Mobile Financial Services: Acceleration in Digital Transactions Amidst COVID-19

The dream of shifting towards a digital economy has been deeply seated in the vision of ‘Digital Bangladesh’ which reflected on the increasing digital transactions within the country. Since March 2020, the COVID-19 pandemic has steered the nationwide social and economic lockdowns and pushed the economy on the verge of collapsing. However, this has led to a sharp rise in the use of digital payments during the pandemic.

Amidst the pandemic, mobile financial services witnessed overwhelming demands backed by the inability to make physical payments and the need for safe and secure transactions. On top of this, digital payment methods have been facilitated by the Government to mitigate the economic impact on the sufferers of COVID-19 which will further influence the transactions. Similarly, the regional leaders too, are looking forward to accelerated adoption of e-wallet users in the wake of the COVID-19 crisis.

Digital Payments Amidst Pandemic: The Global Scenario

Between 2017 and 2019, the number of global e-wallet users skyrocketed from 500 million to 2.1 billion, developing nations accounting for most of that growth.^[1] 70 percent of all e-wallet users are covered by China and India alone while Africa and the Middle East account for another 12 percent. In the aftermath of the SARS outbreak in 2003, China has been facilitating contactless payments by revolutionizing its financial sector. As a result, the country currently holds the position of the global leader in terms of e-wallet adoption.^[2]

In 2019, nonbank online payment platforms in China generated nearly USD 35 trillion, leading China to rapidly move towards a cashless society. According to Statista, user penetration in the mobile point-of-sale segment in 2019 was highest in China with a share of 35.2 percent, followed by India with 29.5 percent.^[2] The increasing number of e-wallet users in India is helping the country to digitize its financial sector from which Bangladesh can take influence.

The consumer sentiment survey in India reveals that consumers are significantly increasing their digital adoption across media, product purchases, and digital payments during the lockdown period. Consumers are being familiarized with the convenience of fast digital transactions which will accelerate a shift in consumer behavior. Therefore, it is anticipated that the preference for digital and non-cash payments is going to sustain in the country even when the lockdowns are lifted.^[3]

While China and India have reached a mature stage in terms of e-wallet penetration, other Southeast Asian countries including Singapore, Indonesia, Thailand, Malaysia, Vietnam remain at a tipping point. As consumers remain busy with work and seek convenience, they are switching to online platforms for daily necessities and paying for them with e-wallets which saves a lot of time. According to BCG analysis, the e-wallet payments for e-commerce, groceries, and bills are gaining momentum and the value of payments in these three categories is expected to reach from 33 percent to 50 percent by 2025. s.^[1]

Following China’s footsteps, the Southeast Asian countries have been emphasizing on building a digital infrastructure to accelerate greater digital wallet acceptance to drive a financial revolution. This can get a further push as the shifting consumer trends towards digital transactions are strongly observed during the pandemic. With growing middle-class society, Bangladesh had just started being familiar with the concept of e-wallets but due to the staggering amount of demands aroused in lockdowns, mobile financial service providers are eyeing potential growth in the future.

Mobile Financial Services in Bangladesh: Succeeding through Pandemic

With lockdowns in place, mobile financial service (MFS) providers have been witnessing a significant increase in demands for digital transactions. In April 2020, 0.3 million new accounts were opened by MFS operators to help disburse funds from the government’s stimulus package of BDT 5,000 crore (USD 589 million) for export-oriented industries.^[4]

To facilitate the services, Bangladesh Bank has increased the peer to peer transaction (P2P) ceiling from BDT 75,000 (USD 883.56) to BDT 200,000 (USD 2356.16) per month. Furthermore, cash-out charges have been kept free up to BDT 1,000 (USD 11.78). To tackle the crisis, mobile financial services have been utilized in a myriad of sectors.^[5]

Aiding RMG Workers

Cash-out charges have been cut from BDT 14.5 to BDT 4 per BDT 1,000 for export-oriented industries’ worker salaries. To disburse the stimulus package in the garments’ workers, MFS has been identified as an efficient platform. Earlier, 1.6 million workers in the garment sector used to receive their salaries through MFS, but further expansion of the service has been made during the pandemic.^[5]

Simplifying Payments

MFS has made paying utility bills and online shopping easier than ever. Due to lockdowns, digital payment of electricity bills has increased from 5 percent to 60 percent. More than 1 million utility users availed the service in March 2020.^[5] To ease transactions, the Central Bank has removed transaction charges on the purchase of essential goods such as groceries and medicines.  

Advancing Mobile Recharge System

In April 2020, approximately 45 million people in Bangladesh used bKash to recharge their phones to enjoy uninterrupted mobile services. In January 32 million people used the recharge service, meaning there has been a 40 percent increase in users. Customers also have the option to find available recharge offers in the bKash app, making it more user-friendly.^[6]

Streamlining Remittance

MFS has appeared as a swift transaction mode for migrants to send money in the country. From January to April 2020, a 144 percent increase in daily average remittance transactions was experienced by bKash, with BDT 1.38 billion transferred inward.^[5]

Facilitating Donation

Allowing bKash users to donate through its app, the MFS provider has been facilitating donations through organizations like Bidyanondo Foundation, Sajida Foundation, Obhizatrik Foundation, BRAC etc. From mid-March to mid-April, more than BDT 50 million has been donated through bKash.^[5]

Expediting Safety Net Funds

Under the supervision of the Disaster Management and Relief Ministry, the Government has started disbursing cash assistance to support 5 million families impacted by COVID-19 with the help of the four top MFS operators; bKash, Nagad, Rocket and SureCash. The government has targeted to pay out BDT 2,500 per family, a total of BDT 1,250 crore (USD 147 million).^[7]

Nagad, the digital financial service platform operating under the Government Post Office, was recently permitted to operate as an MFS provider to tackle the steepening demands. The platform has introduced the ‘Manush bachle desh bachbe’ campaign which focuses on allocating funds for affected people in different corners of the country.^[5]

Normalizing Digital Payments in Post COVID-19 Era

In pandemic-stricken Bangladesh, MFS providers surely played a crucial role in enhancing the efforts to mitigate adverse economic impact on struggling households. The Government should also emphasize the adoption of digital payment services for social security payments and government employee wages. The Government has allocated around BDT 74,367 crore (USD 8.77 billion) for safety net programs in the current fiscal year which can be considered to disburse through MFS for hassle-free transactions.^[8]

As the pandemic has brought a wind of change in modes of money transactions, MFS providers can make the right use of this opportunity to take the country forward towards a cash-lite society. To establish ubiquitous acceptance of MFS, omnichannel payment solutions should be introduced. While doing this, MFS providers must ensure protection mechanisms for the safety of their agents.

MFS in Bangladesh will certainly grow into a significant mode of transaction in post-pandemic Bangladesh. To sustain the growth of the MFS providers and accelerate e-wallet adoption, a new model of collaboration between the payments sector and regulators should be framed focusing on innovation in payments and promoting healthy cooperative competition.

Ishrat Jahan Holy, Trainee Consultant at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]