A couple of weeks ago, Facebook launched a payments tool which allows Facebook users to send money to each other, anywhere in the world. In other words, Facebook has become the new Paypal.
Think about that for a second.
Facebook is active in almost 100 countries with 1.3 billion users across the world, 400 million of whom are in Asia. How many banks in the world operate in 100 markets and have 1.3 billion customers? Does any Asian bank have 400 million internet banking customers?
The simple fact of the matter is that technological innovation to connect people across national boundaries and geographical barriers is having a transformative impact on every aspect of our lives, not just in banking and finance.
It is tempting to dismiss all this new, cutting-edge innovation as a rich-country phenomenon that is not relevant for Bangladesh, or at least won’t be for a long time to come. But that would be plainly wrong.
Arguably, the most widely-used mobile money platforms can be found in developing countries like Kenya, Bangladesh, India, and others.
Mobile-based payment platforms were developed to promote financial inclusion in developing economies because conventional banks in those economies have generally done a poor job of providing financial services to low-income groups.
We are very familiar with that argument here in Bangladesh, given the success of Grameen Bank and Brac in microfinance.
It is hardly surprising that history is again repeating itself with bKash’s mobile payment system catching on like wildfire and the banking sector struggling to catch up.
The latest publicly available data shows that by the end of 2013, just 30 months after its launch, bKash accounted for more than 11 million of the total 13 million mobile money users in Bangladesh. That made bKash the fastest-growing mobile payments company in the world in 2013. Reportedly, bKash added another 5 million users last year to take the total figure to 16 million at the end of 2014.
There is more to mobile payments than smartphones and apps, and bKash is a good example of how financial innovation can also happen in developing economies using low-cost technology.
Given its head-start and phenomenal growth rate, there is little doubt bKash is well-positioned to reach an overwhelming majority of Bangladesh’s 110 million mobile users.
More importantly, bKash is in a remarkable position to truly transform Bangladesh’s financial services industry. bKash clearly has that ambition, it is evident from the services and products it has already developed.
Apart from allowing someone to transfer and receive mobile money from almost anywhere, bKash now pays interest on mobile money savings, allows remittance to be received directly into a bKash account, as well as other services such as topping up mobile credit.
These services indicate that bKash is slowly transforming itself into a financial services company for all, as opposed to just a financial inclusion-service provider for low-income users.
However, notwithstanding its ambition, it is not clear if bKash has the right strategy to become an economy-wide financial services company. This critique is based on a perceptible gap between how bKash users use the platform and the services and products that bKash has developed.
The overwhelming majority of bKash users rely on agents to transfer and receive money. Most agents are shopkeepers and tea-stall owners.
The implication being that most bKash users either do not have personal bKash accounts, or prefer not to use them. They would rather travel to another business location to undertake transactions.
And yet, bKash’s services are mainly designed for the individual user to transact instantaneously on their personal mobiles, regardless of how far or close they are to an agent.
To put it another way, for someone to get the most value out of bKash they would have to use bKash’s “wallet” function. That requires a level of (English) literacy and numeracy skills that the vast majority of Bangladesh’s low-income bKash users do not have.
And the small minority of middle -- and upper-income users who would be capable of using bKash wallets do not really have much use for it. After all, regardless of whether you shop at Kawran Bazaar or Meena Bazaar, your shobjiwala probably does not accept bKash, yet.
bKash has been wildly successful in its first 40 months, perhaps more so than it had anticipated and planned for. But looking ahead, its growth in value-add (or profit margins for that matter) may taper unless it is able to present its users with use cases that reflect their consumer preferences.
When a rickshaw-puller starts his day at a tea-stall with a Tk5 cup of tea and a Tk7 piece of bon ruti, bKash needs to have a business solution for the tea-stall owner at the receiving end of that Tk12 transaction.
In all probability, the tea-stall owner is also excluded from financial services to run his business. bKash has done well targeting the financially-excluded rickshaw-puller. The market for the financially excluded small business owner is now there for bKash’s taking.
To put it simply, bKash needs to develop products and services that will facilitate the millions of low-value business transactions that take place every day.
What would such a business solution look like?
First of all, it needs to take account of the fact that most bKash users (ie consumers) don’t know how to or don’t want to use a menu-driven user interface. They would prefer the agent or the shopkeeper to do the data entry and complete the transaction process. This behavioural preference effectively lends itself to a business point-of-sale (POS) solution.
In other words, we are looking at a business solution whereby bKash develops a mobile app to record a payment transaction, whether it be for money transfers or buying and selling bon ruti. This would obviously require the use of smartphones as a POS terminal.
A smartphone/app-based e-commerce feature is important for targeting small businesses because it simplifies the transaction process, whereby a rickshaw-puller with low literacy and numeracy skills can input a bKash phone/pin number in Bangla and visually verify the input on a five-inch colour screen. It makes for a simpler, more secure transaction process compared to the prevailing use of an English menu-based user interface on small monochrome displays.
Furthermore, with the mobile operators having already pushed low-cost smartphone prices to around Tk5,000 and data pack costs even lower, a smartphone-based strategy for small businesses may not be particularly expensive anymore. Quite simply, the goal posts have shifted.
Expecting a rickshaw-puller to buy a Tk5,000 smartphone with a data pack to use the bKash app may still be a bridge too far, but that can hardly be the case for a shopkeeper or tea-stall owner.
To be fair to bKash, its products and services, although targeted towards the individual user, are quite well-designed for easy adoption by agents, which are typically small businesses.
What bKash is yet to do is design a complete, localised ecosystem for merchants and small businesses. An app to record POS transactions is a relatively simple way to create and rollout a targeted business banking ‘wallet’ function.
And given how bKash is a subsidiary of Brac Bank, it is particularly well-placed to drive greater integration and interoperability between its mobile payments system and Brac Bank’s business banking services, especially for SMEs.
However, bKash should not restrict itself to partnering solely with Brac Bank.
bKash will be most valuable, and most profitable (for Brac Bank, which has a 51% ownership stake), if it provides open access to any bank to offer banking services to bKash clients.
In other words, bKash should be for Brac Bank what Android is to Google. An open platform available to all for a fee.
bKash’s growth as an open-for-all service also serves the greater public good. Its value add will be greatest if service providers and consumers alike trust and embrace bKash comprehensively.
But other banks and financial service providers will only trust bKash if they are confident that the governance and regulatory arrangements between bKash and Brac Bank ensure a level playing field for all, including Brac Bank’s competitors.
This is especially important in developing countries like Bangladesh where regulatory institutions are weak, enforcement of contracts is costly, and the governance culture lacks integrity.
When you are operating in an environment like that, confidence and trust in your business partner matters a lot. And that confidence partly comes from how regulators frame the rules of the game and the signals they send.
In that regard, bKash has a problem. Its licensing terms and regulatory arrangements are complex and ambiguous.
bKash is an independent subsidiary of Brac Bank that has been licensed by the Bangladesh Bank to operate its mobile payments business. But the burden of ensuring regulatory compliance for bKash’s activities effectively falls on Brac Bank.
The clear signal seems to be that if anything goes wrong with bKash, the Bangladesh Bank will hold Brac Bank responsible.
So if you are the head of Brac Bank, part of your job is to keep bKash on a tight leash.
What incentive do you have to allow bKash to develop as an open-for-all service where other banks you have no control over will participate?
Or to look at it from the lens of another bank, why would you partner with bKash if it meant giving sensitive business information to your competitor?
The Bangladesh Bank has a very critical role to play in this regard. It needs to supervise and regulate bKash, and other mobile payment service providers, directly as standalone entities.
It will give confidence to market players that they don’t have to share sensitive business information with Brac Bank for regulatory purposes. This will enable them to partner with bKash more effectively and compete against Brac Bank on a level playing field.
bKash started as financial inclusion service provider and has been very successful in delivering notable financial inclusion outcomes. Given its head start and runaway success in targeting financially excluded individuals, it would be remiss of bKash to not take on the challenge of facilitating e-commerce for financially excluded small businesses.
It is the next frontier on the financial inclusion landscape in Bangladesh and other developing economies.
Given Bangladesh’s many successes in financial inclusion, first through microfinance and now bKash, there is no reason why bKash can’t lead the torch for Bangladesh by providing inclusive business banking services.
After all, why would you need Paypal if you could bKash!