Bangladesh began its mobile financial services (MFS) journey in 2011. The primary goal of MFS is financial inclusion reaching the unbanked population with appropriate financial services. At the broadest level, MFS constitutes offering financial services that include, but not limited to, funds transfer, savings products, insurance products, paying fees of various forms (utility, education, etc.), and receiving payments (from employers, government, etc.). However, at the initial stages of market development, funds transfer services have been the most common form of MFS in Bangladesh.
And yet, it seems to be quite a growth story already. By the end of December 2013, there were more than 13 million registered users served by about 180,000 agents transacting over Tk65 bn (6,500 crore) per month. In 2013, the number of registered mobile banking users grew at about 12% each month (CAGR 267%). At the start of the year there were only 3.6 million registered users, but that number reached 13.2 million by the end of December 2013.
Pi Strategy Consulting in partnership with CGAP of World Bank, conducted in-depth research on MFS consumer needs over a 6-month period in 2013. This research, focusing solely on the consumer needs of MFS end-users, is the first of its kind in Bangladesh. The research findings were launched officially on February 6, 2014, at an event at the Westin. The Chief Guest at the event, Dr Atiur Rahman, Governor of Bangladesh Bank, said this work was “the most comprehensive study on mobile financial service customers’ insights that has ever been conducted in Bangladesh.”
The research indicates that the revenue stream for banks have also experienced significant growth (see Figure 1). To date, Bangladesh Bank has approved 28 banks to operate as mobile financial service providers in the country. Of which 19 banks have been able to officially launch the service so far. In the current market only three players have widespread presence. The top three players are BRAC Bank’s bKash, DBBL Mobile Banking and Islami Bank’s mCash.
Customers seem to have adapted their own ways of using MFS platforms. A few people are opening wallets to conduct person-to-person (P2P) transfers or merchant payments, most people are transacting through agents without using personal wallets, some are doing both based on the situation and personal need. There are also some traditional platforms used for transactions, such as post office and courier services.
The consumers have leveraged the MFS platforms in different forms. For this particular study, the transactions were categorised into three different transaction modes. If neither the sender nor the receiver uses his own mobile banking account (or wallet) to complete the transaction, it is categorised as a Pure OTC transaction. If either the sender or the receiver uses his own wallet for a transaction it is categorised as Partial OTC. And if both the sender and the receiver use their own wallets for a transaction, it is categorised as Pure Wallet.
This survey found that the most popular mode of transaction is Pure OTC (52%), followed by Partial OTC (35%) and Pure Wallet (3%). Post office and courier services collectively were used by 10% of those surveyed.
Nearly 48% of the MFS users reside in urban areas while 32% in rural and 20% in semi-urban areas. Though the sender receiver split is roughly 50-50 across the nation, the research suggests that rural users are more likely to receive money, rather than send money. The research shows a big gender gap among the users, only 18% of them are female.
The average monthly income of MFS users is about Tk8,000, which is lower than the national average, and nearly three times the poverty line average income. Majority of the MFS users don’t have bank accounts in formal financial institutions. Pure Wallet users have higher individual income (Tk10,642) compared to others. At the other end of the spectrum, Pure OTC users earn the least (Tk7,093). Partial OTC users earn Tk8,361, post office users earn Tk8,475 and courier service users earn a slightly higher amount of Tk9,650.
The study also found that people with academic qualifications higher than 10th grade are more likely to open a wallet. Nearly 70% of the Pure Wallet users have studied beyond tenth grade. It can also be noted that, in the current context, people who haven’t studied beyond 10th grade are more likely to use Pure OTC. Nearly 56% of Pure OTC users have not studied beyond grade ten.
Pure Wallet users can read in English better than others. About 94% of the users were able to read in English. Post office users showed the least level of English proficiency, only 60% of the users were able to read in English. 80, 81 and 86% of courier service, Pure OTC and Partial OTC respectively were able to read in English. As a whole 84% of the MFS users are able to read English text.
The average ticket size of the mobile banking transactions is Tk3,370, which is much lower than other platforms. Ticket size of courier service transactions is five times that of mobile banking. Much of the low value transactions are flowing through mobile banking. The cost associated with the transfer is certainly a factor for this trend. It is cheaper to send smaller amounts of money through mobile banking than through other modalities such as courier service.
More than four-fifth of users transfer funds between the members of same economic households. 90% of Pure Wallet, 86% of Pure OTC and 81% of Partial OTC users transfer funds between the same economic household members.
The study affirms that a transition from OTC to wallet usage is well underway in Bangladesh. Different factors are driving this transition. 95% of the users cited trustworthiness as the most important influencing factor towards wallet usage (see Figure 2). However, wallets are yet to be perceived as savings tool, with only 5% of the wallet users viewing it as such.
Retail mobile banking agents interact directly with the users and they are expected to assist with wallet adoption. This research finds that agents are positively influencing customers to open wallets. But because of their personal financial benefit from OTC transfers, agents are not encouraging wallet usage as strongly.
The transition to wallets is happening slowly but surely, and it is happening in three stages:
In stage 1, customers open wallets
In stage 2, customers simultaneously try out multiple transfer modes for transaction
In stage 3, customers settle down with wallets for all of their transactions
In the random sample, 25% were found to have wallets. A large number of them have opened wallets very recently – in Q3 of 2013 (see Figure 3), which indicates there has been a recent shift to wallet opening. However, only 3% of them conduct Pure Wallet transactions. The remaining 22% are conducting Partial OTC or Pure OTC transactions. A large portion (nearly 70%) of customers who are conducting Pure Wallet transactions is found to have already reached the third stage of transition (see Figure 4). Many who are not opening wallets just yet are citing inadequate need as the primary reason (see Figure 5).
However, this may be viewed in at least two ways. First, there actually may not be as strong a need. Second, there may be latent need for wallets, but this has not translated into explicit need in the minds of the consumers. And in this case, a number of things, such as new products and focused awareness building, may prove to be effective tools to encourage a large number of people to open and use wallets.
Early differences are showing up in certain characteristics of wallet owners and those without wallets. Typically, wallet owners are comparatively more educated, younger, earn more, and already have bank accounts.
This raises some important questions about the reach of MFS to “base of the pyramid” population segments. Are the unbanked and poorer segments of our population being served through MFS in a significant way just yet? On the flip side, there are some positive signs of MFS contributions at a national level.
As stated earlier, most of the funds flow is from urban and semi-urban to rural destinations. A reversal of the long-established trend of funds flow from rural to urban centers is being observed. This has the positive impact of funds transfer to rural communities, where it can contribute to enhancing the living standards of people and fueling equitable economic activity and growth.
MFS is a rapidly growing market segment in Bangladesh. New regulatory guidelines, strategy shifts among the key MFS providers, increased awareness among the public, have all contributed to significant growth of the market even during the time this research was conducted. For example, Bangladesh reached the 10 million registered customers mark in early November 2013, and by end of December 2013, that number had experienced a 30% growth.
While metrics such as transaction volume and customer base is expected to enjoy strong growth over the coming months and years, some of the fundamental insights generated through this research are expected to prevail well into the future.
For example, young people will continue to contribute disproportionately to MFS growth, and most people will continue to use a variety of different modes of funds transfer (Pure OTC, Partial OTC, Pure Wallet, and non-mobile). Moreover, issues like instant transfer and trust will continue to be key influencing factors in the wider adoption of MFS.