Can Fintech in Bangladesh catch up with its South Asian neighbours?

In recent years, Bangladesh has seen rapid growth in its fintech sector, fueled by the widespread use of mobile technology. This has enabled financial services to reach millions of previously unbanked citizens, leading to a remarkable increase in financial inclusion over the past five years.

According to the SDG Cell at the Bangladesh Bureau of Statistics, 79 percent of adults in the country now has access to formal financial services, and one in five financial transactions is carried out digitally.

Not only has the fintech sector in Bangladesh experienced growth in the mobile payment industry, but the personal finance and remittance segments have also seen significant progress. Mobile money transfer services have emerged as a more accessible and cost-effective means of transferring money domestically and internationally, for the benefit of migrant workers and their families.

In addition, digital personal finance platforms have made managing finances, accessing credit and making investments easier and safer for users. These platforms have significantly contributed to the financial inclusion of the unbanked population in Bangladesh, enabling them to improve their financial well-being.

The backbone of Bangladesh’s fintech sector

The Fintech landscape in Bangladesh is primarily driven by Mobile Financial Services (MFS). This strategic approach enables consumers in remote areas to access banking services via mobile phones without the need for a physical bank visit.

During the Covid-19 pandemic, MFS experienced a noticeable increase in utilization in Bangladesh. As a result, the country registered 85 million MFS accounts. By July 2022, the number of MFS accounts had increased to over 181 million, with 13 MFS providers currently operating in the country.

This figure represents an increase of 16 percent from the previous year, with bKash, Nagad, Rocket and SureCash leading the way with market shares of 39.9 percent, 18.1 percent and 11.7 percent respectively.

In Bangladesh, unlike more advanced economies, banks are at the forefront of the fintech revolution. The central bank has played a crucial role in facilitating this transformation by issuing guidelines and granting permits to 28 financial institutions, all aimed at strengthening financial inclusion by offering mobile financial services.

Bangladeshi fintech companies also offer various services, which include digital payments, peer-to-peer lending, wealth management and insurance. In addition, there is a growing demand for fintech solutions tailored for the agricultural sector and small and medium-sized enterprises (SMEs).

Bangladesh’s digital payment segment

The digitization of public payment flows has been instrumental in driving the shift towards digital payments in Bangladesh. In an effort to improve financial inclusion and reduce transaction costs, the government has actively promoted the use of digital payments across different income groups and geographic locations, making them more accessible to a wider population.

Market forecasts indicate that the digital payments segment in Bangladesh is poised to experience a significant growth of 18.78 percent between 2023 and 2027, with digital investments expected to reach USD 77.87 billion over the next five years.

BRAC Bank’s subsidiary, bKash, dominates the digital payment industry, and has a market share of 80 percent. As Bangladesh’s pioneer unicorn, bKash has secured a valuation of $2 billion and received investments from the likes of Softbank and Ant Group. By providing a simple, reliable and cost-effective platform to transfer and receive money, pay bills and buy mobile phones, bKash has contributed to financial inclusion in Bangladesh.

Launched in 2018, Nagad is another prominent mobile financial services and digital wallet provider in Bangladesh. As an initiative of the Bangladesh Post Office (BPO), Nagad offers various services including mobile banking, digital wallets, money transfers, bill payments and money transfers.

Bangladesh Digital Payments Roadmap

Over the past decade, the government of Bangladesh has prioritized investment in the country’s digital infrastructure, launching the Digital Bangladesh vision. Currently Bangladesh holder 78th ranking on The Global Fintech Index.

A roadmap has been developed to guide the expansion of digital payments in the country, called the National Digital Payments Roadmap 2022 to 2025. This roadmap emphasizes responsible and inclusive growth of digital payments, with the aim of creating an enabling environment by strengthening the digital infrastructure , improve financial literacy and promote innovation in the fintech sector.

The roadmap outlines several important initiatives to achieve these goals, such as the development of digital payment standards and guidelines and the expansion of infrastructure for digital payment acceptance.

These initiatives are intended to address the challenges that have hindered the growth of digital payments in Bangladesh, including the lack of digital infrastructure in rural areas, the need for increased cyber security measures and the establishment of a more favorable regulatory environment.

Challenges for fintech growth in Bangladesh

Despite the significant growth of the fintech sector in Bangladesh, there are still several challenges that need to be addressed to ensure sustained growth.

First, the lack of digital infrastructure in rural areas significantly hinders the reach of mobile financial services. Inadequate internet connectivity and limited access to digital services can limit the expansion of fintech solutions, leaving a large part of the population underserved.

Secondly, a lack of financial literacy among the population can hinder the introduction of fintech services. Many potential users may be unfamiliar with digital financial products and services, leading to slower adoption and limited impact on financial inclusion.

In addition, there is a need for increased cyber security measures to ensure the safety and security of transactions. Protecting consumer data and maintaining the integrity of digital financial systems are critical, but the current state of cybersecurity in Bangladesh remains inadequate to address these concerns.

Finally, a more favorable regulatory environment is needed to encourage innovation and investment in the sector. The absence of clear, consistent and comprehensive regulations can create uncertainty, prevent the entry of new players and the introduction of innovative solutions. The regulatory framework needs to be optimized to fully support the rapid development of fintech in Bangladesh.

Meeting these challenges requires a collaborative effort from stakeholders across the industry. By overcoming these challenges, Bangladesh can harness the full potential of fintech to increase financial inclusion and drive economic growth.