Keys to success in right partnerships: With >70% market share in Mobile Financial Services (MFS) transactions, >20mn active customers, and >US$30bn in annual transaction value, bKash is the pre-eminent MFS platform in Bangladesh. bKash started as a joint venture between BRAC Bank and Money in Motion (VC fund with telco background), but over the years, bKash has on boarded new partners such as the International Finance Corporation (IFC), Bill & Melinda Gates Foundation, and more recently Ant Financial; all of which were/will be instrumental in bKash’s success.Developing countries will leapfrog credit/debit cards: We start with the assumption that regardless of the stage of development in an economy, there is a (unmet) demand for digital payments; this is because digital is simply more convenient than cash. Hence, as soon as an effective digital payments infrastructure is setup, we should see significant transition from cash to digital. Historically, the route has been cash>credit/debit cards>mobile payments, but we think developing countries will leapfrog credit/debit cards and jump directly into mobile payments. Firms like bKash are well placed to benefit from this.
Instant settlement is at the heart of payments: Before goods can be handed out, both sides need confirmation that the money has been transferred. For cash this is easy, but for digital, essentially some bits of information has to be transferred from one database to another. Historically, central bank settlement networks were unable transfer this data instantly, hence instant settlement was not possible. This led to alternative solutions; e-wallets like bKash bring both the payer and payee into one network (the bKash network), and arrange instant settlement within the network, similar to an intra bank transfer. Credit/debit card companies also work in a similar fashion (the “Visa” network). A “public highway” can shake up the business: Central banks around the world now have the technology to settle payments instantly. An example of this is the Unified Payments Interface (UPI) in India. We believe a similar platform will soon be launched in Bangladesh. If the payments business is simply about monetizing these “private highways”, we must ask what happens to these highways when a “public highway” is made available? We think both margins and entry barriers will diminish in the future.