Sunday, November 16, 2014

Bangladesh Pioneering Unique Models & Innovations for Agent Networks

Earlier this year, the Helix Institute of Digital Finance conducted a nationally representative survey of 2,800 mobile money agents in Bangladesh, coupled with qualitative interviews across the country. The 2014 Bangladesh Country Report provides insights into some of the unique models and innovative techniques players in this country have designed to develop an agent network of more than 80,000 agents in under four years.
Unique Leadership in the Market: No Telecoms
The report finds that bKash—a third party provider majority owned by BRAC Bank Ltd, managed by Money in Motion LLC with equity investments from The International Finance Corporation (IFC) and the Gates Foundation—dominates the digital financial services space with 50% of the agents offering their services.  They are followed by the Dutch Bangla Bank Ltd. (DBBL—28%), United Commercial Bank Ltd. (UCash- 14%) and Islami Bank Bangladesh Ltd. (mCash – 6%).  

Beyond the burgeoning competitive landscape in Bangladesh, it is intriguing that none of the above players are telecoms.  Thus far we have seen the majority of the success in the digital finance space lead by telecoms who have large marketing budgets, national networks of retailors already serving them, and usually tens of millions of customers they can entice to register for digital finance.  In Bangladesh the regulation stipulates that telecoms are not allowed to brand their own digital finance services, which has given the opportunity to banks and third party providers like bKash.  This is strong evidence that players other than telecoms can scale agent networks in digital finance.

Distinctive Agency Demographics: Non-dedicated and Male
The different types of institutions leading market growth in Bangladesh are also making distinctive decisions about the demographics of their agent network.   In Bangladesh almost all agents (96%) have pre-existing, parallel businesses in addition to the digital finance service they provide (they are “non- dedicated” to the DFS business). As the below chart shows, this is very different to the leading DFS markets in East Africa, where many more agents are completely dedicated to the DFS business.  Generally, these types of agents can only exist in markets where transactions per day and therefore profits are relatively high, which therefore sustain the entire business.  Hence we might see a move towards more dedicated professional agents, if profits increase in Bangladesh in the future.  Another difference worth highlighting, is that while the majority of agents across East Africa are female, in Bangladesh 100% are male.  More research will have to be done to uncover both the drivers and the implications for customer uptake and usage of this gender difference.

Different Business Model Viability: Low Transactions and Profits
Median monthly profitability ($51) as compared to the leading East African Countries is low, and is a result of low transactions per day for agents.  However, 96% of agents are profitable, driven by very low median operational costs. When asked what the biggest barrier is to conducing more transactions, agents most commonly cited there are too many other agents competing for business, which is often an indication that focus must be shifted towards acquiring more customers, and encouraging them to transact more often.  
Innovation: Liquidity Management
Bangladeshi service providers have created an innovative system to tackle the prevalent issue of liquidity management.  Most agents have their cash and electronic float delivered to them at their outlets, mainly by a ‘runner’ who is an employee of master agent (referred to locally as a distributor or aggregator).  As a result, the frequency of rebalancing (both cash deposits and withdrawals) is higher in Bangladesh than in East Africa. In Kenya, for example, agents do a median of just four cash deposits and three cash withdrawals per month as compared to a median of 12 cash deposits and ten withdrawals in Bangladesh.  As a result, Bangladeshi agents report denying a median of zero transactions daily due to lack of liquidity, in comparison, Tanzanian agents deny a median of five transactions each day, which is equal to 14% of their median daily transactions.

Summary: The Market View
Bangladesh is showing impressive results, and is finding unique ways of achieving them given the different operating environment there compared to those of the pioneers in East Africa.  There are definitely some challenges ahead in terms of increasing transactions and therefore profits at the agent level.  However, it is also important to note that with a liquidity management system that rebalances on demand, and agent demographics where almost everyone has a core business operating in parallel to the digital finance services they are providing, this might be much less important than it is in East Africa.  Further, many transactions in Bangladesh are done over the counter (OTC) and therefore only partially captured by the above statistics.  While this means the transactions and profits might be higher in Bangladesh this OTC system usually does not involve the required KYC verification, is not permitted, and therefore represents much more of a risk to the growth and functionality of the system than profits.  This topic will be discussed in future blogs.

- Maha Khan & Mike McCaffrey

Mike McCaffrey is a Principle Consultant – Strategic Operations for Digital Finance at MicroSave, and Maha Khan is a Senior Research Manager - Digital Financial Insights at MicroSave. Both Maha and Mike’s work at MicroSave is focused around The Helix Institute of Digital Finance. Founded in November 2013 as a partnership between MicroSave, the Bill and Melinda Gates Foundation, the International Finance Corporation (IFC), and the UN Capital Development Fun (UNCDF)The Helix Institute of Digital Finance provides world-class training and cutting-edge  data to digital finance practitioners. For more information visit our website

Read The Helix Institute’s Bangladesh report in full here:' Agent Network Accelerator Survey: Bangladesh Country Report 2014'
Note: The blog was originally posted at Mobile Money Asia has agreed to cross promote the blog at the request of the authors. 

1 comment:

  1. I'd suggest 80,000 agents is actually twice as many as there should be; but conscious every implementation is different.

    Wing in Cambodia aims at what it believes is the sweet spot of one agent per 3,000 adults for its current stage of growth. This results in 2,500 Wing Cash Xpress outlets for Cambodia. Having too many agents impairs the profitability of the network, leading to agents who do not feel incentivized to focus on quality service. They will turn customers away, over charge customers (particularly OTC which is hard to catch), or be tempted to develop intricate fraudulent transactions to generate income. The number of outlets must be balanced very carefully.

    Without knowledge of Bangladesh specifically, the comment of too many competing agents also suggests agents are too close to each other. To combat this in Cambodia, strict spacing requirements are imposed & tracked via GPS coordinates to ensure Sales staff are not able to cheat the paperwork - spacing is crucial.

    During the 'growth' phase, a 'master' agent network does prove useful if incentivized; but ideally the long term structure should be totally flat. Having 'runners'or worse still, company staff, handling cash is a huge risk and open to abuse. One often overlooked yet crucial element of Mobile Money is that agents will generally rely on the use of traditional MFI & bank networks to manage their liquidity (cash & digital) properly. In Wings case, the company bears the cost of such transactions; the big banks do the heavy lifting of cash, but is something that a mobile money company might need to take on if bank fees are exorbitant.

    With the right distribution you should see agents becoming dedicated as Mobile Money income eclipses anything their traditional business generates (unless they add staff to cope with both) - wing agents generally become full time dedicated mobile money outlets, and add staff as they hit 300+ transactions per day.

    Crucially, once agents hit significant income, they become a dream to manage. With a zero tolerance approach to poor customer service, agents stand to lose a huge amount with just the smallest mistake - consequently they will raise their game and become an extension of the staff, living the company values and effectively self policing.