Digital Bank is the Answer
We would love to know about your journey into the idea of Nagad/ What intrigued you into the idea of an MFS platform?
The idea of Nagad started to take shape back in 2018 while I was working with the e-Commerce Association of Bangladesh. Payment and delivery issues were the major challenges the industry was facing. My quest for a solution to the problems led me to the Bangladesh Post Office. I realised, they have the most extensive logistics network in the country and they have been working with payments for more than 200 years. We decided to approach them with our idea and after getting a positive response (as they eagerly wanted to do something digitally) we decided to partner up to provide the most extensive payment and logistics solution in the country. That was essentially how our journey started, we have been so busy with payments that we are yet to start working with logistics. TANVIR A MISHUK, Managing Director, Nagad
What were the initial challenges?
The biggest challenge was figuring out why so many MFS were failing to acquire market share despite so many vacant spaces in the market. The new entrants were not being able to sustain and were forced to shut down, as a result, there was only one player in the market. The rest were either wrapping up or incurring huge operational losses every month because of the way the market was set up. However, it was not a deal-breaker for us, we improvised based on market research and came up with a sustainable business plan. Therefore, the biggest challenge was to address the general disdain towards change among the people of our country including customers, stakeholders, and regulators. For example, in 2019, our introduction to the digital KYC was met with doubts and suspicion in the industry: no one believed it would work. In three years, we have been so successful in its execution, our peers in the industry are following suit. We had to convince the regulators that digital KYC is far more secure than the manual process and is going to be much more efficient. Each of our innovations was new to the regulators, stakeholders, and also the consumers; it was extremely challenging to familiarize them with the products and was one of the biggest initial challenges. TANVIR A MISHUK, Managing Director, Nagad
You were employed in the telecom industry before switching to the MFS sector. How did you shift your focus to the MFS?
Before 2007, there were virtually no regulations on international calling in Bangladesh. The entirety of our international calling went through a satellite rented by Bangladesh Telecommunications Company Limited (BTCL) and a sole submarine cable connection. The business was operated by foreign telecommunication companies who were taking all our hard-earned money (millions of dollars every year) from Bangladesh. After approaching BTCL with this issue, I faced a similar issue of the reluctance to change from their side because it involves a lot of accountability issues.
Consequently, we started with all the incoming calls from Singapore, and eventually, the entirety of call money in Bangladesh was handled by our company before our peers in the industry started to enter the competition. Therefore, I had a very similar experience when introducing something new in the market.
Are you happy with the way Nagad has grown so far and the milestones it achieved?
Of course! In a short period, the company has established itself as one of the fastest-growing MFS in the world. We are very happy and if we can sustain this pace, we will be able to attain a 50% market share by 2021.
MFS in Bangladesh is yet to become a conduit for formal banking products such as savings and credit products. Most of the users use it for payment-related services. Cash-in, cash-out transactions, and person-to-person (P2P) transactions. What can be done to include more people into formal banking in rural Bangladesh?
A significant proportion of our population in our country does not use formal banking, which is a major impediment to ensure inclusive banking. I believe the lengthy and convoluted paperwork involved in the process is the biggest deterrent to the proliferation of formal banking in Bangladesh. We have to make this process more accessible for everyone. Also, it will not be feasible to include the entire population into formal banking. The costs of maintaining individual bank accounts are usually not justifiable with the amounts of the transaction or deposit, which resulting in incurring losses for the traditional banks. In order to include the entire population under the umbrella of formal banking, we need to introduce branchless banking (digital banking) and also make the process easier.
With increased adaptation, more and more users are being subjected to scamming and cyber-attacks. How are MFS service providers equipping themselves to tackle current and future security risks (in terms of technology and customer awareness)?
It is very hard to guarantee that cyber thefts will not take place because most of the incidents are happening due to human error. Customers are unknowingly sharing their PIN and OTP in the public culminating in cyber theft. In aggregate, Banks and MFS companies in Bangladesh are using the most updated security systems in the world, there has rarely been an incident where a hack has happened due to technological glitch, especially in Nagad we are technically much advanced and it is not easy to break our security systems. An overwhelming number of cyber thefts in Bangladesh are happening because of a lack of awareness. People are sharing pictures of their NID/ENID in various mediums. In turn, information from them is used to extract money from their accounts.
I would say there is a negligible chance of cyber theft happening through system hack as most of the companies use the most advanced security system in the world (CISCO) which is updated frequently. We have to concentrate on awareness. TANVIR A MISHUK, Managing Director, Nagad
As someone who has been known to cause disruptions in the market, from where do you feel the next disruption comes from?
The next disruption will come from digital banking. I have already talked about the cost-effectiveness of digital banking. Digital Banking is essential in order to establish financial inclusion in Bangladesh. TANVIR A MISHUK, Managing Director, Nagad
We are very confident about the success of our digital banking system which is in its R&D stage right now. It will allow people to open a bank account effortlessly. After getting confirmation from the customer, we will set an account with the existing information in the person’s NID/ENID. The entire process will be streamlined, efficient, and most importantly, cost-effective.
Do you believe digital banking will also transform business banking?
Personal banking has been shifted to digital banking across the world but corporate banking has remained largely physical. There are a lot of formalities in business banking that are possible to conduct remotely, therefore business banking will remain physical for the foreseeable future.
However, digital banking can play a huge role in bringing Micro SME(s) across the country under financial inclusion. Due to limits on transaction amounts, they are incapable of transferring through MFS. On the other hand, banks discourage them to open an account for fear of losses. Digital banking provides a great opportunity to bring them under formal banking. TANVIR A MISHUK, Managing Director, Nagad
MILESTONE AND ACHIEVEMENTS OF NAGAD
- Introduced first digital KYC in the industry that helps to open accounts within a minute
- The first financial company in the country has verified entire accounts with the NID database
- Opening accounts via mobile operators, first in the world, takes few seconds to open accounts
- First introduced the product where customer can get money even they haven’t Nagad account
- Offering 7.5% net interest on deposit & cash-out charge is refunded
- Special cash-out charge, Tk 6 every Tk1,000 for entrepreneurs, so far the lowest in the industry
- Nagad reached two crore active users milestones and all are verified with NID database
Do you believe we are adequately equipped (technologically) to provide the industry standard services to our population?
If we talk about ourselves, we can start providing digital banking services within a month of obtaining a license from the Bangladesh Bank. We are already equipped with the latest digital banking technology in the world. A similar digital banking engine is already in operation across seventy-two countries in the world.
What other sectors do you think Bangladesh has the opportunity to make similar progress and cause disruptions?
The pandemic has caused tectonic shifts in various sectors in Bangladesh. Despite huge investments, the e-commerce sector has been counting huge losses for the better part of the past decade. However, the pandemic has tipped the balance towards the e-commerce sector for the first time in history and an overwhelming segment of the population has started to lean towards it. We have seen our e-commerce transactions skyrocket since the pandemic and the trend will shift towards digital commerce. TANVIR A MISHUK, Managing Director, Nagad
Why has Nagad been so successful despite having so many competitors?
It all depends on how you bring a product to the market. We researched the problems in the market before commencing with the solutions on our hands. We were bold and innovative with products like digital KYC and introduced a service where customers can get money even if they don’t have a Nagad account. We ensured total freedom in sending and receiving money and facilitated opening accounts within a minute. The secret recipe to our success is innovation through a sustainable business model. We are also now offering huge interest on the customer’s deposit and introduced the lowest level of cash-out charge for the entrepreneurs, Tk 6 for every Tk 1,000 cash-out and all these facilities without a business model help us to get the initial success.
Where do you see yourself in the next five years? Are there any sectors you want to disrupt?
Currently, I am focused on Nagad: in the next five years, I want to bring every adult person in our country under financial inclusion. That is exclusively my goal right now. TANVIR A MISHUK, Managing Director, Nagad
