Credit: Md Shafiqur Rahman, 2016 CGAP Photo Contest

By Joep Roest
WASHINGTON DC, Aug 10 2018 (IPS)

On the face of it, the 2017 Global Findex shows that Bangladesh has made great strides toward financial inclusion since the previous Findex was released in 2014.

In that time, the percentage of adults with financial accounts rose from 31 to 50 percent — a gain almost entirely due to a 20 percent increase in bKash mobile money accounts. As remarkable as these advances are, the data also reveal some challenges Bangladesh faces around financial inclusion.

To start with, Bangladesh has a lot going for it that help explain these overall gains. Its economy has done well over the past decade, with annual growth of 5 to 7 percent.

Roughly 20.5 million Bangladeshis escaped poverty between 1991 and 2010, more than halving the poverty rate from 44.2 to 18.5 percent. The increase in spending power likely fuels the growing demand for financial services.

Findex shows that 65 percent of Bangladeshi men have accounts while only 36 percent of women have accounts. Intermedia’s Financial Inclusion Insights survey bears this out, too. Of all its measured demographics, women saw the least growth in financial inclusion. Why are women being left behind?

The fact that Bangladesh is one of the most densely populated countries in the world (three times more so than India) also works to its advantage when it comes to financial inclusion.

Banks, mobile network operators and other providers can cover large portions of the country’s 161 million people with relatively little infrastructure.

According to Intermedia, the percentage of the population living within 5 km of an access point jumped from 89 percent in 2013 to 92 percent in 2017, putting Bangladesh far ahead of other countries in South Asia.

This is important because studies show that proximity to an agent greatly increases the likelihood of use of financial services.

Bangladesh also enjoys rapidly improving mobile phone and internet connectivity, which has no doubt fueled the remarkable 20 percent surge in mobile money account ownership. In 2010, just 32 percent of the population subscribed to mobile services.

That number rose to 54 percent in 2017. Over the same period, mobile internet connectivity grew from 26 to 33 percent. Of course, there is still a lot of room for improvement. More than 70 million people still do not subscribe to mobile services at all.

Nevertheless, the growing popularity of cell phones is creating new opportunities for a new class of providers like bKash to reach customers with mobile financial services.

For all of these impressive gains, Findex also points to significant challenges for Bangladesh. A stark gender gap stands out. As my colleague Mayada El-Zoghbi discussed in an earlier post, Bangladesh is among a number of countries like Pakistan, Jordan and Nigeria whose overall advances in financial inclusion have left women behind.

In fact, Bangladesh’s gender gap in financial access grew a whopping 20 percentage points from 2014 to 2017. At 29 percentage points, it is now one of the largest gender gaps in the world.

Source: Mayada El-Zoghbi, “Measuring Women’s Financial Inclusion: The 2017 Findex Story”

Overall, Findex shows that 65 percent of Bangladeshi men have accounts while only 36 percent of women have accounts. Intermedia’s Financial Inclusion Insights survey bears this out, too. Of all its measured demographics, women saw the least growth in financial inclusion.

Why are women being left behind? It has often been noted that cultural norms play a role in Bangladesh, limiting women’s access to accounts and agents. While these constraints certainly play a big role, another related factor is the disparity in access to mobile phones.

According to Intermedia, 76 percent of Bangladeshi men own a phone, but just 47 percent of women can say the same. Since most of the country’s gains in financial inclusion have been driven by mobile financial services, this is a significant constraint for women.

Another challenge in Bangladesh, and a likely reason why overall financial inclusion numbers are not even higher, is the fact that its mobile financial services ecosystem has yet to mature to the point where a stream of innovative offerings entice more people to use digital financial services.

Although 18 mobile financial services providers are active in Bangladesh, bKash claims 80 percent market share. Its main competitor, Dutch-Bangla Bank Limited, has enjoyed moderate success but not enough to make much of an impression on the overall market.

As Findex shows, having such a dominant player in the market is a blessing and a curse. bKash has considerably increased people’s access to financial services. At the same time, the lack of competition has stifled innovation. There are few compelling mobile financial services in Bangladesh beyond person-to-person (P2P) transfers, which are the bread and butter of bKash’s business.

The lack of use cases beyond P2P transfers may be one of the reasons why over-the-counter transactions — in which people use agents’ accounts to transfer money so they don’t have to sign up for their own accounts — comprise 70 percent of total transactions, even though they are officially not permitted. People just don’t see good enough reasons to sign up for their own accounts.

Government policy has played a significant role in both driving these advances in financial inclusion and holding them back. On the one hand, the government’s “Digital Bangladesh” initiative and government-to-person (G2P) digitization programs have increased the number of people with financial accounts.

For example, in just six months, payments provider SureCash and the Ministry of Education enrolled 10 million poor women with accounts, into which they receive stipends. Programs like this can help close the gender gap.

Even more encouraging, the government has been exploring interoperable payments infrastructure that works beyond G2P. There is also momentum to clarify electronic know-your-customer requirements, which would make it easier for providers to use biometric identity verification and extend services to the poor.

On the other hand, mobile financial services regulations have been partly responsible for the lack of competition and innovation in the mobile financial services space. The market is open to banks and bank subsidiaries, but not nonbanks in general.

For instance, mobile network operators have a long-standing interest in directly providing mobile financial services to customers but have not been allowed to do so. As a result, bKash sits atop the market with only lackluster competition from banks.

A key question for the future of financial inclusion in Bangladesh will be to what extent FinTech players will be allowed to capitalize on the country’s generally favorable conditions around connectivity, scale and distribution. Another important question is to what extent international actors will shape the market.

Ant Financial’s recent stake in bKash may shake up the entire space. If their entry into other Asian markets is any indication, they take an active approach to their investments and will inject a much-needed stimulus into Bangladesh’s sleepy digital financial services space.

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Credit: Yang Aijun / World Bank

By Tyler Aveni and Joep Roest
WASHINGTON DC, Jan 23 2018 (IPS)

China’s mass-market adoption of mobile payments in recent years has stunned observers. In 2016, more than 500 million Chinese used mobile payments and transacted 97 billion times on nonbank mobile apps.

iResearch claims these transactions amounted to more than ¥58.8 trillion ($8.51 trillion) in terms of gross market value, and a recent WeChat usage report by China Research Insights states that an incredible 84 percent of surveyed adults who use the mobile application now feel comfortable not carrying cash. At the heart of these changes is the rise of mobile payments providers and their ability to entice the average smartphone owner to use mobile payments in daily life. How have they done it?

At the recent International Forum for China Financial Inclusion in Beijing, organized by the Chinese Academy of Financial Inclusion, CGAP had the opportunity to hear regulators, development organizations and FinTech companies speak about Africa’s and China’s experiences in financial inclusion.

With regard to the African experience, we heard familiar success stories about how large agent networks and telco-led mobile payment providers have improved access to financial services in certain parts of the continent. However, China’s experience stands out as different from the African experience in two ways, which may help explain the success of mobile payments in the world’s most populous country.

The first difference is how China’s mobile payments providers — notably Alipay and WeChat Pay — have leveraged existing financial infrastructure. In Africa, successful models like M-Pesa in Kenya rely on telecom agent networks and infrastructure to reach and interact with customers. In this sense, they have built their solutions alongside traditional banking infrastructure.

China’s mobile payment providers (commonly referred to as “third-party payment providers”) have instead built their solutions on top of banks’ access and connectivity infrastructure. Users link their bank card numbers to application-based mobile wallets, so both a bank account and smartphone act as requisite conditions for access.

This arrangement is possible because China enjoys higher levels of bank account ownership and connectivity than many other parts of the world. According to the 2014 FinDex, roughly 79 percent of Chinese had at least one bank account. Because cash-in and cash-out flow through regulated bank accounts, Alipay and WeChat Pay can take advantage of banks’ existing know-your-customer checks.

The result for customers is a seamless, remote onboarding process for new mobile wallet users. In terms of connectivity, GSMA estimates 68 percent of Chinese (more than 900 million people) own a smartphone, ensuring a vast market of potential users.

The second difference is that Chinese payments providers tend to view mobile payments services not as ends in themselves, but as means to bring customers into an in-app universe of bundled services often owned, at least partly, by providers. These services — everything from grocery delivery to tax payments — create use cases and build demand for mobile payments.

They also multiply the commercial potential of new users. When diverse services are brought into a single payment app, an investment in onboarding a single new mobile payment user is an investment in acquiring a customer across many businesses.

Red envelop packages are shared on WeChat directly within the chat pane. In a group chat, users try to click first to credit their accounts with randomized percentages of the gifted total.

Both platforms were initially intended to facilitate a distinct commercial activity, and neither was mobile-based. For years, these platforms built their user bases thanks to e-commerce and gaming purchases.

Over time, Alipay and WeChat Pay have transitioned to mobile interfaces and have begun targeting China’s rural segment of potential users — a move CGAP explores in a new publication, “China’s Alipay and WeChat Pay: Reaching Rural Users.” They have also expanded the range of commercial activities linked to their mobile wallets.

Mobile peer-to-peer (P2P) transactions and utility payments have combined convenience with novelty for many first-time users. The cultural custom of gifting cash in red envelopes during Chinese New Year has been digitized and gamified. It is now possible for users to send red envelopes — essentially stylized P2P transfers — directly or in chat groups where friends, colleagues and family members could compete to claim a randomized share of the cash gift.

Online-to-offline services like taxi hailing have also proliferated. Paying with mobile wallets has become part of the customer journey for an increasing array of useful products and services. With every use case added, a new icon is imbedded into the WeChat and Alipay interfaces, turning them into so-called super apps, or apps that imbed other apps.

Users are able to stay within a single mobile environment from start to finish for any given transaction and across various transactions throughout the day. The simple in-app design creates intuitive user experiences that make the apps feel manageable, even as new services are added.

In parallel to these changes, more and more financial services are being created on the back of the growing amount of data collected on users’ payment transactions and commercial activity on affiliate platforms.

Both Ant Financial and Tencent now offer investment, credit and insurance products in-app alongside other use cases. Some of the products are created by Ant Financial and Tencent, while others are offered by third parties using the application as a marketplace.

All of this combined has led to what can be described as Asia’s most transformative digital payment revolution. And as CGAP CEO Greta Bull points out in her blog post, “Financial Inclusion in 2018: BigTech Hits Its Stride,” BigTech companies like Ant Financial and Tencent are poised to continue their success this year.

The typical WeChat wallet user is now spending more than RMB 500 (~$75) per month.

Behind this success is Ant Financial’s and Tencent’s mastery at discovering new opportunities to offer existing users more and better services. Since the beginning, both companies have seen payments as a means, not an end.

Consequently, Ant Financial and Tencent are not pure payments businesses. They manage payment services that help users transact across a myriad connected services. This dynamic has helped guide these businesses to finding more mobile payment use cases, in turn creating higher usage among both customers and merchants.

As a result, Alipay and WeChat have, in many ways, become gold standards for mobile payment providers worldwide. For telco or alternative mobile payment models that have done well to provide access to millions of unbanked clients, there are clear lessons to be learned from China’s experience in creating demand-based usage.

What can a mobile wallet enable users to do? China has come up with some innovative answers.

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