Recently I caught up with Azad Delwar Hossain, Head of Financial Services for Grameenphone in Bangladesh. Grameenphone launched a service called ‘BillPay’ in 2006, which allows customers to pay utility bills over the counter, or through an e-wallet. In this interview, Azad provides insights into all aspects of their model, but key three insights emerge that all operators deploying payment offerings should consider:

1. Ensuring right commission spread and loyalty of channel partner – The ‘lions share’ of Grameenphone’s revenue is given away to their distribution partners. This is their way of strengthening the BillPay value proposition to agents, in light of the fact that transaction volumes are still growing towards levels that will truly capture interest. Only once BillPay reaches critical mass and their agents are provided with sufficient volume will Grameenphone take a reasonable portion of income.

2. How market conditions impact business models – Payments businesses typically earn revenue from a combination of customer fees, bill issuer charges, and float. But not all of these revenue sources will apply in every case. For instance, in Bangladesh, BillPay earns revenue solely from customer fees as bill issuers do not generally pay for bill collection. In Pakistan, by comparison, bill issuers do often pay for collection. This difference alone, setting aside regulation for a moment, suggests that the approach taken in Bangladesh will be much different from that of Pakistan.

3. The importance of trust – For years, people in Bangladesh have paid their bills at a bank and diligently retained transaction records, anticipating that they may need evidence to resolve disputes with utility companies in future. Customers have also faced the prospect of massive penalties and going without a service like electricity for long periods if their payment is not made correctly, and on time. These factors have bred a tendency for customers to choose the least risky bill payment options. Two elements of Grameenphone’s approach reflect an understanding of these customer attitudes. First, they’re leading with a less daunting over the counter service in advance of an e-wallet. Second, they’re promoting BillPay heavily using below the line activities, having utility companies communicate directly with customers to verify that BillPay is an authorized service.

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GSMA: Can you describe BillPay?

Azad: BillPay is a technology driven service with a large distribution network that allows customers to pay their bills. Currently we only handle utility bills, meaning electricity, gas and water.

Customers use the service in two ways. Either through an e-wallet, or by visiting an authorized BillPay centre, of which there are about 4,000. When it comes to registration, if the customer intends to do transactions from their mobile, they must register. But of course registration is not mandatory for over the counter transactions.

GSMA: How has the market and customer behaviour informed your approach?

Azad: We’re taking an evolutionary path. For generations, people have been in the habit of paying their bills over the counter of Banks and preserving their proof of payment for a long time. There are incidents when a utility company may claim that someone has not paid, for example, their March 1999 bill, so people have gotten used to keeping their records. To address this behaviour, we are using a platform where transactions are carried out by agents on behalf of the customer, and customers get instant confirmations. Customers trust this process.

We have not made a marketing effort to promote the use of an e-wallet to make payments yet. What we are trying to do is to give customers exposure to BillPay through the over the counter offering, generate trust and then once we have critical mass we’ll begin converting customers to the mobile channel. Today, there are several thousand people paying their bills through mobile, and using the e-wallet for airtime top-up, but that has happened organically through word of mouth – we haven’t done any campaigns to encourage it.

GSMA: How much do you charge for your service, and why is this a compelling value proposition compared to competitive offerings?

Azad: We charge our customers between 5 and 25 taka for a bill payment. This is about US$0.07 to US$0.36. If BillPay didn’t exist, customers would need to go to a designated bank branch, on a designated day, at a designated time, and practically for obvious reason it creates queue for a long time. . The banking hour is between 9am to 1pm. So, if you have 3 utilities, there’s a possibility that you’d need to visit 3 different banks, at 3 different times, between the hours of 9am and 1pm on working day. And, people in Bangladesh do have many utility bills to pay, including gas, water, electricity, sewage, municipal tax, cable, internet, to say the least. Because each service provider works with certain banks to collect bills in certain areas, there was no ‘one stop solution’ available to customers. This was very inconvenient. So compared to competitive offerings, the USPs are the paying bill anywhere at anytime.

GSMA: Beyond inconvenience, what other problems does the BillPay service address?

Azad: The other problem that existed was that most banking infrastructure was manual driven, and the collection process was prone to errors. And when there is an error, it would be up to the consumer to resolve it with the utility company. There’s a lot of manual activities, which can lead to errors happening.

GSMA: How have you promoted BillPay?

Azad: Our approach to promotion is to use permanent and non-permanent branding at the agent point of sale (i.e. a facia, or an illuminated box), and to drive volume using below the line activities. All of these activities are important and work together, but below the line activities are probably the most important. Through proper communication, you need to let people know that they can use these outlets 7 days a week, 365 days a year. We do a lot of below the line activity and involve the utility companies to promote the service. If the utility company tells them to use a certain service for payment, customers are more likely to accept and trust it. We have also done above the line communication, including radio and some TV, but this is a very costly affair.

GSMA: And why would a utility company encourage a customer to pay via BillPay?

Azad: It’s much cheaper and more efficient for them to accept payment from BillPay. The manual process of collecting and posting data is costly and prone to error. Some utility companies are also facing an image crisis – because there are so many errors, people are starting to think that utility companies enjoy harassing customers. With BillPay, we integrate the entire system and make everything electronic. So there’s no human intervention or chance of error.

GSMA: What barriers to adoption have you faced?

Azad: Behavioural change is difficult and takes time. Also, the harassment from utility companies is so strong, that people are not likely to take a risk – especially with basic services like utilities, because the resulting pain is so excruciating. In other words, if payment isn’t made, you might be without electricity for 7 – 10 days minimum and need to pay a big penalty. So not surprisingly some people don’t want to take a risk.

The Grameenphone brand helps address this. We also offer a service where Grameenphone advocates for customers that pay using BillPay in the case of a dispute with utilities. So we tell customers that once you pay through BillPay, if there is any dispute, you just inform us and we’ll resolve it for you. There is no need to travel. If there is an error in the bill next month, customers call our dedicated financial services call centre, we call the utility, and resolve everything.

GSMA: Can you describe your business model?

Azad: The national practice in Bangladesh is for bill issuers not to pay anything for bill collection. We generate revenue almost entirely from customer fees and very modest interest earning from the float revenue from holding funds before passing them on to the bill issuer.

This is not a sustainable model in the long term unless good volumes of Bills are processed through BillPay. Right now we are attempting to shift the minds of regulators and customers. In the long run, we will need regulators to allow us to process more types of bills. This, combined with increased customer usage of the service, will help drive up volumes.

GSMA: How do you choose BillPay agents?

Azad: We have evolved our agent selection criteria based on experience. We have a ‘bible’ which evolves over time. This gives the profile of a perfect agent. We look for an agent who has respect in their local area, who has been doing business for a long time, is from the locality, and already have a respectable customer base in the locality.

We do not exclusively use airtime resellers as agents. Rather we try to see who matches the agent profile, and then develop them to offer all Grameenphone products, including airtime. So in the end, all of our BillPay agents are airtime resellers as well, but that’s because once we have selected them to be a BillPay agent, we also ensure that they become a Grameenphone airtime reseller.

GSMA: And what role do agents play in your model?

Azad: Agents are responsible for processing over the counter bill payments, providing cash-in to a customer’s e-wallet, and selling airtime.

GSMA: You mentioned that a few thousand customers use the e-wallet. How will you promote this more broadly?

Azad: For ages the people of Bangladesh paid their bills over the counter and retained the proof of payment for decades First, we need customers to use and trust the over the counter service. Once we have a critical mass, we’ll plan to convert them from OTC to self service. But people are scared right now, and behavioural change will take time. As more people use and get comfortable with the service, we’ll think more about making this change. May be once we would process million bills a month could be the tipping point.

We also need to build a portfolio of payments into the e-wallet before we make this change to make it more compelling.

GSMA: How would you describe your approach to collaboration across other Telenor markets that are active in financial services, like Pakistan for instance?

Azad: Market dynamics and regulatory environment vary a lot from market to market. Telenor selects an approach that depends highly on country specific factors. Telenor culturally works in a decentralized manner. Local management works in complete independence and central office doesn’t intervene unless required.

At the group level though, we do share learnings, information, knowledge and best practices. If we need a subject manner expert, we’ll reach out to another market and leverage that person. I think that if you try to drive financial services from a central office, it will fail. You really need to approach each market from a local perspective.

GSMA: Thanks, Azad.