Competition in MFS industry: Price wars could destabilise sustainable growth

Every growing industry sees lots of new and old players in the market. Along with them comes competition. One such industry in Bangladesh is the Mobile Financial Services (MFS) sector. 

With a massive contribution to the economy of Bangladesh, especially during and after the Covid-19 pandemic, the MFS industry is growing each year with the introduction of innovative services, novel customer segments and of course, the entry of new players. 

While passing judgement on any industry regarding the competition that lies within, it is essential to find the pain points existing within the sphere of the industry. 

MFS began with the purpose of serving the unbanked and underserved customers and then grew into an all-encompassing platform of daily financial transactions for all. 

Given a diverse target group, the MFS providers have to come up with innovative services each year. Starting from Cash-In and Cash-Out service, MFS providers have branched out to include mobile recharge, merchant payment, bill payment, bank-to-bKash fund transfer and vice versa, person-to-person Send Money, inward foreign remittance, savings, and Digital Nano Loan. 

When a platform serves a diverse customer base, it becomes crucial to protect its funds. Despite large-scale innovation, the majority of the MFS customers lack digital literacy. Given this situation, all the MFS providers are unable to diversify their product ranges, as with each new product introduction comes new risks. 

The product range in the MFS industry indicates the number of products and services offered by a particular provider. As the MFS industry of Bangladesh is dependent on mobile phones (USSD and App), customers look for convenience in receiving the most number of services on one platform given the quality of service remains satisfactory over the years. 

The regulators, Bangladesh Bank and BFIU, have given directives that help the providers keep their platforms risk-free, compliant and trustworthy for the customers. While new players are entering the sphere, new service requirements have emerged as well. For instance, financial relief packages have been distributed by the government to the people in need during the pandemic through MFS.

For the MFS practitioners, it is important to remember that the cost of non-compliance is far more expensive than the cost of compliance. Therefore, they must prioritise the protection of customers' funds. 

On top of the competition, the major concern is ensuring compliance practice. Breaches of privacy and compliance protocols can lead to the loss of faith of customers. 

MFS providers serving the customers with the highest numbers of services in a compliant, seamless way can ultimately fulfil the vision of inclusive finance. Uninterrupted and compliant services require the providers to bear certain costs, and there can be no scope of compromise to maintain the quality of services. 

Nascent providers can easily capture the customers' attention by charging relatively lower prices. However, more often than not, it may destabilise a growing, established market while reaping short-term goals. 

The MFS sector in Bangladesh has been revolutionising the way citizens do financial transactions while creating new employment opportunities in Bangladesh. In only 11 years, an entire ecosystem has sprouted into life.

Illustration: TBS

Key players of the MFS supply chain like agents, distributors and merchants carry out a considerable amount of responsibilities in keeping the MFS platforms functional. The country-wide agent network, dispersed from Teknaf to Tetulia, is the strong pillar that the MFS industry is standing on. 

Wherever a Bangladeshi citizen travels, an MFS agent can be found within walking distance. Without the proper incentives, the effort of the distribution channel partners will not remain the same. 

The sanctity of the MFS platform cannot be maintained without the delivery partners adopting risk-appropriate measures such as compliance practice, training, and adopting new technological barriers against fraud, which is costly. Proper incentivising of these key players has, to a great extent, led to the growth of this sector. 

The MFS industry is more than a decade old now. And certain price points in the supply chain are maintained to ensure that the involved parties keep operating. 

Sudden deviation from that price point in an economy of growing inflation can certainly make the supply chain partners lose interest in working within the same industry. 

Cheaper services can certainly be provided by depriving them, enabling the service providers to gain more customers. However, it makes good sense for the sustainable business model to take care of not only the customers but also the service partners of an ecosystem. 

Eventually, if MFS providers go out of business due to the lack of cooperation from all relevant stakeholders and lack of profitability, the worst sufferer would be the millions of customers who depend on this service for their daily lives, and the country's economy at large. 

Proper monitoring of business practices is key to ensuring fair and healthy competition among providers. Uniform audit of all the participants, taxation on the involved parties and their compliance with regulations - these aspects are essential to evaluate while measuring the competition. The legislative framework and the regulatory functions, exist for all the players in the market. 

Hence, no single player has the scope to push the boundaries of the market in a non-compliant manner for their benefit. Likewise, the competitive environment in the MFS industry should be based on uniform compliance practices, and research on the best practices. 

That being said, one should not make remarks on allegedly questionable practices based on cursory reading. Otherwise, the narrative consisting of imaginary barriers, distorted competition in the market, unfair advantage of suppliers etc. can evolve as marketing propaganda against selected entities which can lead to counterproductive, unfair commentary regarding one of the most successful industries of our country. 

At the end of the day, 'for-profit organisations' cannot provide a service as a charity. Without the proper incentive, the business of the MFS industry does not work. 

While analysing the success and failure of this industry and its different players, it should always be on top of everyone's mind that the lack of proper incentive discourages the participants of every business ecosystem from providing compliant, quality service. Making generic reporting on an entire industry without thorough analyses of all aspects may be detrimental to the sustainable growth of the industry.

Major General (retd) Sheikh Md Monirul Islam, is the Chief External & Corporate Affairs Officer of bKash. 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.