When losses tell a success story 

Illustration: TBS

With the Covid-19 outbreak, field-level operations of both agents and runners of the MFS (Mobile Financial Services)  market were disrupted in 2020 and most of 2021.

Despite such disruptions, bKash was able to close 2020 with 12.4 million new customers (total 50.5 million), a 5.29 million increase in active users, 35,000 new merchants and 41,000 new agents.

All these translated into a Tk26 billion (+9 percent  YoY) in revenues, a five-year high gross margin ratio of 34 percent and an EBITDA of Tk84.4 million. However, the company made net losses worth Tk814 million, which had observers questioning whether bKash is losing its dominance in the market it had once built.

Fortunately, contrary to the narrative that bKash may be losing its foothold in the MFS market,  its Covid-19 response, strategic investments and collaborations have enabled it to position itself to lead the MFS market.

At the end of H1-2021, Central Bank data indicates that the total number of registered MFS accounts surpassed 101.24 million, with a staggering 40.9 million active accounts and 1.13 million agents all across Bangladesh. 

Currently, there are nine operational MFS companies in Bangladesh, with two, Tap and uPay, debuting in 2021. In H1, 2021, the daily average MFS transaction volume was worth Tk22.98 billion.

Both the industry and bKash are growing at a remarkable pace, surpassing the transaction volume of other modern channels, like internet banking and issued cards. However, bKash's growth has not been unchallenged. 

The challengers and bKash's initiatives 

Among the operational MFS companies, Nagad had more than 24 million customers, while Rocket had 22 million customers, respectively, in 2020. In fact, in 2021, both these market challengers have caught up in terms of customer base growth.

In fact, Nagad has a cost advantage over its competitors, in terms of cash-out transaction fees (lowest among competitors). Therefore, Nagad primarily focused on acquiring a major share of the social security allowances disbursed by the government to the marginalised communities. As a result, Nagad was responsible for disbursement of 75 percent of the government's social security allowances.

Despite Nagad's attempts to outflank bKash in 2020, bKash's total transaction volume was worth Tk4.31 billion, while that of the entire MFS market, according to the central bank, was Tk5.61 billion. In short, bKash accounted for 77 percent of the total MFS market volume.

Contrary to Nagad's strategy in 2020 and 2021, bKash has executed a more holistic strategy to acquire a fair volume share across all transaction types, instead of just G2P (government payments).

In 2020, the pandemic triggered a massive inflow of remittance flowing into Bangladesh.

In response, not only did bKash offer an additional 2 percent incentive to channel remittance inflow from abroad to Bangladesh, but also made additional strategic collaborations, like partnering with Valyou (Malaysia) to leverage blockchain technology to transfer remittance, efficiently and securely, from Malaysia to Bangladesh. 

bKash has also completed API Integration with nine foreign remittance transfer companies in seven countries - including major remittance earning countries like - UAE, Qatar, Oman, and KSA. This will further facilitate inflow of remittance via bKash.

Additionally, another emerging challenge caused by Covid-19 restrictions was salary disbursement, especially for the manufacturing sector. In response, bKash launched 279 care points for industrial workers in 4 key industrial regions in Bangladesh.

All these timely initiatives have allowed bKash to fend off emerging challenges caused by the Covid-19 pandemic. 

However, bKash did not limit itself from initiating proactive strategies due to risks emerging from the pandemic. In the face of adversity, bKash made two significant moves: reimagining the POS (points of sales) experience and entering the wealth-tech market.

bKash launched QR scan based payments in 2020 for POS payments, and in 2021, it has announced 'digital receipts.' Digital receipts will allow the user to retrieve an electronic copy of the bill in the app.

Both these features are aimed to make the POS payment experience cashless, contactless and environmentally friendly.

Given that bKash has the highest number of merchants (~199K, FYE2020), and the second highest number of agents (Rocket: ~290K, bKash: ~272K, FYE2020) among all MFS companies, these retail transaction digitisation efforts will allow bKash to acquire a major share of the retail transaction volume.

bKash Savings, another product innovation 

On the other hand, bKash's entry into wealth-tech in 2021, with the feature 'bKash Savings,' is yet another indication of bKash's relentless drive to lead via product innovation. 

As of September 2021, bKash has partnered with IDLC to allow bKash users to save Tk500 to Tk3,000 per month for a tenor of 2, 3 or 4 years, and earn interest rates as high as 7 percent per annum.

Since the interest on deposits is subject to 15 percent source tax for non-e-TIN holders, the bKash app even allows users to upload the e-TIN and reduce the source tax on interest to 10 percent only.

bKash Savings is at preliminary stages, with only one NBFI (IDLC) providing such saving schemes, conveniently, via bKash. 

However, given the size of customer deposit balance with bKash (total Tk47 billion, 2020), the ease flexibility of the savings schemes offered and the traditional entry barriers of the banking sector impeding accessibility to similar banking products, bKash Savings is positioned to thrive.

Subsequently, bKash Savings will serve as a new mechanism to funnel funds from individuals and households to the formal banking sector and improve the ease of accessibility to and appetite for banking products among individuals. 

Without a doubt, it is not one single strategy that solely serves as a harbinger of bKash's continued dominance in the MFS market. It is, in fact, bKash's synergies that make it so promising. 

Currently, bKash is owned by giants like BRAC Bank (51 percent ), Money in Motion LLC (29 percent), Alipay (10.1 percent ), IFC (9.9 percent ) and the Bill and Melinda Gates Foundation (1:1 convertible preference shareholders). 

On one end, bKash's evolving strategy to focus on retail (POS) transactions and entry to wealth-tech are all part of the surefire Alipay handbook. 

On the other hand, BRAC Bank's financial sector expertise, and BRAC's grassroots level know-how of rural Bangladesh, are all factors that continue to drive bKash's growth.

Going forward, some new entrants are trying to challenge bKash in the POS arena. 

uPay (a subsidiary of UCB Ltd), which was launched in 2021, has partnered with Grameenphone (GP) and Robi to allow customers to use the app without purchasing mobile internet. 

This will encourage users to use the uPay app outdoors at POS outlets while other MFS users would have to purchase internet first before being able to make payments using the app given that the USSD interface is neither user-friendly nor convenient for POS transactions.

In fact, MNO charges for USSD service is a major cost driver for MFS companies. So uPay may benefit from such collaboration both in terms of customer acquisition and cost control.

uPay's attempt to channel customers into the app via MNO partnership is one that is re-shaping the competitive landscape of the MFS market. 

However, the risks are still minimal for bKash, given how vast its agent distribution network is and how the majority of rural Bangladesh still relies on the USSD interface.

On top of that, bKash sells a large volume of Grameenphone's (MNO market leader) airtime balance. This gives bKash significant bargaining power over other MFS companies, which is indicative of the fact that bKash too will soon be able to initiate such collaborations with MNOs. 

Going forward, while the accounting profits may paint a different story, and as competitors rush to attack bKash on certain niches, it is evident that strategically bKash may just be too dominant a force to be suppressed or surpassed in the MFS arena.