Mobile Wallets: Is a Transition Underway in Bangladesh?

Let me begin by introducing Mushtaque (not his real name), a rickshaw driver in Dhaka, Bangladesh’s capital, who I’ve known and ridden with for a few years. When I saw Mushtaque last month he had been operating a mobile phone wallet for 5 months. Over that span he had saved up $75; equivalent to half the price of his rickshaw. This is an encouraging story, but I will return to Mushtaque and show why his wallet use is not as simple as it might initially appear.

A man fixes a wheel on a rickshaw

In Bangladesh, over-the-counter (OTC) transactions usually happen as a person-to-person transfer arranged between a sender and receiver. The sender and receiver each use an agent to complete the electronic transaction. The two agents involved can make these transactions happen in a variety of technical combinations (most often as cash-in transfer of value to an account or a cash-out from an account). Such an approach requires an agreement between four parties: sender, sending agent, receiving agent and the receiver. We do not understand well why this appears to be quite common in Bangladesh.

Nadeem Hussain recently blogged about the unexpected use of OTC transactions in Pakistan. Bangladesh too has its unexpected share of OTC transactions, but It is difficult to estimate the precise proportion. After research conducted this spring, Pi Strategy estimated that at least half of Bangladesh’s mobile transactions volume was via OTC. Indeed, use of OTC transactions is significant enough that Bangladesh’s central bank issued a circular in September discouraging mobile payments by individuals without a mobile account. But it is likely that market dynamics will shift in Bangladesh, now in its third year of mobile banking deployments, especially as the use of e-wallets continues at a high pace - maybe even reaching 10 million by the end of the year, or nearly 1 for every 15 inhabitants.

Pial Islam of Pi Strategy in Bangladesh argues that the time required to open an e-wallet account is a big part of what drives people towards OTC transactions. Another factor is that the OTC transaction via mobile is similar to the already existing pattern of payments that occur through couriers or post offices: clients likely see mobile as another way to do the same thing. Finally, agents just seem to like doing OTC transactions. But we do not fully understand the drivers.

The central bank of Bangladesh and its mobile financial service providers in Bangladesh are pushing for a transition where existing OTC users shift over to pure e-wallet use. The aim is to do this with a variety of mechanisms: explicitly clamping down on agents offering OTC, opening new e-wallet accounts, and continuing a customer awareness campaign on maintaining the privacy of transaction. CGAP, along with with Pi Strategy, is undertaking research to understand why such transactions are happening and who uses which kind of service.

But let’s come back to Mushtaque the rickshaw driver to see how his experience may explain some of the challenges of e-wallet use. He is illiterate and lives on a near subsistence livelihood from his physical labors. Yet he has an e-wallet and uses it to accumulate savings. But his use of that e-wallet is complicated. Mushtaque had to be persuaded by friends to open the acount (admittedly I also encouraged and cajoled him). He did not immediately have the necessary ID nor could he complete the account opening information. It took several days of effort to come up with his ID and a friend willing to help him fill out the paper work.

Transacting also requires a serious effort. Since Mushtaque can’t read, he lacks the confidence to manage his own account. When he wants to deposit money, Mushtaque visits the agent across from his residence and hands the agent the cash and his phone number. Upon cash-in Mushtqaue does receive an SMS confirmation, but my impression that his trust in the agent is more important. After all, he can’t read the SMS. Cashing out is still more complicated for Mushtaque because he must then enter his PIN and the agent’s mobile number amid a string of instructions. He may not even remember his PIN. For these reasons Mushtaque won’t cash out on his own. Instead, he calls a friend to come and help. Mushtaque hands his phone to the friend who deducts the electronic amount from Musthaque’s account and hands the cash to Musthaque. He could also simply hand his phone to the agent, which I suspect happens as well.

The reality is that many poor like Mushtaque are likely early on to use their phone in this way if they are to have a wallet account at all. Mushtaque is not only illiterate but he is also physically and mentally taxed by his daily work life, and he has little patience to adopt new technologies. He could do it, but it is hard work. Many like Mushtaque may simply use mobile phone payments service via OTC transactions, which removes the sheer effort associated with learning a new service and OTC happens fast. How many other Mushtaques are there who do not have the support mechanisms necessary to establish an e-wallet? What technology changes or support might persuade them to try out a wallet out? Critically, Pial Islam observes, “how do we make e-wallets attractive that the poor and illiterate will find having one critical enough to overcome these hurdles?”

For mobile to achieve its full potential, markets like Bangladesh are a critical testing ground.

I heard some encouraging news from Mushtaque the other day. He had saved enough to buy a cow for his brother in the village. To get the cash to his brother, however, he again had to involve a trusted friend to deduct the amount from his e-wallet and send it (via OTC) to an agent near his brother’s home.