chain is not allowed. However, to face increasing demand MNO-led model can be encouraged. At the same time, development organization can initiate mobile financial service taking banks as partners.

9.5 Emergence of Technological Trainer as Value Chain Partner:

We can now see agents in the value chain to help less technologically advanced people. However, training may be arranged for consumers if services are offered to niche market. In that case, technology trainer will emerge as a value chain partner.

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