Mobile Financial Services came to Bangladesh in 2011 and since then, have rarely had a reason to look back as an industry. While banks were still the “safer” option for a while, the MFS industry managed to break past the reluctance the population had and now more or less run the show, with 10.24 crore account holders out of a population of 16.6 crore people and transacting an average of Tk. 1786 crores daily.
The pandemic may not be very good for the world but a definite silver lining has been the rise of cashless transactional platforms and MFS has reaped benefits to the fullest. In fact, the transactions from mobile financial services like BKash, Rocket and Nagad hit a crest of Tk. 62,999 crore in July of last year, when COVID-19 was peaking in the country.
The growth of this industry may be attributed to the fact that physical visits to crowded banks and handling of cash are both being avoided by the general population during the pandemic. Mobile financial service apps like the ones mentioned above bring forth a solution to transfer cash in its various forms- bills, payments, donations, shopping expenses, etc. – from the safety of our homes. Affluent as that may sound, it might be surprising to know that the unprecedented success of the MFS industry in recent times may actually have been fuelled by low-income, migrant workers!
One may wonder why this surge in transactions, especially caused by the lower income group of people, would take place during the pandemic but the reasons are right in front of our eyes. Banks are physical establishments that require people to go to them and work with countless other documents to get transactions done. This puts educated people at an inconvenience for time and less educated people at an inconvenience for the process. The MFS system works with simple clicks and saves both time and reduces the hassle of processing. It is a win-win solution for both groups of people. For the population that are unbanked, the MFS system is an instant hit because it is nearly all they have by way of mobility of finances.
Second, MFS has been a boom for low income groups who wish to send cash to their families in the village, as mobility during the pandemic has not been the wisest decision for most. The pandemic has put a damper on travel as the government lockdowns bear down on civilians. Money, however, must reach the homes of all workers who are stuck in the cities and if not physically, then digitally. Apps like BKash, Nagad and Rocket help these workers send money to their near and dear ones without having to physically move. Workers now know that the smooth running of their families’ daily expenses need not suffer simply because they cannot travel. The user-friendly interfaces help people from all backgrounds transfer cash safely and quickly.
Third, as mentioned briefly above, some statistics show that at the conception of MFS systems, people were more interested in depositing and withdrawing money through the apps. However, now, it is being observed that people are genuinely getting the hang of cashless and contactless transactions and they are interested in those, rather than withdrawing money, thereby saving withdrawal costs. The pandemic helped the apps gain traction but actual benefits have sustained the industry.
The acceptability of cashless and contactless transactions has grown to an extent where it helps with almost everything that involves real money- paying utility bills, daily spending, transportation, medical bills, restaurant and retail bills etc. Of course the pandemic has pushed customers towards digital platforms for their daily transactional needs but again, this kind of a one stop solution is definitely more preferable than moving from one place to another to pay for different things at different places – pandemic or no pandemic.
Yet, this is not to say that only the low income groups have brought the MFS industry where it stands today. Businesses and government agencies have also started using the apps to transfer salaries and other payments to relevant receivers, adding to the surge in popularity of the cashless finance industry. Government payments through the MFS system have increased over time, also adding to the uptick in the digital finance service industry. This direct link was made when the government introduced stimulus packages for the payment of garment worker salaries and the MFS transactions ballooned. The salaries were also paid through this platform and resulted in more account sign ups, adding to the surge. As the MFS system is a main cause of small businesses getting digitized, it helps to level the playing field for small and big businesses as well.
The bigwigs of the MFS industry call the rise of MFS services as an upsurge of the economy, post the harsh lockdown of last year, both locally and globally. It has been noted that customers’ mindset is changing and they are growing more and more comfortable with this sort of a financial system. It is an empowering tool and a reassuring one. Experts feel that it is the collective efforts of both the regulator and the service providers that this situation has come to be and that the future holds a lot of potential for this industry. A World Bank paper goes so far as to say that including digital finance as part of the overall financial industry was a priority before the pandemic but now, has become nothing short of indispensable for short term economic relief as well as for more long term sustainable recovery solution. The figures show that thanks to digital finance platforms, Bangladesh is well on its way to fight the financial recession brought about by the recent circumstances.
The country is set to see newer innovations in the digital or mobile financial services in the form of small, short term, collateral free loans for its users. The whole process is supposed to be paperless, cashless and digital and will take only a few minutes to avail. These loans are expected to bring transformative change and opportunity for very small businesses, marginalised people and niche groups like students or migrants with sudden, short term emergencies.
The MFS system has not only helped the country during times when the world recession was showing zero signs of abating but also during those times when the world was healing. It helped the country hold strong during the ongoing pandemic and revive itself sooner rather than later. Nevertheless, there are certain loopholes that are seemingly deterring the very same people who are behind the drastic success of the MFS/DFS system – the ones on the lower rung of the economic ladder. While the MFS industry has introduced more financial inclusion than orthodox financial institutions such as banks, more inclusion needs to come for this group of people in the form of lower cash withdrawal charges. Charges of Tk. 20 per 1000 is way too high for the average man. Just simple behind-the-envelope math will tell you that a surcharge of Tk. 100 will have to be borne by a person who wishes to send a meagre sum of Tk. 5000 to his family- a sum that may seem daunting to people that live hand to mouth and have literally no savings to their name.
The crème de la crème of the financial world emphasizes that the cost of cash withdrawal per 1000 must come down to a single digit number for there to be a significant impact on the growth potential of the industry. While service providers claim that there is not much room as a majority of the cut goes to agents and reducing their earning will hamper growth, experts state that there is room to make concessions in withdrawal costs as due to the rise in the popularity of the industry, their cost of doing business has come down; besides, everyone benefits from the added volume that lower withdrawal costs will bring. This debate is still hot and while we are clear on the stance taken by the experts, we have yet to see a response or action pertaining to this issue from the service providers’ end. From what we see, the blood fuel of the industry is the poor man and the industry would do well to give this population a respite in costs and hence enhance their own chances of moving up the economic ladder.