2010-2019: a meaningful decade for digital financial service evolution

It is undeniable that the effort put in by the government, the Bangladesh Bank and private sector players have contributed to innovations in digital financial service (DFS) and its penetration in the country.

Key DFS players include bKash, Bank Asia, Nagad, Dutch-Bangla Bank (for mobile financial service through Rocket and agent banking), and SureCash (a fintech platform that facilitates mobile financial services through multiple partner banks).

The BB has been reasonably deft in formulating various policies as per the market demand, while the private sector players have been aggressive in promoting innovations through partnerships across the industry.

DFS initiatives, such as the government's focus on government-to-person (G2P) payment, the rise of e-commerce, fintechs and public-private partnerships around the DFS business model helped Bangladesh go the extra mile for digital financial inclusion.

This article outlines the evolution of DFS in Bangladesh through the lens of policy and industry partnerships by dividing the decade (2010-2019) into three phases:

PHASE 1 (2010-2013)

During 2010 to 2013, the journey of MFS started in the country, the period that decided who would lead the market and who would be denied an opportunity.

Since its inception in 2010, Bangladesh's DFS market saw partnerships between mobile operators and banks to digitise utility bill payments, state-owned railway ticketing and inward foreign remittances.

One such example is bKash, which was the result of a partnership between Brac Bank and Money in Motion LLC.

Banks partnered with mobile operators for access to their unstructured supplementary service data (USSD) and distribution networks for their own MFS and mobile banking initiatives.

However, industry stakeholders disagreed over whether the MFS business model should be bank-led or telco-led.

This persisted until the BB decided to go ahead with the bank-led model and published the maiden MFS guidelines in 2011.

Both the MFS pioneers Dutch-Bangla Bank and bKash had launched their mobile financial services before BB published the MFS guidelines -- their initial success and the way they partnered with mobile operators might have influenced the regulator in favour of banks.

In this situation, a third-party service provider (SureCash) grabbed an opportunity.

SureCash launched its MFS platform in 2014. It offered an agent network and an MFS platform to banks.

This phase also saw the initiation of some partnerships with businesses that employed large-scale resources to promote their payroll disbursement service through the mobile wallet.

PHASE 2 (2014-2016)

During 2014-2016, the industry witnessed public-private partnerships (PPP) through which both bKash and DBBL partnered with a2i and the local government division (LGD) to use union digital centres (UDC) as agents across the country.

In 2013-2014, the International Finance Corporation and the Bill & Melinda Gates Foundation made equity investments in bKash.

The DFS partnership models with other service providers started to transform the industry in early 2016.

MFS providers signed deals with international money transfer operators (MTOs) and payment network providers (primarily MasterCard) to develop remittance products.

The MFS providers also partnered with microfinance institutions (MFIs) to digitise disbursement and repayment transactions.

MFIs like Shakti Foundation and BURO now have partnerships with both MFS and agent banking providers to disburse and collect repayments.

MFS providers also reinforced e-commerce payments through a partnership with e-commerce providers.

Some of these models such as Daraz and bKash have seen considerable success at present.

During this phase, banks, primarily Bank Asia and DBBL, started piloting agent banking.

Agent banking service providers also partnered with garment factories and MFIs to enhance their user base.

PHASE 3 (2017-2019)

Three key developments delineate this phase:

a) Acceptance of agent banking in the rural economy across the country.

b) Nagad, a digital financial services provider under a public-private partnership model, regulated by the Bangladesh Post Office (Amendment) Act 2010 was launched.

c) iPay and Dmoney, the country's first two online payment platforms, were launched under a payment service provider (PSP) licence. Both these marked the entry of fintech firms in the Bangladeshi DFS ecosystem.

The BB raised the transaction ceiling for MFS and issued guidelines for electronic money service to highlight transaction limits under wallets and identify who can be an e-money issuer.

PPPs in G2P digitisation through both MFS and agent banking providers benefitted more than tens of millions of people in need.

SureCash received the contract for the country's largest G2P disbursement of primary education stipends in partnership with Rupali Bank.

Bank Asia recruited agents at a high pace and secured diversified partnerships across the industry.

It partnered with various government initiatives alongside private sector players including mobile operators, e-commerce ventures, digital health, donors and other international development agencies.

The market also witnessed another trend of partnerships that promote bilateral interoperability between a bank and MFS providers.

bKash has partnered on bilateral interoperability with different banks and cards, such as Dhaka Bank, City Bank, Bank Asia, Standard Chartered Bank, Brac Bank, Visa and Mastercard.

In these partnerships, the key feature has been instant money transfer between the MFS wallet, bank account and card.

As we have mentioned earlier, such partnerships stimulate both merchant payments and the use of accounts as customers begin to see an increased range of use cases.

Brac Bank connected both bKash and Rocket for such interconnectivity between wallet and bank account. 

From Bangladesh's DFS ecosystem perspective, the decade ended with an understanding of enabling new business models of financial services and innovations.

The year 2020 has been all about the global coronavirus pandemic, which catapulted MFS to an essential service for ensuring the regular money flow between urban and rural economies during the countrywide shutdown.

Innovations such as bilateral interoperability and 'add money' worked wonders during the lockdown.

The BB has provided licences to Nagad and Trust Bank-Axiata MFS subsidiary.

However, new licences or entrants such as fintech firms, payment system operators (PSOs), PSPs and MFS providers will influence the overall sector by evolving new model of DFS and partnerships.

The BB will like to define how it sees the role of PSO, PSP (the two payment licences) and, most importantly, evolving fintech companies.

The central bank may want to push the greater agenda of innovations and market competition through a more inclusive and enabling environment.  

The author is a digital financial services expert and senior vice-president of Bank Asia