It is time to emphasise the governance and transparency of digital financial services

Representational image of digital payment. Illustration: TBS

Bangladesh has embraced a transformative economy over the last decade, putting users at the core of value creation and prioritising their preferences at the centre of policy formulation for change. This transformative political ambition is evident in the rapidly changing dynamics in the financial sector of Bangladesh.

Till 2010, anyone seeking formal financial service had to travel to the nearest town to find a bank branch and a product that suited his or her needs. This was time-consuming, costly and sometimes mismatched to the service they were seeking. They had to queue in long lines for a long time to receive service as basic as transfer of funds or pay bills for utilities. 

However, it all started to change around the second decade of the 21st century when mobile financial services (MFS) were introduced in Bangladesh. Though it took some time before gaining momentum, digital payments and transactions, including paying for goods and services, became a convenient and effective means during the Covid-19 pandemic. 

Readily available MFS platforms provide customers with easy and fast solutions for receiving and making payments and financial transactions. The pandemic helped people and policymakers realise the significance and advantages of cashless transactions and how digital wallet gives people authority over their money. 

Bangladesh Bank data shows over 198.09 million MFS accounts as of March 2023, indicating the population's rapid adaptation to digital services. A further breakdown shows that about 55% of these accounts belong to people living in rural areas with limited banking services. 

Besides, of the total MFS accounts, over 80 million, or roughly 40%, are owned by women. This is a testimony to the positive user experience on which the rapid growth of MFS is building their user's need-driven financial service and accelerating the rate of financial inclusion of the unbanked population. 

These MFS are also helping a segment of the population and micro-enterprises to create and add value to the economy. Currently, average transactions through MFS platforms stood at Tk3497 crore per day as of March 2023, with the number of daily transactions surpassing Tk1.55 crore. In March 2023 alone, transaction amount through MFSs reached over Tk108000 crore, registering 21.76% year-on-year growth. 

The central bank data also shows that the transactions in all segments through MFS have been growing significantly. For instance, Utility Bill Payment (P2B) through MFS grew by 44.73% yearly, while merchant payments grew by around 32.82% as of March 2023. Another new segment, inward remittance through MFS, has seen a staggering 97.15% year-on-year growth in March 2023. 

In the early days of MFS, transactions were limited to just sending money, cash in and out, and mobile recharge. But now, MFS offers a diverse range of payment options. 

For instance, the country's MFS market mover bKash, has rolled out innovative products like digital nano-loan, savings, instalment payments, salary disbursement, insurance payment, bringing cross-border remittance, etc., that have been incredibly instrumental in developing a digital payment ecosystem in the country.

It is noteworthy that MFS like bKash hugely benefitted from the political commitment and policy ecosystem developed in the first decade of this century. Notably, their business gained momentum thanks to the economic progress Bangladesh's economy has made during the past decade in line with the government's vision of Digital Bangladesh, the 8th Five Year Plan, Agenda 2030, Bangladesh Perspective Plan 2041, and other progressive policies.

The digital payments roadmap has identified some priority areas to facilitate digital payments. It has reduced customer service costs and saved time, introduced new use cases and business models, superior payment solutions and infrastructure, citizens' data protection and trust in digital financial services. It has also reduced the demand-supply gap in accessing finance for women, CSMEs (cottage, small and medium enterprises) and the elderly population, and outcome-based financial and digital capacity-building mechanisms. 

Nevertheless, there is still room to integrate digital payment systems in education, health, agriculture, salary disbursement, credit disbursement, etc. Awareness building on the diversified, productive, and safe use of digital financial tools and platforms, along with digital and financial literacy, will enhance the capacity of the users to take full advantage of the opportunities created by the Government of Bangladesh over the last decade. 

Bangladesh will soon become a trillion-dollar economy, as predicted in a recent report by Boston Consulting Group (BCG). To achieve that goal smoothly, the policies must be pragmatic, executable and forward-looking. To ensure the inclusivity of policies, the accuracy of national-level data is crucial to assist financial service providers and innovators in designing solutions specialised for women, underprivileged communities, small and micro-entrepreneurs, and elderly populations.

As Bangladesh races towards fully embracing transformative economics in its development and political paradigm, it is now time to emphasise the governance and transparency of digital financial services. While the opportunity for value creation, value addition and positive user experience will ensure the economy's future growth, failure to ensure transparency will greatly hinder achieving the goal of a transformative economy.  

Sketch: TBS

Dr Shaikh Eskander is a Visiting Fellow at the Grantham Institute, London School of Economics, UK.

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.