The contribution of Mobile Financial Services, or MFS, to Bangladesh’s economic growth over the past decade has been enormous. According to Bangladesh Bank, there are more than 100 million MFS account holders in the country at present. In addition, more than 45 million Nagad customers have further enriched the list. As reported by the Bangladesh Bank, on an average, more than Tk 2,000 crore is transacted through MFS every day. Brac banks “bKash” is the top MFS in the country with a transaction volume of over Tk 1,500 crore each day. However, in just two years of starting operations in 2019, the government postal department’s mobile financial service “Nagad” comes in second position with around Tk 650 crore in daily transaction volume. Since the arrival of Nagad into the Bangladeshi MFS industry, the market competition among the players has further accelerated the success of the industry. Competition between the providers has mostly benefited the general public and the MFS agents.
How Nagad Shaped MFS Industry
Easy Account Opening
In March 2019, for the first time in Bangladesh, Nagad started the process of opening an account through the Electronic Know Your Customer or EKYC registration process. In this process, customers were able to easily open an account through their Nagad app by taking a picture of themselves through the front camera and pictures of their national identity cards. Following this innovation of Nagad, other MFS providers and banks also started offering this facility to customers. This reduced the need to find an agent to open an account. As a result, customers were able to save a lot of time and money.
Even then, a large part of the rural population in Bangladesh remained unbanked. Most of these unbanked people are feature phone users. In order to bring such backward people under financial inclusion, Nagad has entered into agreements with BTRC and Mobile Network Operators to add all the mobile subscribers of the country to its platform. As a result, these demographic could open a Nagad account by simply dialing *167 # from their feature phones without any app, with a four-digit PIN. With this option, a large portion of the country’s rural population was able to access mobile banking services through Nagad, which helped the amount of transactions to increase.
Because of this, a large portion of the country’s rural population can now access mobile banking services through Nagad, and the amount of transactions has also increased. The World Information Technology and Services Alliance (WITSA) awarded the company the Digital Opportunity and Financial Inclusion Award for such digital innovation of Nagad. Such innovations of Nagad have made banking accessible to a large segment of the population.
App Based Service
Since the beginning of the journey, Nagad has been focusing more on their app-based services. Although all services of Nagad are available through the USSD dial as well. However, customers prefer the app as transactions through the app can be done accurately by scanning the QR code very easily.
Although a number of other MFSs have come up with their own apps before Nagad, however, the postal department’s MFS was at the forefront in promoting the app based services more. Therefore, other MFS providers are beginning to focus more on app-based services, and new players are putting emphasis on app-based services. Through the app, Nagad users can send money, cash out, mobile recharge, add money to account, pay utility bills, and make donations. Users can even pay income tax directly from a Nagad account. The state-owned MFS is also the only payment gateway for Covid Test Fee in Bangladesh. In addition to these services, Nagad also offers a 6-percent interest on customers’ savings. Through which, the daily life of the customers has become more convenient.
In the MFS industry in Bangladesh, there are many examples of fraud with customers. Every year thousands of customers were robbed of thousands of taka by various MFS fraudsters. Customers suffered harassment and huge losses frequently by these fraudsters. The situation was so dire that certain MFS providers had to warn customers about the fraud through TV commercials and digital ads were also released.
However, with Nagad there has not been any issue related to fraud yet. Nagad’s E-KYC implementation was able to stop such frauds and allow customers to transact without fear. The E-KYC system allows only one Nagad account to be opened with a valid NID. Due to the previous manual registration process of other MFS providers, besides opening more than one account with the same NID, many people were also carrying out fraudulent activities by opening accounts with invalid NID. In doing so, many have faced fraud in government transactions as well as personal transactions.
In the case of almost every MFS in Bangladesh, initially the monthly cash in limit was 1 lakh tk, cash out was 50,000 tk and in case of sending money was 25,000 tk.
At the inception of Nagad, the monthly cash-in, cash-out and send money limit of this postal service was 5 lakh tk and the daily limit was 250,000 tk. Because of Bangladesh Bank’s regulations, no other MFS operator could offer these services. Nagad was able to pay such a large transaction limit mainly because it was a postal service. However, Bangladesh Bank later directed all MFS providers to keep the same transaction limit. Besides, the transaction limit of Bangladesh Bank MFS has been increased, at present the daily cash in limit is 30,000 tk and the maximum monthly cash in limit is Tk 2 lakh tk. Apart from this, the daily limit for send money and money transfer has been increased to 25,000 tk and the monthly limit to 2 lakh tk.
Besides, the monthly limit for cash out is one and a half lakh. Nagad contributes a lot to make the huge amount of transactions available to the customers of the country in MFSs possible. Due to the initial transaction limit of Nagad, Bangladesh Bank is able to realize that it is also possible to make large transactions through MFS. As a result, customers are now enjoying the increased transaction limit of MFS and are able to make large personal transactions without going to the bank through MFS.
Before the start of Nagad operations, the MFS industry in Bangladesh was monopolistic. As a result, bKash completely dominated the market as well as set the price for the customers. The rate they fixed is still maintained in most cases. However, as soon as Nagad came to the market, it started offering low cost mobile banking services to its customers. From the beginning, there was no charge for P2P to send money through the Nagad app. In case of cash out, Nagad also introduced the lowest cash out charge in the country in October 2020. In case of cash out, the app starts offering cash out facility at only Tk 11.49 including VAT and by dialing USSD at Tk 14.94 including VAT which is currently the lowest cash out charge in the country.
On the other hand, other players in the industry were still charging Tk 17.50 from the app and Tk 18.50 on the USSD dial. Such competitive pricing of Nagad has also forced new players to reduce cash out charges and keep no charge on sending money. However, in case of development, only 5 favorite numbers can be send money for free up to Tk 25,000. However, in terms of charges, Nagad is still offering customers the lowest cost of cash out, sending money, utility bills and payment. As a result, the dependence of the customers on the bank is decreasing day by day and a lot of money is being saved every month.
Since the introduction of MFS providers in Bangladesh, P2P transactions as well as money transfers have become much easier for small and medium businesses. But due to high cash out charges, these traders used to spend a lot of money on money transactions. After Nagad entered the market, B2B launched an independent scheme for these merchants so that only 6 tk per thousand was being charged in cash-out. In addition, the monthly cash out limit for independent merchants was higher than for ordinary customers. As a result of such facilities, Nagad transactions were convenient for small and medium traders. This was the first such service for Bangladesh targeting B2B customers. As a result, other MFS providers are now slowly coming up with similar schemes targeting B2B merchants. There are a large number of small and medium traders in Bangladesh, for whom it was inconvenient to transact with banks. As a result, many people used to transact money by hand or through other methods that were risky in nature. Nagad’s service innovation has made it much easier for these small traders to transact financially through MFS at a lower cost.
After coming to Nagad market, customers as well as agents started getting much more benefits. There are currently about 11 lakh MFS agents in Bangladesh. Of these, about 262,000 are bKash agents across the country and more than 240,000 in Nagad.
Like other MFS providers, Nagad pays agents a commission of 4.10 paisa for cash in and cash out. On the other hand, USSD pays a commission of Tk 3.9 in cash through dial. But in the case of cash-in, Nagad is paying agents a lot more commission. For example, in the cash-in of 20 to 30 thousand, the agents are getting 6tk per thousand through the app and 5 tk per thousand in USSD which is much higher than all other MFS providers in the market. Agents also now prefer Nagad transactions as such commission schemes of Nagad are quite lucrative for agents. No one has come up with such a lucrative scheme for agents before coming to Nagad. After the arrival of MFS in Bangladesh, a lot of employment opportunities were created. But being a monopolistic market, agents were not getting proper incentives. Since several other MFSs besides Nagad have entered the market since Nagad’s entry, these agents now have better business opportunities due to the competition among the providers for market share.
The Bottom Line
It is hoped that Nagad will continue to come up with innovative services for its customers. However, the company needs to introduce an international “Remittance” facility for customers soon. Remittances through Nagad will save a lot of money in cashing out. Since, a large portion of rural people are dependent on remittances sent by migrant workers. Moreover, Nagad can also add the facility to transfer money to the Bank. This will allow customers to easily deposit money from Nagad to their bank from their home without having to stand in line. In addition to this, Nagad should also add a cash out facility for customers from ATMs which will further enrich the customers Nagad usage experience.
Although there is a facility to transact from one bank to another bank in Bangladesh, or from one financial institution to another financial institution, in the case of MFS, the facility of transaction from one operator to another has not been introduced yet. However, Bangladesh Bank has been working on this service for a long time and is going to launch an Interoperable Digital Transaction Platform soon. With the launch of this service, customers will get additional benefits, as well as relatively small operators will be able to occupy a strong position in the market.
Due to a long period of monopolistic practice, there has been no innovation in the MFS industry in Bangladesh. No MFS provider has developed its own policy targeting the advantages and disadvantages of special customers, merchants and agents. Prior to Nagad, all the active MFSs were operating according to the standards set by the market leader. Nagad, on the other hand, is offering cash out at the lowest rates in the country. Through which Nagad has brought competition in the MFS market of Bangladesh for the first time. As a result, starting from the market leader, existing and new players started thinking anew about MFS and came up with innovative services. Customers, merchants and agents are benefiting the most from Nagad’s role in the growth of the MFS industry in Bangladesh.