Consumer insights from Bangladesh Is a Transition to Mobile Wallets Underway?

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Greg Chen & Pial IslamMarch 2014

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Summary: the Bangladesh market in transition

Bangladesh is one of the fastest growing mobile financial service (MFS) markets globally . It added over 10 million new accounts in 2013 and grew transaction volumes to nearly $900 million per month. The market is dominated by a single provider bKash, a subsidiary of BRAC Bank.

There are patterns among early MFS adopters. There are a wide range of early adopters but there is a tendency to be young, a student, proficient in English, and better educated. Only a small portion of MFS users were already users of conventional banking services. The early adopters use MFS predominantly to send or receive money within their families and most transactions are small at about $US40.

The use of MFS remains new. Most users have begun to use MFS only in the prior 12 months. Most use over-the-counter (OTC) transactions to make fund transfers rather than use their own wallets. OTC is valuable, convenient and instant. But client use of their own wallet remains a critical objective since it serves as a store of value, basis for long term relationship, a way to deliver products beyond payments and building a banking track record.

There is a transition of users who shift to wallets, but it is gradual. The pathways to wallet use vary. About half of wallet users began with OTC before shifting. Some wallet users shifted from Post Office or informal Courier fund transfer services. The transitions to wallets are very recent with one half of wallet users having adopted wallets only in the prior 3 months. Even as a transitions is underway, there will be a significant portion of OTC users who may transition to wallets slowly or not transition at all.

There is more providers could do to make wallets more attractive and lower barriers to use . The biggest challenge is the absence of a strong or clear value proposition for wallets. OTC is popular because it is easy, fast and convenient. Many prefer to avoid the hassle of wallet opening and agents are not incentivized to promote wallet use by clients. Providers ought to consider various measures to increase wallet use: better targeting of market influencers as users, changing the incentives for agents, offering more value/services and adjusting pricing.

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Contents

I. Mobile Financial Services (MFS) in Bangladesh

II. Research Methodology

III. MFS Users and Use Patterns

IV. Is There a Transition to Wallets Underway?

V. Pathways to Greater Value and Use of Wallets

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Part I: MFS in Bangladesh

Mohammad Moniruzzaman, 2009 CGAP Photo Contest

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Extraordinary growth in Bangladesh

cash-in (42%)

+

cash-out (40%)

+

wallet-to-wallet (17%)

+

other (1%)

Jan Feb Mar Apr Sept Oct Nov Dec0

100

200

300

400

500

600

700

800

900

2013 Transaction Volume ($US Millions)

Source: Bangladesh Bank Payments Department

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Primary market players

28 Banks Licensed

Only 3 with noticeable market presence- bKash (subsidiary of BRAC Bank)- Dutch Bangla Bank- Islami Bank

bKash dominates generating large majority of business volume, clients, and agents

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Bangladesh – emerging global leader but lagging wallet usage

Source:  InterMedia Financial Inclusion Insights Program, Bangladesh Survey Fall 2013

Pakistan 2013

7% Mobile Money Users

0.4% Registered Users

Bangladesh 2013

22% Mobile Money Users

3% Registered Users

Uganda 2013

43% Mobile Money Users

29% Registered Users

Kenya 2013

76% Mobile Money Users

68% Registered Users

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Bangladesh - early high use of unregistered OTC

Registered15%

Unregistered85%

Percentage of mobile money users with regis-tered accounts

Base n=1,267 MM users

Source:  InterMedia Financial Inclusion Insights Program, Bangladesh Survey Fall 2013

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Why we care about OTC and wallet use

Over-the-counter (OTC) …….are transactions that happen where clients do not use their own registered accounts but rely on the agent to make a funds transfer. OTC is fast, reliable, and there are many agents to choose from. However, OTC is a one-time transaction and no wider relationship is built between provider and client. The value for clients and providers is thereby limited.

Wallet use over time is critical…..

• Establishing deeper relationship with clients• Generating float• Providing a means for providers to retain customers• Serving as a gateway for savings, credit, insurance• Building transactional records to predict needs & manage risk

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Part II: Research MethodologyMd Farhad Rahman, 2013 CGAP Photo Contest

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Un-banked payments behavior driven by choices available

ATMs• 5,248

Informal Courier Services• 6,000 Outlets (Estimated)

Bank Branches• 8,427 Outlets

Post Office• 10,000 Outlets

Mobile financial service agents• 188,000 (but a lot of double counting)

(Source: Bangladesh Bank)

Options for the un-banked

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This research set out to answer three questions

1. Who is using MFS?

2. What do they use it for?

3. How can providers build a better pathway to greater wallet use?

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Definitions

OTC

Neither sender nor receiver uses their own wallet during the transaction

Partial OTC

Either sender or receiver uses their own wallet during the transaction

Wallet

Both sender and receiver use their own wallet during the transaction

SENDER

Account

RECEIVER

Account

AccountAccount

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Research methodology August 2013 to January 2014

Interview guide of 60 close-ended questions with interviews lasting 30 minutes. Cue Cards used to

test numeracy and English proficiency.

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Research sample: MFS users 440 = 361+79(plus 20 from Courier and 20 from Post)

361Purposive (random)

SamplingTargeted Sampling

79

bKash & Dutch Bangla Bank provided sample + Snowballing

OTCPartial OTC

WalletPost

Courier Wallet

40

16GMB Akash, 2011 CGAP Photo Contest

Part III: MFS Users and Use Patterns

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MFS users: younger, male dominated, both urban and rural

Illite

rate

Class

5

Class

8

Secondar

y

High s

chool

Diplo

ma

Bachel

ors

Mas

ters

4%

9%12%

20%

29%

4%

15%

7%

Education

15 to 25 26 to 35 Above 35

52%

35%

13%

Age

Senders Receivers

Male 40% 40%

Female 6% 13%

Senders Receivers

Urban 22% 23%

Semi-Urban 11% 9%

Rural 14% 21%

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MFS users: multiple occupations and a range of income levels

Stude

nt

Servic

e ho

lder

Smal

l trad

er

House

wife

Shopk

eepe

rs

Petty

trade

r

Labo

rer

Driver

/CNG D

river

Unem

ploy

ed

Self-e

mpl

oyed

Farm

er

32%27%

11%9%

6% 5% 3% 3% 2% 1% 1%

Occupation

0

1 to 37

37+ to 75

75+ to 112

112+ to 150

> 150

0% 5% 10% 15% 20% 25% 30% 35%

Monthly Income ($US)

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MFS users: heavily under-banked and excluded

8%

92%

Outstanding Loan

33%

67%

Bank account

None Yes

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MFS users: predominantly basic handset

Total Sample (n=440)0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Smart Phone

Feature Phone with Monochrome Display

Feature Phone with color display

≈ $US 50

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MFS users: few wallet users found at agents

361 random clients found at agents, of these 3% came to transact with their

own walletsUse

Wallets (n=10)

Have Wallets (n=96)

Total Random Sample (n=361)

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MFS transactions: smaller transaction size

Courier Service Post Office Mobile Financial Service

210

6342

Average Transaction Size ($US)

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MFS transactions: between family members

Courier PO OTC Partial OTC Pure Wallet0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%100%

75%

86%81%

90%

Transaction Within the Same Household

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Part IV: Is There a Transition to Wallets Underway?

Bir Azam, 2013 CGAP Photo Contest

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Case study: initial transitions to MFSUsing MFS for first time; transition accelerating over the past 6 months

Before 1 year 6 month- 1 year Last 6 month

100%

70%

25%

0%

30%

75%

Funds transfer choices(# of transactions)

Hand to hand Pure OTC

LipiGarments Worker

Monthly Income: $62

Education: Class 5

Perceived Value of MFS:Instant transfer

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Case study: more advanced MFS userUses wide variety of payments; with recent shift towards partial OTC and wallet use

SajjadEntrepreneur

Monthly Income: $250

Education: Class 8

Perceived Value of MFS:Safe keeping of funds,

flexibility

Before 1 year 6 month to 1 year Last 6 month

70%

60%

50%

30%

20% 20%

0%

20%

15%

0% 0%

10%

0% 0%

5%

Funds Transfer Choices(# of transactions)

By hand Courier Pure OTC Partial OTC Pure Wallet

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Pathways to wallet use41 new wallet users September to November arrived through variety of pathways

More than 3 months(Pre Sep)

Prior 3 Months(Sep to Nov)

At time of survey(December)

Pure OTC

Partial OTC

Pure Wallet

Courier

PO

41*

12

4 14

3 8

8

4 7

2 2

53

2

3

22Hand-to-hand 7

8 7

1

1

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Pathways to wallet use41 new wallet users September to November arrived through variety of pathways

Mobile financial services are very new to most users: before September 2013 more than half relied on hand-to-hand cash transfers, and about one-third either Post Office or Courier services.

OTC is a close substitute to fund transfer systems many already know. The OTC agent and fund transfer mimics what clients know about Post Office and Courier services. MFS are initially seen as a replica of these existing services. The role of wallets is not initially well understood.

The transition to wallets takes multiple pathways. About one half use OTC before shifting to wallets. The other half came directly from either Post Office or Courier services. No one came directly from hand-to-hand transfer to wallet use directly.

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Early adopters of wallets: earn more, younger, educated, English

Courier PO OTC Partial OTC

Pure Wallet

121 106

89 105

133 Average Monthly Income

$U

S

Courier PO OTC Partial OTC

Pure Wallet

0%

20%

40%

60%

80%

100%

Age 15-25

Courier PO OTC Partial OTC

Pure Wallet

0%

20%

40%

60%

80%

100%

More than Grade-10

Courier PO OTC Partial OTC

Pure Wallet

0%

20%

40%

60%

80%

100%

Read English

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Barriers to wallets: value proposition and account opening

I don't require it It seems complex to me

Does not know how to open an account

Its time consuming0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Question to non-wallet users“Why haven’t you considered a Mobile

Banking Wallet?”

Note: beyond the 4 primary responses to the open-ended question the balance of responses included more than 20 wide ranging reasons associated with new services. These included rationales such as: not enough knowledge, no ID, and concerns with security.

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Barriers to wallets: trust is not a barrier

Courier 3% PO 6%

OTC 26%

Partial OTC 10%

Wallet 55%

Which money transfer mode do you trust most? (n=480)

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Barriers to wallets: agent charges are not a barrier to wallet use

OTC Partial OTC Pure Wallet0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

“I am not happy with what agent charges”

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Barriers to wallets: agents over-charging not a barrier

16% (n=440) paid extra charges

OTC

Partial OTC

Pure Wallet

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other Reported Problems:

• Lost Funds for Technical Errors (0.4% reported)

• Lost Funds to Fraud or Misappropriation (0.4% reported)

• Had Money Sent, but Not Delivered (1.7% reported)52 out of 208

12 out of 143

6 out of 89

Unauthorized fees charged by agents

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Barriers to wallets: agents promote wallet opening but not use

Agents are incentivized to open wallets by earning fees.

But there does not appear to be a strong incentive for agents to promote wallet use.

49%

34%

16%

Agent encouraged me to USE a Wallet

Disagree Neutral Agree

17%

29%54%

Agent encouraged me to OPEN a Wallet

Disagree Neutral Agree

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Barriers to wallets: OTC seen as easier, less-costly and instant

Instant

Trustworthy

Cost Effective

Easy to Use

Reasons they prefer OTC or Wallet (%)

OTC (n=208) Wallet (n=89)

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Part V: Pathways to Greater Value and Use of Wallets

Sumon Yusuf, 2013 CGAP Photo Contest

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• Women or men?• Senders or receivers?• Poor or less poor?• Courier or Post

users?• Less well educated?

Can promotional campaigns be more efficient and effective?

Industry responses: identify early adopters or influencers?

Mohammad Moniruzzaman, 2009 CGAP Photo Contest

Which early adopters might also influence others to use wallets?

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• Build easier to use interface?

• Position “coaches” to help new wallet users?

• Find use cases beyond intra-family transfers: merchant payments, salary, G2P, microfinance?

• New products: savings, credit, clean water, solar power?

Industry responses: strengthen the value proposition of wallets?

Forhad Kamaly, 2013 CGAP Photo Contest

Wallets need to offer a more compelling case. Is this about savings, more frequent transactions, easier customer interface, Bengali language, easing daily life, and/or lowering cost?

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Aligning incentives:

- Share float revenue?- Deferred fees linked

to clients wallet use?- Change in pricing on

cash-in and out?

Industry responses: better align agent incentives?

KM Asad, 2013 CGAP Photo Contest

OTC is good business and wallet use could undermine the agents’ ability to earn fees.

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One possible combination to test?

1. Allow OTC but make more expensive than wallet use

2. Require clients phone to be physically present for cash-in (monitored with mystery shopping and recording phone number in register)

3. Reduce fees on cash-out and shift fees to P2P transactions

Industry responses: pricing and rules changes?

Arifur Fahman, 2012 CGAP Photo Contest

The fees paid (formal and informal) between wallet and OTC are similar – most fees are on cash out. Little price advantage to wallet use.

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Advancing financial access for the world’s poor

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