BKash builds a payments system for the future

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By:
Eric Ellis
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Kamal Quadir has transformed financial services for the poor in Bangladesh with bKash. The mobile payments system is shaping up to be a great success story. Here’s how a child of independence put it together.

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At first glance, Kamal Quadir could pass for a scheming Bond genius, the calculating master of all he surveys, as he sits surrounded by screens, servers and high-powered computer processors in a limited-access control room.

Outside, in the teeming streets of Dhaka, it’s chaos. But in this cool, calm, clean room Quadir, the founder of Bangladesh’s transforming mobile payments platform bKash, has the entire country at his fingertips. 

With a few clicks, he can drill down on any of his country’s 562 administrative divisions, districts and upazilas, or sub-districts, to assess and analyze real-time economic activity in any given area, even down to street level.

If, for example, a data hotspot were to suddenly expand along the Cox’s Bazar-Teknaf highway in the remote south, that might suggest more Rohingya refugees escaping Myanmar, Quadir says, as members of aid convoys, using bKash, arrive to provide relief. 

Or, if a data blob were to pulse around the Sher-e-Bangla stadium in Dhaka while the Bangladesh Tigers, the national cricket team, were playing the visiting Sri Lankans in a Test series, it might indicate that bKash users in the crowd are settling bets.  


We are having a Facebook experience sitting here in Bangladesh 
 - Kamal Quadir

Quadir says he’s reminded when a national holiday or cultural celebration is looming because he sees transaction spikes in the system as Bangladeshis exchange and pay for gifts. The amount of information being generated is stunning.

The activity on display here, in as slick and modern a control centre as you’ll find anywhere in the world, tracks the millions of transactions bKash processes every day, the movement in and out of the e-wallets of the system’s 30 million customers nationwide and the proof-of-payment text messages that provide comfort and confidence for a system that has revolutionized how Bangladeshis use money.

Just seven years after he launched bKash, Quadir’s platform processes five million transactions a day, with a daily value of Tk7 billion ($84 million) or about $30 billion a year.

“We are having a Facebook experience sitting here in Bangladesh,” Quadir says, describing the intense user demands on bKash’s servers, all hosted within the country by order of the central bank. “And each transaction,” he says, “has to work. If a transaction is a few takas (equivalent to a few cents) less than it is supposed to be, we will soon know about it from a customer.” 

Intimate connection

From that launch in 2011, bKash has quickly become almost a part of Bangladesh’s national foundation narrative. Brac, one of Bangladesh’s biggest banks, owns 51% of bKash, a necessary majority stake so as to fall under the central bank’s regulatory umbrella. 

Brac Bank itself springs from one of the country’s most trusted institutions, BRAC, the Bangladesh Rehabilitation Assistance Committee. The world’s biggest non-government organization, BRAC was founded by social worker Sir Fazle Hasan Abed in 1972 to assist refugees from Bangladesh’s liberation war with Pakistan a year earlier, and has been a key element of Bangladesh’s national development ever since.

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Kamal Quadir, bKash

The remaining 49% of bKash’s ordinary shares are divided between Quadir’s Money in Motion group (6.5%) and the World Bank’s International Finance Corporation (12.5%). The philanthropic Bill and Melinda Gates Foundation granted the start-up bKash $10 million back in 2010 and own convertible preferred equity in the company.

It also helps bKash’s intimate connection to Bangladesh that Quadir is literally a child of its independence, born, he says, “in the middle of the war in 1971,” when East Pakistan, as it was then called, separated from Pakistan to become an independent nation. That national story is underlined by the pun in bKash’s name, a near homonym for bikasa, Bengali for enrich or prosper.

Today, bKash’s headquarters – and that high-tech control room – are housed in a military-owned office tower in the heart of the khaki-hued cantonment that overlooks Tejgaon airfield. 

In 1971, it was the Dhaka base of the Pakistan Air Force, which the Indian Air Force bombed in support of Bengali separation in what was to prove a defining battle in the liberation war.

BKash is privately held and doesn’t disclose its financial position. But a study of Brac Bank’s financial reports reveals that in 2016, the most recent year available, bKash made a profit after tax of Tk386.5 million ($4.7 million), up 63% from 2015, on gross revenues of Tk13.8 billion, up 41%.

“There are many ways to make money,” Quadir says, “and I’m not a saint, but when you do something that has a social uplifting agenda, tremendous progress is possible. 

“It is tremendously exciting that we have done something that has a profound impact on the way common people behave with their finances. And technology allows it. It was not possible earlier. Now it is.”

In recognition of its transformative power, bKash is one of the 50 companies on Fortune’s Change the World list.

Pioneer

BKash is a business of the times for Bangladesh. Quadir started working on the bKash project in early 2008. He studied in the US, graduating with an MBA from the Massachusetts Institute of Technology (MIT). He was already known as a technology pioneer in Bangladesh, having founded one of its first home-grown online marketplaces, called Cellbazaar, which was part-online classifieds site and part-marketplace for mostly off-the-grid farmers and traders to buy and sell their products by SMS text message. 

Quadir noticed that there was lots of online activity in Bangladesh, but that very little of it was commercial because of the limited options for payment.

In 2010, Quadir sold Cellbazaar to Grameenphone, a joint venture between the Norwegian telco Telenor, Quadir’s brother Iqbal and Nobel Peace Prize winner Muhammad Yunus’ microfinance group, Grameen.

In a country where a quarter of the population of 165 million live below the World Bank’s official poverty threshold of $1.90 in daily income, roughly 90% of Bangladeshis had no experience of banking, 

At the time, the central Bangladesh Bank was working on modernizing regulations and trying to create an environment for regulated electronic commerce. But Quadir’s own research determined that bringing financial services to unbanked Bangladeshis was too expensive for conventional banks. 

He had calculated the so-called ‘footfall cost,’ the accumulated cost to a bank of opening, staffing and maintaining new branches to lure customers was around $1.50 per person, to attract people with average intermittent transactions of around $10.

“I thought: ‘My god, that’s impossible. How will our country, the mass population, ever be able to use financial services?’” Quadir says. “There is no way we can offer an efficient service in a cost-effective way to that person. I understood that equation, and it made me think that something needs to be done in this space.”

Quadir says there was a perfect confluence of events: momentum to upgrade the central bank’s regulatory framework and an enlightened potential backer in the offing, Brac Bank, with its charter of financial inclusion.

Opportunity

Quadir turned overseas to Kenya and Tanzania where M-Pesa, the mobile phone-based money transfer system set up by telcos Vodafone and Safaricom in 2007, was fast taking off. He saw parallels for Bangladesh, so in 2009 he approached Brac’s founder Fazle Hasan Abed and Nick Hughes, the British former Vodafone executive who co-founded M-Pesa.

Quadir, his elder brother Iqbal and Hughes formed a US company in 2010 called Money in Motion, which joined Brac Bank in forming bKash. 

With the rapid growth in the number of mobile phone subscribers, Quadir realized that the gap between the mobile-connected and the unbanked, sharper than in Kenya, was and is bKash’s opportunity. Today, 75% to 80% of Bangladeshis have a mobile phone.

“There was no eureka moment,” says Quadir, “but all these elements were coming together.” 

So if he hadn’t done it, would a bKash have happened anyway?

“I think so,” he says. “The circumstances were right. The various elements came together. I also come from a very entrepreneurial family, but brainpower is very democratically distributed in this country.” 

Critical mass for bKash as a business came in 2012, Quadir says, when the platform registered 10 million customers; it now boasts three times that number – that is a third of Bangladeshis of bankable age.

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Brac Bank’s involvement in bKash initially made rival banks wary, concerned that they may be advancing its business at their cost and with their cooperation. Quadir admits that was a factor initially but as the service took off and achieved critical mass, other banks realized bKash could also be an opportunity for them.

“We are not a deposit-taking company,” explains Quadir. “And we don’t have a treasury in the way that a bank does.” 

The money that bKash handles is always in a bank somewhere, Quadir says, therefore it comes under the purview of the central bank.

“We needed to work with other banks because we needed to deposit money into actual bank branches. Brac is a medium-sized bank, it had limited bank branches and the scope of depositing money to Brac bank alone was making the operation very challenging,” he says.

“The central bank recognized this and opened up the platform to other banks. And the other banks saw that this was a tremendous opportunity to bring capital and deposits to their banks. They have no reason to oppose it, and there was a regulatory support from the central bank as well. So it became operationally more viable.”

The central bank is widely criticized by Dhaka’s bankers for its lenience towards the country’s moribund and badly managed state-owned lenders, but is commended for its enlightened approach to bKash. That regulatory interest and rigour, Quadir says, ensured bKash was a better product.

He says bKash has energized rural areas while providing more tools for policymakers and banks. Thanks to bKash, the central Bangladesh Bank can see into parts of the economy that had long been virtually invisible, helping it to assess money supply more accurately.

Unique perspective

Today, bKash has accounts with 16 commercial banks, two of them state-owned. 

“In fact, Brac Bank carries less than 2% of our customers’ funds,” says Quadir. “The most important thing is about where they are located” in order to make sure bKash users across the country have a bank as close as possible.

That gives Quadir and bKash a unique perspective on Bangladeshi finance. 

“Different banks have different needs,” he says. “A bank that has a need for cash will be treating us with great care. But a bank with big corporate clients will be less excited about us.”

As bKash took off, a network of agents supporting the business spread across Bangladesh. There are now more than 180,000 of these handlers, whose job it is to take physical cash from a customer and convert it into electronic money. Quadir says these intermediaries are crucial.

“The customer doesn’t always have access to a bank branch,” he explains. “But our entity has to be in the vicinity of the customer. If we had hundreds of thousands of ATM machines across the country, then probably I don’t need these agents.” 

But in today’s Bangladesh such infrastructure is impossible. Quadir calls his agents ‘human ATMs’.

“They don’t have air-conditioning costs, heavy machinery costs and they’re selling other things. They’re selling Unilever soap, British American Tobacco, they’re selling Coke and on top of that getting an incremental income by offering this (bKash) additional service.”

Opening a bKash account is free. Depositing cash into a bKash e-wallet is also free. But when a bKash account holder or recipient converts electronic money into physical cash, the bKash system takes a 1.85% fee on the cash-out amount.

Taking that 1.85% as a whole, Quadir says 77% of it goes to the agent or distributor. That makes it in the agent’s interest to generate as many bKash customers as possible. 

Another 7% goes to the telecom providing the network, and the remaining 16% stays with bKash. “And with that I’m paying for the air conditioning, your tea, my water, the salaries, etc,” says Quadir. “The entire ecology is fair.”

He calls bKash “a collective mattress for the whole country”, where Bangladeshis of all economic classes store money. He’s referring to the residual float of trillions of taka generated by the bKash system, which is held in and deployed by banks and which in turn finances factories and much-needed infrastructure.

“Banks are designed to catch big fish, the big corporations. We are designed to catch small fish, the plankton. But putting them all together, the net that bKash created is utilizing all this unused cash. Now poorer people are directly helping develop the country,” he says.

The business is far from mature. 

“The priority is not to keep adding accounts,” Quadir says. “The priority is bring new products so that further economic deepening can take place, that people can pay back their loans using this thing, their insurance, borrow money from a bank at three in the morning. There are far more things to participate in.”

Although it is widely seen as bringing the poor into Bangladesh’s financial system, account holders can use bKash much like a debit card. They can use it to pay for restaurant meals; indeed many Bangladeshis now receive their salaries via bKash, underlining the trust that has developed in the platform. 

Quadir tells how he took fellow Bengali Kaushik Basu – the former chief economist at the World Bank and former adviser to the Indian government under Manmohan Singh – on a field trip to witness the impact of bKash for himself. They visited a textile factory and asked a female lineworker, who received her salary via bKash, about the service.

“She said: ‘Oh, bKash is good, I like it,’” recalls Quadir, “and she said: ‘But I don’t like the text messages that come,’” referring to the fact that bKash users are advised of the comings and goings in their e-wallet by instant text messages.

The remark stunned Quadir, who was accustomed to users complaining that the bKash texts arrive too late, sometimes delayed just a matter of seconds. 

“This was the first time I’d heard someone complain about receiving texts at all,” Quadir laughs. “Kaushik asked her why and she said she didn’t want her husband to know how much salary she received.”

The anecdote also shows how bKash is helping to improve company payment systems: until recently, it was common to see teams of number-crunching accountants working in back offices with an anachronistic pen-and-ink ledger system developed during British rule. 

Now corporations pay salaries via the bKash platform, which not only saves money but also adds to bKash’s customer base.

Quadir believes bKash can be rolled out beyond Bangladesh, even to wealthy and developed economies. Building and maintaining the technology that drives bKash’s platform is the company’s biggest overhead, he says, but the platform is sound and of an international standard.

“People might see a Maruti (a cheap Indian-made car, popular in Bangladesh), but the core engine is a Bangladeshi BMW,” he says.

“The difference between the person doing the transaction in the US to one here is the amount,” says Quadir. “There they might do a $10,000 transaction, here it might be 10,000 taka. But to the digital system’s mind, to the server, to the technology, it doesn’t matter.”