MFS or mobile financing sector has been one of the fastest growing sector in Bangladesh for the last decade. The journey of the sector started at the beginning of the last decade through Trust Bank Mobile Money, Dutch Bangla Mobile Banking, and Brac Bank’s bKash. bKash has been the market leader at this sector since the beginning, through robust marketing campaigns and extensive agent network spread across the country. However, recently another player has emerged in this sector and has been making a lot buzz since its inception. The mobile financing service, Nagad has started its operation on March 26, 2019 under the Postal Act 2010. With more than 4.5 Million registered user, Nagad has become the country’s second-largest MFS provider, gaining a 30-percent market share.
History of Nagad
In 2010, Bangladesh Post Office has amended the Bangladesh Postal Service Act, in a move to financial include the rural people and to advance country’s growing e-commerce. Following the amendment, two services called Electronic Money Transfer System in 2010, and Postal Cash Card in 2011, was launched for easy, quick and secure money transactions and payments. Under these two services, Bangladesh Post Office has been providing money transaction and online payment-related services through a huge network of postal departments. In continuation of the two services, on 11 November 2016, Nagad was launched as the first state-owned MFS in the country. The service was a joint venture between Bangladesh Post Office and Third Wave Technologies under a public-private partnership, where Bangladesh Postal Service owns 51 percent and Third Wave Technologies owns the remaining 49 percent.
Before the official launch on March 26, 2019, necessary infrastructure and technological groundwork was laid out at about 10,000 branches of post offices across the country.
Rise Of Nagad
Nagad, was able to attract a wide number customer since its beginning and managed to surpass Dutch Bangla Bank’s MFS Service “Rocket” in just seven months of its operation. According to a March 2020 report by The Financial Express, in January 2020, just ten months after its inception, Nagad crossed the daily BDT 100 Crore transaction milestone. Currently, Nagad’s daily transaction amount is over BDT 650 Crore, while it has been able to acquire more than 45 Million registered user. Which makes it the second-largest MFS provider in Bangladesh, after bKash.
The biggest growth in the mobile financing sector in Bangladesh came earlier this year when the disbursement of various government allowances through MFS began. In May, BDT 1,256 crore was disbursed from government funds damaged by the coronavirus on the instructions of the Prime Minister. The highest amount of BDT 425 crore was disbursed through Nagad, while bKash and Rocket disbursed BDT 365 crore and BDT 250 crore respectively. The government’s decision has enabled Nagad to increase the number of transactions. Nagad is also working as a merchant partner of more than 12,000 companies like Meena bazar, Unimart, Bay Emporium, Walton as part of its business expansion. Recently, the courier service provider Paperfly has entered into an agreement with Nagad through which the customers of Paperfly will have the opportunity to make payment through Nagad after receiving the product. Nagad has also teamed up with more than 500 online shopping platforms to take advantage of the recent pandemic-driven growth in the eCommerce sector. In the e-commerce sector where transactions through nagad were a few crores before March, it surpassed one hundred crores after April.
Nagad has also taken some admirable steps in the pandemic. Before Eid-ul-Adha, Dhaka North City Corporation launched online Quarbani Haat in a joint venture with the e-Commerce Association of Bangladesh (e-CAB) and Bangladesh Dairy Farmers Association (BDFA) where Nagad has acted as a disbursement partner. The company has also worked as a digital payment service provider to test the Covid-19.
Reason Behind The Success
In just two years of its establishment, Nagad has achieved quite enviable success. Technological adoption and market research are key factors behind Nagad’s success. Before starting its activities, the company has found several gaps, through research on the country’s mobile financing sector. Nagad has been able to achieve success through proper technological service implementation in these gaps.
The first MFS to get license was Trust Bank. However, Rocket, a subsidiary of Dutch Bangla Bank, beat them to launch the first MFS service in Bangladesh. Then came Brac Bank’s bKash. On the other hand, Nagad emerged at the end of the last decade. So, it is not possible for Nagad to get First Mover Advantage. However, the company has found a mature market as its trade-off. There was no such thing as an MFS ecosystem when Rocket and bKash started their activities. Rocket, bKash, and other MFS companies first had to build that ecosystem, as well as educate customers about mobile banking. Which resulted in bKash and Rocket to spend quite a lot of time, money and resources on customer acquisitions. In addition, when the MFS providers first started their operation, mobile internet penetration was low. The eCommerce sector of the country was in its infancy and the online payment ecosystem was not ready. Coming into the industry in 2018-2019 fiscal year, Nagad has got a mature market and an ecosystem which they have been able to take advantage of. Which enabled the company in faster customer acquisition and various unique product introductions, etc.
Nagad has been emphasizing tech-based financial inclusion, product diversification, process simplification, and cross-institutional integration from the very beginning. Among the MFS providers, nagad started the Electronic Know Your Customer or EKYC registration process as the first paperless KYC in March 2019. In this case, if the customer takes a picture of National ID card, and a picture of themselves through front camera and submits it on the Nagad platform, all the information for the KYC form is filled by using OCR technology. Then those information are crossed-matched with Election Commission database to confirm the Customer information and open the account. Then Nagad, brought more convenient way to open an account with the help of BTRC and Mobile Network Operators. Customers are able to open a Nagad account by simply dialling *167# from their phones. Nagad collects the rest of the necessary information about the customer from the MNOs. Which enabled the customers to open an account without even leaving the comfort of their couch. Other industry players such as bKash, Rocket, UPAY etc. currently offers account opening service through their app, however, Nagad offers the most convenient way for opening an account. A number of banks are also taking advantage of this method and allowing customers to create a bank account from the comfort of their home.
In the last decade, bKash has been the market leader in the MFS sector of Bangladesh. One of the goals of Nagad was to break this monopoly, and the company has been quite successful in doing so. Through market research, Nagad was able to identify that although the acceptance rate of bKash across the country is quite high, there is a lot of frustration in the minds of customers about its charges.
Realising this, Nagad came up with competitive cash-out charges from the beginning. The cash out charge from the Nagad app was 17 taka and no charge would be deducted from the send money. In contrast, the bKash app used to charge Tk 17.50 in cash-out and Tk 5 in send money.
On the other hand, nagad used to deduct Tk 18 for cash out in USSD and Tk 4 for send money. Where bKash’s USSD would deduct BDT 18.50 in cash-out and BDT 5 in send money.
However, Nagad has reduced the cash out charge to BDT 9.99 per thousand from October this year. With this charge, app users can cash out at a rate of BDT 11.49 including VAT for every BDT 1000. On the other hand, in case of cash out through USSD, customers have to pay BDT 14.94 including VAT. Nagad’s cash-out rate is currently lower than any other MFS provider in the country. However, the company is only able to take advantage due to being the subsidiary of Bangladesh Postal service. Thus there are a lot of speculation, that will Nagad be able to continue charging less after getting a full MFS license?
Transaction limit is a big issue for bKash, Rocket, or other MFS. Since each MFS is regulated by Bangladesh Bank. In the case of bKash and other MFS, the monthly cash-in limit was Tk 1 lakh, cash-out was Tk 50,000 and in the case of send money was Tk 25,000. Since the postal department was established as a digital form of money through Nagad, it was outside the regulation of Bangladesh Bank. Therefore, Nagad was not bound by these rules. As a result, initially Nagad’s monthly cash-in, cash-out and send money limit was 5 lakhs and the daily limit was BDT 250,000.
However, for a number of reasons, at the request of some financial regulatory bodies, Nagad reduced its limit to par with other MFS. However, realizing that payment through MFS is increasing, Bangladesh Bank has also increased the daily and monthly transaction limit of MFS.
Marketing & Promotion
Efforts are being made to improve the service and competitive pricing as well as the branding of nagad. Nagad continued to promote through Mashrafe Bin Mortuza and actor Zahid Hasan for Strong Brand Value Creation. Nagad is also carrying out many campaigns and activities to bring the people of remote areas of the country under the banking service. In November 2020, they conducted miking and rally activities in 64 districts of the country. In addition to this, Nagad is introducing Nagad and banking to the rural population through music and miking in the business centers of the rural areas under the marketing campaign called “Utsav”.
bKash’s agent network has been the biggest help in rising to the top position as the country’s MFS provider. As a major player in the industry, Bikash has more than 272,000 agents and Rocket has about 264,000 agents all over the country. Compared to that, the number of agents of Nagad is about 240,000. However, the initial 10,000 branches of the postal services gave Nagad a good advantage at the beginning.
Nagad classifies its agent as entrepreneurs. However, apart from entrepreneurs, Nagad has launched a scheme called Shadhin. Under this scheme, small and medium businesses can transact business from one independent merchant to another independent merchant for only BDT 6 per thousand. Earlier, using bKash in small transactions among small traders would cost them Tk 20 per thousand.
When MFS first came to the country, companies were nothing more than just sending money or promoting transactions and going through other related services. But Nagad is coming with more different types of services from the beginning besides money transactions. Nagad is providing various services to the customers through the app by partnering with many local and multinational conglomerates, ecommerce, courier service providers, banks, insurance, utility etc.
Since its inception, Nagad has been promoting itself as DFS or Digital Financing Service instead of MFS. Digital financing service basically refers to the provision of wide range banking services including payments, savings, remittances through other digital channels including internet, ATM and POS terminals. It also wants to offer all the traditional banking services online or digitally through the concept of Neobanking, a banking system without any kind of physical branch. Nagad is working for the clearance of Bangladesh Bank in this regard. According to their vision, the company will be able to contribute to the financial asset’s generation of a large section of our population. Will Nagad be able to provide more comprehensive banking services to the people of Bangladesh through Neobanking?