By William Pesek
If there is one moment in Bangladesh’s recent history that best demonstrates its appeal to foreign companies, it was when Jack Ma invested in the country in 2018.
The Alibaba founder’s bet wasn’t on Dhaka’s government, per se, but a startup directly on the front lines of Bangladesh’s transformation from cautionary tale to success story. Specifically, Ma placed his chips on bKash.
The mobile-money sensation already had an enviable track record of scoring top investors since its launch in July 2011, including the Bill & Melinda Gates Foundation and the IFC.
The 20% stake that Ma’s Ant Financial Services Group grabbed in bKash was of a different kind, however: a market-driven move from one of the world’s most innovative and best-known financial technology companies.
“It demonstrates growing confidence and business opportunities in Bangladesh,” says Kamal Quadir, founder and chief executive of bKash.
Quadir’s creation is a microcosm of both that growth and the confidence that comes with it.
Kamal Quadir, bKash
The last time that Asiamoney did a deep dive into this game-changer, a few months before Ma’s arrival in 2018, bKash had 30 million regular users. It now has 40 million and counting.
Those 10 million additional customers in a nation of 164 million pack a powerful multiplier effect. Roughly 90% of the users bKash is pulling into the digital economy have not interacted with the banking sector before.
And it’s not hard to measure the Ant effect as bKash shoots for the 50 million mark.
Part of the deal with Ma’s parent company is a technology-sharing arrangement that bKash is harnessing to dominate the local market. The tie-up with Alibaba’s ubiquitous Alipay platform gives Quadir’s team access to some of the globe’s most-advanced payments technologies, powered by thousands of the best engineers anywhere.
This association, in turn, is enabling bKash to stay well ahead of competitors. As Eric Jing, CEO of Ant Financial, puts it: “We are keen to share our technology know-how with partners like bKash.”
Not that bKash’s coders and engineers weren’t doing a great job, but winning Ant’s seal of approval makes bKash the domestic name to beat and the poster child for overseas investors tapping Bangladesh’s growth.
The Ant deal has since reduced the need for bKash to source outside investment.
Alipay’s technology, for example, has given bKash a considerable leg-up on cybersecurity. It has empowered bKash to accelerate and perfect the process of self-registration.
In a country at Bangladesh’s level of development, startups such as bKash can run ahead of regulators. In these smartphone-driven times, setting up accounts easily and securely is easier said than done.
Alipay’s advanced facial-recognition technology, for example, is simplifying bKash’s protocol for matching photos and voter-ID cards with central government databases. The biometric match takes just nanoseconds, streamlining the process of pulling more Bangladeshis into the financial system in ways that competitors can’t match.
Thanks in part to these ever-improving capabilities, bKash has altered Bangladesh’s financial landscape. In 2011, it had fewer than 40 employees. Today, it has nearly 1,800, with plans to keep adding staff. It’s all about honing a platform that is transforming the local banking scene.
This growth affords Quadir a rare luxury in Bangladesh: breathing room to plan for future growth.
Here, bKash is both adding features and deepening its role in a banking system it set out to upend. Or as Quadir puts it, “working to develop inter-operability systems with all banks.”
By allowing clients to transfer money to its e-wallet from a conventional bank account, bKash is approaching becoming the backbone of Bangladesh’s financial system.
Quadir says that roughly half a million people are drawing pay directly from companies through bKash.
“We see this kind of service increasing rapidly, and by 2025 a large portion of the blue-collar population should be receiving salaries through bKash and similar services,” Quadir says.
Whether it’s providing connectivity to bank accounts or payroll solutions, we will venture into more streams to offer our customers more options to fund the wallet- Kamal Quadir, bKash
At first, bKash seemed a threat to brick-and-mortar institutions. Now it’s deepening bank relationships so that previously unbanked people can access conventional financial services, including small business loans, collecting payments and insurance services. Quadir is striking deals with credit card firms Visa and Mastercard so customers can top up bKash wallet balances.
“In coming years,” he says, “whether it’s providing connectivity to bank accounts or payroll solutions, we will venture into more streams to offer our customers more options to fund the wallet and continuously build use cases where such funds can be utilized conveniently and efficiently.”
Blockchain beckons too. In November, bKash announced a partnership with network Ripple. For now, Quadir hopes blockchain technologies will help bKash tackle the “larger problem of transferring cross-border payments.”
Increasingly, though, it is the efficiency of the broader financial system that preoccupies bKash.
In our conversation, Quadir pivoted early and often to security. Not just to bKash’s own efforts to increase its technological advantage, but the need for the central bank, regulators and industry players to devise, enforce and honour rules.
That goes especially for new startups that play loose with the industry norms.
“Our main thing is we are a regulated service,” Quadir says. “Everything we built here is based on regulation, limits on transactions, the number of accounts. All these things are defined by regulation.
“It’s not strange. Across the world, financial behaviour is always defined by regulation. We want consistency of that. When something works well and if somebody says: ‘Oh, that’s great, but we’ll start doing this thing, but we will not follow the regulations’, that makes things very dicey. We want to make sure it works well. Make sure everyone in the space values discipline and order.”
It is a concern that could apply to the rapid rise of rival, Nagad, a digital financial service that operates under the authority of the Bangladesh Post Office. That allows for different treatment – and less stringent regulations – than competitors working in the mobile finance ecosystem.
Nagad’s application for a licence through the central bank, Bank Bangladesh, was rejected. It has since reapplied.
It is hard to quibble with founder Tanvir Mishuk’s argument that Bangladesh’s bKash-centric mobile boom needs competition. And clearly the success of Nagad and peers such as Dmoney speaks to the demand for digital solutions that disrupt the status quo.
Nagad is growing: it is currently running at about one-seventh of bKash’s transaction turnover each day. It is also undercutting the price of Quadir’s operation. Users pay a 1.45% fee per transaction using Nagad, versus bKash’s 1.85%.
Nagad also cuts through the bureaucracy, paperwork and money-laundering compliance that services like, say bKash, impose on customers.
There’s a quality-versus-quantity trade-off here that’s worth exploring, offering a microcosm of Bangladesh’s biggest challenge.
On the macroeconomic front, Bangladesh doesn’t need to grow faster. It needs to grow better. Likewise, Bangladesh’s digital landscape needs to ensure it is processing credible and transparent transactions.
Nagad has great potential – it already has bKash looking over its shoulder. But its place outside the central bank’s orbit gives it a pass on many industry safeguards that Bangladesh desperately needs if it is to move up the value chain.
The ability of Nagad and fellow upstarts to eschew Bank Bangladesh’s know-your-customer rules could lower standards. It’s hard not to side with Quadir’s argument that the central bank should police all industry players.
Quadir couches the issue in terms of Bangladesh’s global reputation.
“Central bank jurisdiction is so very important,” he says. “We’re seeing some examples over here where people are trying to bypass that. And that I don’t find is a good thing. It will hurt all the positive things we are seeing.”
The central bank would seem to agree. Debdulal Roy, executive director of Bangladesh Bank, says such services “cannot be out of its periphery.”
[It’s vital] to have regulatory clarity with the government’s support to make sure customers’ interests are protected- Kamal Quadir
Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh, recommends introducing so-called fintech sandboxes that would create space for testing new products and services, to challenge boundaries and safety zones, and help Bangladesh move upmarket.
One area ripe for modernization is Bangladesh’s social security system, which draws about 14% of the government’s budget. It involves about 32 million people getting old-fashioned cash from Dhaka.
Only about 1.3% of these payments are digitalized, meaning growth opportunities for mobile finance outfits everywhere. As that ratio grows, bKash is well-positioned to pick up more of these transactions.
This requires the central bank and regulators to raise their games, too. As Bangladesh Bank’s Roy admits: “The existing system can process 10 million transactions per day through the electronic-fund transfer” infrastructure.
Improving the plumbing of the system, in other words, is vital to bKash – which does roughly seven million transactions a day now – and its competitors.
It also requires more regulatory clarity.
The task, Quadir says, is to balance working within the existing regulatory framework while ensuring it keeps up with advances across the region.
That, he says, includes regulators addressing often fragmented and complex rules, particularly those involving transferring cross-border payments.
It’s vital, Quadir says, “to have regulatory clarity with the government’s support to make sure customers’ interests are protected.”
When Asiamoney met with Quadir recently at bKash headquarters, before the country went into lockdown during the coronavirus crisis, he did a lot of looking out the window at the cacophony below that is usually modern-day Dhaka.
“The story behind bKash,” he explains, “is that it was the tool to bring financial inclusion to the country.”
Now, he says, the key is finding new ways to “focus on how the banked and unbanked can work together.”
No discussion of how Bangladesh got to where it is, growing a world-beating 8%, would be complete without a nod to Grameen Bank. The microfinance firm that Muhammad Yunus founded in 1983, for which he later won a Nobel Peace Prize, has a fabled place in Bangladesh’s development tale.
As vital as ultra-small loans still are to rural families, though, Bangladesh’s development is now being turbocharged by technology in disruptive and exciting ways. bKash is one of this dynamic’s main drivers, and it’s hard not to view Quadir as the right man at the right time, in the right place.
Quadir’s service began as a joint venture between Money in Motion LLC, which Quadir co-founded back in New York, the IFC and, most importantly, Brac Bank. Brac isn’t just one of Bangladesh’s most-trusted institutions, it is also one of the globe’s biggest non-government organizations. Its name is an acronym for building resources across communities.
All this works two ways. Just as bKash’s success is lending credibility to Bangladesh’s development narrative, any trouble in the economy threatens the trajectory of the mobile payments space – and bKash’s success.
The story behind bKash is that it was the tool to bring financial inclusion to the country. Now the key is finding new ways to focus on how the banked and unbanked can work together- Kamal Quadir
At one point during our interview, Quadir heads out of a large glass door onto a balcony high above the Dhaka skyline that wraps around the perimeter of the building. From that panoramic viewpoint, Quadir points to entire subsections and business districts that didn’t exist when bKash was opening.
This heady growth means great and growing opportunities for mobile finance outfits.
Salekin Himel, a Dhaka-based consultant, says: “One-third of Bangladesh’s population is financially excluded. However, the scenario is changing apace. People’s consumption behaviour is changing, and usage of different e-services is rising significantly due to increased internet usage.”
As bKash demonstrates, the idea of a digital Bangladesh is gaining adherents. None more important, arguably, than Ma’s Ant. That investment in 2018, Quadir notes, shows the “confidence a world-class player is placing in Bangladesh.”
Not surprisingly, Ant’s investment got industry attention. A few months later, in late 2018, The City Bank, one of the country’s biggest and best-run private-sector lenders, joined forces with bKash and Grameenphone, to offer its services to millions of financially excluded families, while customers of bKash and Grameenphone were able to use The City Bank’s ATMs and online banking platform.
Tying up with the premier mobile app and the nation’s biggest telecoms provider is helping The City Bank catch new customers and do its part to increase financial inclusion.
The other partner in this endeavour – Ant Financial – facilitates and bolsters confidence in millions of daily transactions across Bangladesh, allowing Ma’s Ant to expand its reach still further.
There’s something to be said, though, for Ma’s diversification: Ant gets to hedge its bets on a booming economy not unlike how SoftBank’s Masayoshi Son deploys his Vision Fund’s $100 billion of firepower.
Even if bKash dominates the local market, limiting the need for other mobile payments firms for now, it may make sense to ride the conventional banks’ efforts to digitalize business models and to profit from a swelling national population enjoying consistently rapid growth.
Before bKash, Bangladesh was as cash-based an economy as you could find anywhere. Even today, the vast majority of people live rural existences. Combined, the three biggest city centres – Dhaka (10 million people), Chittagong (4 million) and Khulna (1.3 million) – are home to just over 10% of the population. That has long created logistical challenges for accessing cash, transacting and saving, never mind investing.
Quadir’s team is working closely with the central bank and regulators to perfect the mechanics of digital money backed by conventional cash.
It is trying to give tens of millions of unbanked consumers access to growing ecosystems of mobile banking services – whether setting up savings accounts, sending and receiving money or paying for goods and services – with an efficiency and reliability unthinkable a decade ago.
In November, World Bank officials visited the suburb of Ashulia in Dhaka to study how mobile finance, in the wake of Ant’s investment, is helping to revolutionize the all-important ready-made garment, or RMG, business.
“We have seen massive changes in the RMG sector of Bangladesh,” says World Bank executive director Patrizio Pagano. “Previously, factories used to pay through cash or banks, which was troublesome and time-consuming. The wage digitization is benefitting both the workers and the factory owners. Because of the largest distribution network of bKash, Bangladeshi RMG factories are becoming more dynamic with wage digitization solutions.”
Boston Consulting Group’s recent report ‘How cashless payments help economies grow’ gave a shout out to Bangladesh, arguing: “Economies that are more cash-intensive tend to grow slowly and miss out on significant financial benefits. Conversely, economies that switch to digital are more successful; the switch can boost annual GDP by as much as 3 percentage points.”
Boston Consulting Group analyst Markus Massi notes that bKash “has spurred growth and boosted financial inclusion in that country. The upside comes not from more money but from digital’s role in simplifying the process of sending and receiving payments.”
Massi adds that nations going cashless fastest feature a “shrinking grey economy, booming online commerce, and a sharp reduction in fraud.”
All of which are things that Bangladesh needs in spades, as prime minister Sheikh Hasina’s government can attest.
With per-capita income on the cusp of $2,000, Hasina’s ministers are struggling to spread the benefits of rapid growth: services like bKash are proving vital tools to achieve that.
Despite the digitalization craze, at least 70% of Bangladesh’s population is still completely unbanked, says Md Ashadul Islam, senior secretary at the ministry of finance.
“We have to bring our unbanked people to the banking system in order to materialize our dream of a developed nation.”
What bKash has catalysed is to prod the broader financial services industry into raising its game.
Mastercard, for example, is “working for digitalizing government subsidy to farmers,” says country manager Syed Mohammad Kamal.
Ahmed Jamal, deputy governor of Bangladesh Bank, adds that “rapid information and technology bring some challenges and opportunities. We have to find the opportunities and give good services to customers.”
The name bKash is a homonym for ‘bikasa,’ a Bengali word for prosper or enrich. Yet the extent to which bKash prospers – and helps enrich its customers – in future is now as much in the hands of regulators as Quadir’s staff.