Can Fintech in Bangladesh Catch Up with its South Asian Neighbours?

Can Fintech in Bangladesh Catch Up with its South Asian Neighbours?

by March 21, 2023

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

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

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

Additionally, digital personal finance platforms have made managing finances, accessing credit, and making investments easier and more secure for users. These platforms have significantly contributed to the financial inclusion of the unbanked population in Bangladesh, allowing 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 needing a physical bank visit. 

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

Fintech in Bangladesh

This figure represents a 16 percent rise 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 spearhead 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 bolstering financial inclusion by providing mobile financial services.

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

Bangladesh’s digital payments segment

The digitalization of government payment streams has been instrumental in propelling the shift toward digital payments in Bangladesh. In an effort to enhance financial inclusion and reduce transaction costs, the government has actively promoted the adoption of digital payments across various income groups and geographical locations, making them more accessible to a broader population.

Market projections indicate that the digital payments segment in Bangladesh is poised to experience a substantial growth rate of 18.78 percent between 2023 and 2027, with digital investment anticipated to reach US$77.87 billion in the next five years.

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

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

Bangladesh Digital Payments Roadmap

Over the past decade, the government of Bangladesh has prioritized investment in the nation’s digital infrastructure, launching the Digital Bangladesh vision. Currently, Bangladesh holds the 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 the responsible and inclusive growth of digital payments adoption, aiming to create an enabling environment by fortifying the digital infrastructure, enhancing financial literacy, and fostering innovation in the fintech sector.

Fintech in Bangladesh

The roadmap outlines several vital initiatives to achieve these objectives, such as developing digital payments standards and guidelines and expanding digital payments acceptance infrastructure.

These initiatives are intended to address the challenges that have impeded the growth of digital payments in Bangladesh, including the lack of digital infrastructure in rural areas, the need for increased cybersecurity measures, and creation of a more conducive regulatory environment.

Challenges for fintech growth in Bangladesh

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

Firstly, 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 portion of the population underserved.

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

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

Lastly, there is a need for a more conducive regulatory environment to encourage innovation and investment in the sector. The absence of clear, consistent, and comprehensive regulations can create uncertainties, hindering the entry of new players and the adoption of innovative solutions. The regulatory framework needs to be optimized to support the rapid evolution of fintech in Bangladesh fully.

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