Seven key factors to fuel fintech innovation
Bangladesh is touched by the technology revolution across almost all sectors from supply chain to transportation and trading to banking.
This article addresses the present status of the fintech industry in Bangladesh and recent activity.
It also sheds light on how the industry can be supported to achieve greater impact and to promote the government's goal of universal access to services.
Fintech, a portmanteau of 'financial technology, refers to the application of new technological innovations mostly internet, software and mobile apps for safer, faster and more efficient daily financial transactions.
Four of its key components are artificial intelligence, blockchain, cloud computing and data analytics.
In Bangladesh, there are more than 1,200 active startups and they have employed almost 1.5 million people.
The startups now deliver lifestyle-based products and services to address different market problems in the country.
Government, regulators, international donors and development agencies, entrepreneurs, angel investor networks, trade bodies and incubators have contributed to this progress.
Bangladesh is home to 112 Fintech companies out of these startups.
According to the Global Fintech Index 2021, Bangladesh ranked 78th among 83 countries.
However, the country wants to become a Fintech hub in Asia. The Fintech industry in Bangladesh is mostly represented by mobile financial service (MFS) providers, payment system operators (PSO) and payment service providers (PSP).
Agent banking providers seem to be the key catalysts for building a promising Fintech ecosystem around digital savings and digital credit.
The number of transactions through MFS peaked over the past year of Covid-19 pandemic restrictions. More than 12 million new MFS wallets were registered from August 2020 to August 2021.
Agent banking saw a steep rise with the addition of more than 6 million bank accounts over the past two years of the pandemic.
The looming trend of Fintech from country perspective is to grow and attract the global giants for synergies.
bKash, a fintech for mobile financial services, becomes the country's first official 'Unicorn Startup' with the recent investment from SoftBank.
The Japanese tech investment giant is going to acquire a 20 per cent stakes in bKash.
ShopUp, the country's largest business-to-business e-commerce platform, recently raised the largest Series B funding of $75 million for a B2B e-commerce platform in South Asia.
All the existing MFS and agent banking players together have been able to bring change to almost 120 million Bangladeshis, who are using digital financial services, by providing affordable and convenient solutions.
They are bringing changes to large number of under or unbanked population by:
Challenging legacy business models: Banking as well as various other financial services have been transformed into a doorstep service through the agents as the delivery channel and mobile phones (primarily) and mPOS as the technology. Fintechs have got engaged in partnerships as bKash and Rocket partnered with many banks to provide interconnectivity between bank accounts and the bKash wallet. Recently 'Nagad' a digital financial service by Bangladesh Post Office, has emerged through such partnerships.
Bank Asia has developed two different channels for its agent banking services across the country in partnerships with a2i for Union Digital Centres (UDCs) and Bangladesh Post Office for e-post centres. This bank also applied to the central bank for a digital bank licence.
Using customer insight and data to design solutions: Service providers analyse customers' profiles to maintain the quality of service delivery to the last mile. MFS providers (bKash and Rocket) are leading examples in terms of the success they have achieved. Now-a-days, the service providers are using data to develop credit products.
Using the smartphone surge to their benefit: DFS Apps are getting popular in parallel to the rise in smartphone penetration. One of the prominent MFS Apps have been downloaded more than five million times in six months since its launch.
Benefits of Fintech
Technology-led solutions frequently target access to financial services and convenience for the consumer. Fintechs play a vital role in catalysing the adoption of financial services introducing digital tools such as biometric-based mPOS, QR pay, e-KYC and digital credit scoring. Tools that save time for users and provide easy to use interfaces.
Fintech can expand access beyond financial services to other sectors, including agriculture, transportation, water, health, education, and clean energy, through integration with the technology revolution in other sectors; for example, integrating Fintech and Ag-Tech, or Fintech and Healthtech. Integration offers huge potential for lifestyle-based financial services derived through the information collected by the partner technology.
Seven imperatives we shall look after:
1. Innovation platform:
Establish a platform, which shall be a neutral ground of the Fintech industry, a place where various stakeholders can collaborate to innovate. Industry players, such as banks, payment service providers, Fintech startups etc can get together at this facility to brainstorm innovative ideas, try out and evaluate new Fintech solutions, conduct proof-of-concept trials, and gain an early understanding of the general applicability of creative solutions for banking and payment services. It will also enable policy or regulatory sandbox in order to test new ideas in the area of digital financial services and inclusion.
2. Testing and demonstrating Fintech solutions:
We shall facilitate trials of Fintech solutions and proof of concept work which require a certain degree of interoperability among multiple financial institutions or parties. The trials and proof of concepts can be run on a testbed and subsequently pilot tested in the market. Fintech start-ups, research entities or banks may conduct a real demonstration of their research and proof of concept results to relevant stakeholders such as potential users in the banking industry, investors, regulatory authorities etc.
3. Partnership and coordination:
Efforts shall include coordinating, managing and facilitating work across different private and public bodies including financial services providers, government ministries and departments, fin-tech firms, regulators (e.g., Bangladesh Bank, Bangladesh Telecommunication Regulatory Commission, Micro-credit Regulatory Authority, Ministry of Finance), and local committees who are engaged in financial inclusion activities. We must work closely to develop and manage these connections in the landscape, contribute with technical expertise, and learn from external perspectives (e.g. international regulators and providers, research on Bangladesh and broader landscape) to support market development and financial inclusion.
4. Knowledge and capacity development:
Support shall be provided for capacity building of individuals, financial institutions and even government and non-government entities for establishing collaboration among themselves. Capacity enhancement program shall be developed for potential innovators, fin-tech and service providers that will perform and ensure the application of digital financial services.
5. Holding dialogues between the financial industry and regulatory authorities on emerging technologies:
Regulatory authorities may seek inputs or feedback on a new technology or technological solution at an early stage. Involve regulators to arrange demonstration sessions to show how a certain emerging technology could be beneficial to potential users, and the general issues which need to be taken care of prior to further developing that technology for production implementation. In this connection, a Regulatory FinTech Facilitation Office (RFFO) has been set up in Bangladesh Bank to assess and promote innovative Fintech ideas for further market development.
6. Innovation challenge:
Organise Fintech innovation challenge programme where individuals and Fintech companies can join and present their innovation. Fintech firms and innovators can be invited to enter the challenge, to compete for an opportunity to demo to all participating banks, insurance companies and other financial service providers. This shall be an opportunity to present Fintech innovation to the right people from multiple banks at the same time. An incentive mechanism guideline and disbursement policy shall be clearly defined.
7. Incubation and acceleration:
We shall arrange necessary partnership with potential experts, mentors, and organisations who can provide support for incubation and acceleration of successful innovation. An expert and mentor pool shall be developed for regular mentoring and knowledge sharing for the innovators and industry.
Fintech companies across the globe believe that the more people they serve, the more likely they grow in business. Being the eighth most populous country in the world, we expect a number of large Fintech companies are to be built in Bangladesh, where the populations need appropriate banking facilities and various other services related to their economic activities. In line with the global and regional market development, our central bank recently started delineating the guidelines for 'Digital Banks', one of the crucial functioning areas of Fintech, to shape the future of banking through new age technologies. We understand our financial sector will experience a huge transformation through such Fintech innovation in the near future.
The writer is a senior vice president in Bank Asia.