BANGLADESH GOING CASHLESS WITH MFS

Faruk Ahmed

?When people in developed countries are dumping cash on mobile phones or plastic cards and moving fast toward a cashless society, Bangladeshi consumers are not far behind in the race. More people now to preferring contactless payment with bKash payment as the coronavirus outbreak has prompted their second thoughts about reaching for cash.

?bKash, the largest mobile financial service (MFS) provider in Bangladesh with nearly 6.00 crore customers across Bangladesh has a unique payment app that helps people not only to transfer money easily anytime from anywhere- also helps them to buy foods and essentials; pay for utility bills and school fees from homes without physical contacts. A total of 13 MFS operators of different commercial banks are offering similar services under the close supervision of Bangladesh Bank, the central bank of the country.

?When covid-19 hit Bangladesh, people’s movement was restricted by lockdown, MFS becomes a boon for people of all walks of life as this payment tool helped them to buy essentials from their homes without physical contact. Millions of consumers, small traders, retailers and SMEs avoided cash and preferred bKash to pay and receive money keeping physical distance from others.?

The fear of infection from banknotes and ATM booths accelerated the trend away from cash toward digital payments through mobile payments. The new trend has completely changed patterns of consumer psychology and shopping culture in Bangladesh with MFS thanks to pro-people regulations of Bangladesh Bank and the pro-active role of the government under its Digital Bangladesh vision.

?“The next dream of Digital Bangladesh is to make a cashless society”, as was recently made clear by Sajib Wazed Joy, Bangladesh Prime Minister’s ICT affairs advisor. MFS is transforming this dream into a reality as more people are now using this digital payment.

?Cashless Journey Gaining Momentum With MFS

?Bangladesh is moving fast towards a cashless society thanks to the government’s digital Bangladesh Vision. The journey gained momentum with MFS as more people are now realising the benefits of a cashless economy and consumers are becoming more digital.

?Actions speak louder than words. Bangladesh Bank data shows transactions through Mobile Financial Service (MFS) channels jumped by 28% in 2021 thanks to increased demand for contactless payment from different strata of customers. Customers made about Tk57,289 crore transactions through mobile banking services in January 2021. The amount stood at Tk73,393 crore in January this year

?The volume of e-commerce in Bangladesh has exceeded Tk 4000 crore in 2021 thanks to the ‘state-of-the-art payment services offered by MFS operators like bKash, Rocket, U-Pay, and i-Pay under a conducive yet stringent regulatory environment. The e-commerce market would reach $3 billion by 2023 as it is increasing at a rate of 50 per cent every year, according to a study presented in a recent webinar organised by the Dhaka Chamber of Commerce and Industry.

?With over 11 crore customers, the anniversary of MFS was celebrated under the slogan, "Haater Muthoy Arthik Sheba," or "Financial services at your fingertips" at Bangladesh Shilpakala Academy this month. The MFS journey started over a decade ago in 2011, intending to provide access to low-cost digital financial services to the informal sector demographic, especially in rural areas. The country even saw the rise of its first Unicorn through the pioneer MFS provider bKash.

?bKash, a subsidiary of Brac Bank currently has over 5 crore customers and its daily transactions stand at over Tk1,000 crore, while Nagad, which was launched in 2019 has already become the second-largest player in the sector. Rocket, an MFS of Dutch Bangla Bank Limited holds the third position in the category. The government and the central bank, through its policies, had enabled a regulatory ecosystem that incubated growth.?

?Mobile payment is not a charity, but a necessity in everyday life. Necessity makes the frog jump. So, payment through mobile phone is jumping day by day. As consumers turn to contactless payment methods, retailers are aligning their hybrid shopping experiences and point-of-sale technology to match. So, Bangladesh’s journey towards a cashless society has gained momentum.

A cashless society is one where people complete financial transactions through digital or electronic services, rather than with physical banknotes. The benefits of a cashless economy are enormous: Less chance of fraud and robbery, no cash handling fees, no trips to the bank, shorter queues, quicker transactions, and better for the retailer and the customer.

MFS allows consumers to transfer funds, pay bills, store value, make payments and receive foreign remittances via mobile phones—which is transforming the lives of individuals and small businesses globally. The ability to access funds anywhere, anytime saves time, improves security and provides a means for saving and managing money more effectively than traditional methods.

?From offering services to migrant workers hungry to send wages home, to giving retailers new ways to provide instalment financing, to arming businesses with new cyber security tools, industry experts say the MFS will keep growing in 2022.?

Almost all markets across the globe are moving towards a cashless society as more brick-and-mortar businesses become cashless. As a result, the use of cash has been steadily declining around the world, and some experts predict that cash payments will fall by as much as 50 per cent over the next ten years.

?By 2020, most people in the UK will have embraced and fully adopted the use of smart-device swiping for purchases they make, nearly eliminating the need for cash or credit cards, according to Pew Research Centre.

?According to the research by market analyst East & Partners, cash payments across Australian businesses are predicted to fall below 5 per cent by 2019 and below 2 per cent by 2022, creating a virtually cashless society.

The Changing Shopping Culture

Paying for goods and services has never been more convenient than using a mobile payment system. This has created a new group of customers who are not unbanked but feel comfortable shopping with mobile payment. Younger generations, especially, are more inclined to reach for a smartphone rather than a wallet when it comes to making payments.?

Among the 1200 young consumers aged between 18 years and 3o years of the capital city Dhaka, 480 consumers (40%) said they use bkash app to buy books, fast foods, clothes, fashionable items and occasionally fish. The survey was conducted randomly from February 20 to March 15 this year around the Ekushey Book Fair organised by Bangla Academy by Bangladesh Journalists’ Foundation For Consumers and Investors (BJFCI), the registered platform of senior journalists of leading dailies and media.

?Most book stalls at Ekushey Book Fair took payment through bKash, the sponsor company of the book fair where thousands of customers visited every day to buy books. In 2021, 30% of consumers said that they used mobile payment to buy food and goods, according to a BJFCI survey report. “ More youngsters are now using bKash app in markets, shopping malls and coffee shops as more shop owners have deployed QR codes in their shops to accept mobile payments”, according to Bangladesh Journalists' Foundation For Consumers & Investors (BJFCI) report published in daily newspapers.

Not only millennium consumers, 80 per cent of the consumers who are older than 66 years and above also will increasingly adopt digital payment channels in the near time, according to a study by Capgemini Research Institute conducted on a large number of consumers. As a result, merchant payments through MFS, which include payments to retail shops and e-commerce by customers, surged by a massive 230 per cent during the period.

?Even though cash and credit cards are still widely used by many consumers, MFS tools such as bKash, Nagad or Rocket promise to replace current payment methods in the long run. Payments are growing faster than the global average and are allowing millions of unbanked people to gain access to goods and services without cash. People already use bKash app to rent on-demand bikes and to order food. Even street food vendors are using QR-code payments.?

The government is encouraging MFS as it also creates a ripple effect that drives broader economic growth. A great percentage of government-to-business payments have been shifted to digital channels, while more than 50 million people are using MFS innovation in their daily transactions across the country in a secure and business-friendly financial environment.

?The Right Decision At The Right Time

?The right decision at the right time can make life-like flowers; otherwise, they will be like thorns. Bangladesh Bank’s decision on MFS regulations in order to promote financial inclusion, many economists say - a thousand flowers blooming was prudent.

?For the complex nature of the financial system and the complexity of different models, financial inclusion has become a long overdue buzzword among aid agencies and part of discussions among policymakers globally. In Bangladesh, it has been proved as an effective tool to combat poverty thanks to the pro-poor policy of the Bangladesh Bank.

In 2011, when the mobile financial services (MFS) industry was taking its first steps, Bangladesh’s regulators faced a choice: treat the nascent industry as an extension of mobile network operations or as a regulated banking service. They chose the latter, and it proved to be a masterstroke.

?Recent empirical evidence indicates that access to basic financial services such as savings, payments and credit can make a substantial positive difference in improving poor people's lives. So, financial service to the entire population without discrimination is the prime objective of financial inclusion, which is the prime target of the Bangladesh government.

?With the day-by-day increase of smartphone penetration along with 4G networks and deployment of QR technology, the use of MFS has turned more convenient and more people are becoming digital consumers who are using mobile payment as way of life and more and more as common practice.

?Thus, the MFS is accelerating Bangladesh’s journey towards a cashless society.

?MFS Needs More Attention

?Despite the growing adoption amid higher demand from different multi-class consumers, the country’s MFS players are unable to satisfy mass people due to some boundaries imposed by regulations. So, a lot of possibilities to spur economic growth remain unexplored in Bangladesh.

?Industry experts say the proliferation of mobile phones has, in some developing countries, allowed payment systems to leapfrog those in more advanced economies. With its robust MFS industry, Bangladesh has a bright opportunity to leverage the advantages of a cashless society. The introduction of QR code has already added fuel to the process and helped Bangladesh to move faster on the road to a cashless society.

?But the reality of a completely cashless society is still more of a pipe dream. A lot of issues are pending as barriers in the way of the road, which have generated debate over a cashless society. Some argue that a lot of things would stay uncut in a cashless society which would create problems for those in debt- who would find it more difficult to budget and those living in remote villages.

?Some industry experts fear that Bangladesh’s journey towards a cashless society might be faded as the regulatory bar on MFS transactions remain the big barrier on the road. Regulators should view MFS more as a platform for all segments of the pyramid instead of only the bottom segment. The natural adoption of the MFS that took place due to the compelling circumstances of the pandemic should now be capitalized on.

?The first impediment to the growth of the MFS industry is the limit of transactions, particularly cash-out amounts. As per central bank guidelines, daily transactions up to Tk 20,000 can be made through Bangla QR. The existing limit discourages merchants, SME entrepreneurs and also shop owners to enjoy the full benefits of mobile payments.

?The 'Cash Out' limit has correlations with digital payroll solutions and inward foreign remittance. A higher limit would encourage the recipients of both. Considering the detailed KYC of the bank account and verified account of MFS, bank/card-to-MFS fund loading should be enhanced from the current limit as a risk reduction is ensured at both ends.

?Customers willing to avail of higher transaction limits than usual should be able to do so by submitting additional identity details to the MFS provider. Such customers can be listed as a separate group and their transactions can be monitored separately.?

The article was published in DIGITAL FINANCE, a monthly special of THE BANGLADESH EXPRESS on March 2022. For more visit: https://www.thebangladeshexpress.com/?page=monthly-publications&pub_month=2022/03