Bangladesh has a staggering mobile penetration rate, 117 million subscribers to mobile out of 170 mn population according to Govt. data. Smartphone penetration is also rising, thanks to the persistent falling price of smartphones. Internet penetration, including mobile and occasional users, stands at 65 million.
eCommerce shopping is also on the rise. The market, according to some unverified sources, size for e-commerce is over TK 400 crores a year and expected to grow manifold. Unfortunately, costly internet and inconvenient payment stand on the way to smooth growth of the sector. Today, almost 90% of e-commerce transactions are COD.
MFS has grown significantly over the last couple of years. According to Bangladesh Bank data, the sector has grown 120% year-on-year since 2011 transacting over $1.3 billion per month. A recent report jointly produced by Better Than Cash Alliance and A2i, suggests MFS has increased person to person transactions but failed to encourage business to business or person to business transactions.
The part of the reason, to our understanding, is the lack of innovation. It is purely inconvenient to pay through existing MFS products. It is too archaic and cumbersome for business or shopping payment. bKash has been pushing business transaction in the recent years but the company lacks a product to encourage its usages in such cases. A mobile app, to be precise, would do much better to improve digital payment adoption.
The state of the digital transaction is poor in Bangladesh. The report, cited above, validates the statement. According to the report, 69% of government transactions about $45 billion, mostly salary, are being made through digital channels which is 2.5% of total transactions, $150 billion, for business and a slightly better 3%, $169 billion, for individuals. After analyzing available payment data the report claims government entities, businesses, and individuals make only 12% of payments by value (equating to $44 billion of $367 billion total annual payments), and only 6% of payment by volume (around 260 million or 4.4 billion total payments) via electronic means.
Digital payment has lots of upsides. It reduces corruption, is less risky, and frictionless. India, our neighboring country has taken dramatic measure to encourage cashless transaction. The country’s demonetisation move has made it difficult for its people to get cash which is pushing the growth of payment apps like Paytm and Freecharge.
In Bangladesh, in order to promote digital payment we need more than MFS. Solid product innovation is the foremost requirement in the space. We have a couple of products that enable digital payment but none is doing well or considers inclusion.
iPay, a recently launched payment solution by Priyo founder Zakaria Swapan has limited reach. Datasoft in collaboration with Fyne Tech launched a payment app called Pay 365 which is yet to make a mark. There is an upcoming solution called JossPay which is yet to launch officially.
Unless we have a real innovative product in the market like bKash in MFS that enables frictionless experience growth in digital payment will struggle. Top of that, as Anir Chowdhury of A2i, pointed out in a recent interview with the daily star, collaboration among business, government, and other stakeholders are required to push this agenda forward. The advantage of a strong collaboration often translates into awareness and policy support. Digital payment will contribute to the significant economic growth and will push the standard of living forward for countries like Bangladesh claims a report by Mckinsey, however, current data suggests Bangladesh has a long way to go to make digital payment a common thing.