Introduction to m-Commerce, Mobile Banking, e-commerce and MIS

Introduction to m-Commerce, Mobile Banking, e-commerce and MIS

[ From chapter-3 of the book "Information Technology in Banking" written by Abul Kashem Md. Shirin and Nusrat Tamanna Prianka and published by Institute of Bankers, Bangladesh (IBB) ]

1.         m-Commerce:

M-commerce (or mobile commerce) is the buying and selling of goods and services through wireless handheld devices such as cellular telephone and personal digital assistants (PDAs). The emerging technology behind m-commerce, which is based on the Wireless Application Protocol (WAP), has made far greater strides in Europe, where mobile devices equipped with Web-ready micro-browsers are much more common than in the United States.

In order to exploit the m-commerce market potential, handset manufacturers such as Nokia, Ericsson, Motorola, and Qualcomm are working with carriers such as AT&T Wireless and Sprint to develop WAP-enabled smart phones.

As content delivery over wireless devices becomes faster, more secure, and scalable, there is wide speculation that m-commerce will surpass wireline e-commerce as the method of choice for digital commerce transactions.

M-Commerce is one of the many activities offered by a mobile banking system.

2.         Mobile Banking:

Mobile Banking is a banking system for mainly unbanked population using which a registered mobile holder can deposit & withdraw money from an agent, transfer money from his mobile account to another mobile account, receive remittance from abroad, pay shopping bills & utility bills, receive salary & various government allowances, and top up airtime for his own mobile etc.

Payment of shopping bills is a P2B (person to business) activity which may be called as M-commerce. Using this function of mobile banking the customer can buy goods and services from a shop or restaurant (called merchant) and pay bills by transferring money from his mobile account to the merchant’s mobile account.

At present (in year-2011), only 13% of the population is maintaining bank account while 45% are having a mobile phone. Thus using a mobile banking technology, a huge unbanked population can be brought into the banking system. The banking activity can also be extended to the rural areas where there has no presence of bank. This will also stop informal remittance both local and foreign.

3.         e-Commerce

According to James A. O’Brien “e-commerce is the buying and selling, and marketing and servicing of products, services and information over a variety of computer network. In short, buying and selling of goods and services over internet is called e-commerce.

In this system, the seller (merchant) develops a website where he displays all the items he wants to sale. Each item will have one or more pictures, description, specifications and area based delivery time. The customer visits the website and selects the items he wants to buy. The selected items accommodated in a place which is called cart. When the selection is finished, the buyer enters the deliver address (if not registered earlier) and presses “Check-out” button to pay the bills.

The merchant’s website is linked to an e-commerce system of a bank. The e-commerce system of the bank is known as “payment gateway” or “payment switch”. The bank to which the merchant is connected is known as Acquiring Bank or Acquirer.

After the buyer clicks the Check-out button, a new window will be presented on the monitor of the buyer from the Payment Gateway system of the Bank where he inserts his debit card or credit card number, PIN/CVV/CVC, date of expiry etc. and clicks the ‘confirm’ button. The PIN stands for Personal Identification Number, CVV stands for Card Verification Value & used by Visa, and CVC stands for Card Verification Code & used by MasterCard.

The Payment Gateway collects the card information and checks the information for correctness. If the information supplied is found correct, the system debits the buyers bank account or credit card account, and credit the merchant’s account. Then the system informs both the parties about the action.

If the card does not belong to the same bank, the payment gateway sends the information to the payment association (network of MasterCard, Visa, Amex, JBC, Dinar, Discover etc) where the card belongs to. The payment association then sends the card information to the Issuing Bank. Issuing Bank is a bank which issues the card to the customer.

Now the issuing bank verifies the card information and if found correct, debit the buyer’s bank account or card account. This is called authorization of transaction. The authorization message goes to the acquiring bank which then credits the merchant’s account and informs both the parties about the action.

The way by which the acquiring bank gets money from the issuing bank, if these are different, is called settlement. The settlement is made daily by the payment associations by debiting the nostro account of issuing bank and crediting the nostro account of the acquiring bank.

Depending on the information obtained from the acquiring bank regarding the action taken, the merchant delivers the goods and services to the buyers address.

If a transaction happened between two banks in Bangladesh, the transaction travels all through the network of the payment association. Thus both the banks need to pay network usage fee and settlement fee to the payment association. To avoid this, a National Payment Gateway or National Payment Switch may be established either under the control and supervision of the central bank or a company owned by all the participating banks. As such all the inland transactions between two local banks will not be routed to the network of payment association. Settlement will be made by the central bank debiting and crediting accounts of the banks maintained with the central bank. However all the international transactions will be authorized by respective payment association.

Using a payment gateway, cardholder can also pay utility bills such as electricity, gas, water, telephone bills, tuition fees, income tax, city corporation tax, and can buy ticket for train, airplane, bus, steamer, cinema, drama etc. However all such companies should have a website capable to display unpaid bills/fees/tax to the customers after entering the reference number (such as meter number, account number, telephone number etc) by the customer in the company’s website. The customer should also be able to pay the unpaid bills by a click on the “Pay” button. In case of buying tickets, the customers may be allowed to view the available seats and select his desired seats from a layout.

4.         MIS

According to James A. O’Brien “Management Information System (MIS) is a computer System which provide managerial end users with predefined management reports that would give managers the information they needed for decision-making purposes.

Therefore MIS is a computer system which generates reports based on which the top and mid-level management of a bank or an institution can decide on some business, development and administrative issues. For example bank system generates FDR maturity report which shows a list of FDRs along with maturity date and amount which will be matured in next 7 days. A manager looking at this report can decide on the following 2 issues:

i) To pay the FDR money to the customers, whether he needs to borrow money from his head office or his cash position is enough to pay this.

ii) To which customers the Manager needs to communicate for convincing him (the customer) so that the customer keeps the money with his (manager’s) branch as FDR or other form.

In the same way, based on the reports on the daily deposit and advance position, the Managing Director of a bank can decide where he needs to give more attention – for collection of deposit or disbursement of loan.