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Mpesa and bKash share one striking characteristic; they were both started in an environment where little existed

in the way of
a regulatory framework, by operating independently of banks. But thats where the similarity ends. Whereas Mpesa was
launched as a product owned by a telecommunications network company to leverage the strength of network subscriptions,
bKash started as a mobile transfer platform operated as a subsidiary of a bank but run independently from the bank.

The strength of Mpesas approach has been in the readily available market access of Safaricom existing network subscribers.
bKash, on the other hand, has approached the market from a position of independence from any mobile network provider,
which has considerably widened its reach by not being limited to a single mobile network.

Both services have been accused of abusing this market strength to charge exorbitant fees to their clients. Secondly, the general
populace is yet to understand the intricate workings of each of these platforms which have expanded significantly from simple
money transfer platforms to incorporating functions such as savings, small loans, payments of bills, e-payment services among
others and with due time, international remittance.

There is an urgent need to educate the general populace of the role played by all stakeholders in the sector to avoid
misunderstandings, which are more often than not, directed at agents providing services to the customers, as opposed to the
related company which is best suited to handle any issues.

One great disappointment with the Mpesa story is its failure to replicate the same level of success experienced in Kenya when
applied in other countries. While bKash allows international remittances, it is also yet to export its success beyond the
boundaries of Bangladesh. This had raised serious questions about the viability of both mobile money models, given that their
performance is not predictable even when applied in countries with similar demographics and market dynamics, as is the case
of Mpesas failure to gain traction in Kenyas neighbour, Tanzania.

In both cases the success is in large part the result of what


Anand Shrivastav, BEAMs founder and chief executive, calls the
agnostic option: bKash and BEAM offer mobile wallets that work
on any wireless network. This helps overcome what has been a big
barrier to widespread adoption of mobile money: that such a
service is often limited to one network.

In Kenya this was not an issue: Safaricom, which operates M-PESA,


controls two-thirds of the countrys telecoms market, which helped
the service spread quickly. In contrast, most other big developing
countries have a more fragmented market split between several
network operators.

Another reason for the growing adoption of mobile money, at least


in the case of bKash, is the fact that it is not a single firm, but has a
broad network of partners. It is linked to BRAC, a big Bangladeshi
NGO, which in turn works with a vast network of mostly mom-
and-pop grocery shops, which serve as retail agents for bKash.
They are like an ATM, but a more reliable one in a country where
electricity can drop in and out, says Kamal Quadir, chief executive
of bKash.

But what if one of India's network operators were to offer an


agnostic mobile-money service of its own? Mr Gore is not
worried. In India, he explains, such mobile-money services have to
abide by strict banking regulationssomething operators are not
set up for.
Given that Bangladesh has 160 million people, is really densely populated and has a fairly
competitive market (20 bKash like licenses exist, for example), it makes for a great incubator of
ideas that fail rapidly if they are terrible, or scale sustainably if they are good.

Checking out the tariff details also gave me the sense that bKash is quite affordable cash-ins are
free, transfers to another bKash client costs Tk. 5 (USD 0.06), cash-outs cost 1.85% at the agent
and and 2% at the ATM. Is being cheap enough, then, another reason for its prolific growth?

We will be looking at three modes of engagement transferring to another user registered on the
same network, to an unregistered user, and cashing out at an agent. As far as I can tell, bKash
does not allow transfers to unregistered users, but I included that anyway for these graphs
because there one point that is interesting to note, irrespective.
bKash charges a flat of USD 0.06, which is by far the lowest registered P2P transfer amongst all
six providers, except for the lowest rungs of M-PESA and Vodacom TZ.
bKash charges at a proportional rate of 1.85% to withdraw at an agent. MTN Uganda, Vodacom
TZ and GCash all charge proportional or almost proportional rates, while easypaisa charges at a
somewhat regressive rate, where the fee does not increase as much as it would if it were
charged proportionally. M-PESA has a very regressive rate, where the fee stays more or less
the same for large sections of funds transfer ranges.

In so far as none of the providers have a very well developed e-payments ecosystem, other than
M-PESA, one has to consider both the cost of transferring funds to other users but also the cost of
cashing out. Since bKashs promotional material strongly emphasizes remittances, it stands to
reason to keep the charge at a nominal US 0.06, while making most of the returns at cash-out.
This encourages increased velocity of e-money in their system.
We now look at the fee as a percentage of the amount cashed out. In cases where the fee is a flat
amount for a range of values, we take the fee as a percentage of the average of the min and max
of that range.
The graph is truncated to the USD 10 to USD 200 range because for any value below that, bKash
(the magenta line) is the cheapest option by far. However, by the USD 100 mark, bKash has
become the most expensive option, bar GCash, which is just 0.15% higher at 2% of cash-out. M-
PESA reaches the cheaper than 1.85% mark fastest, at USD 16.51.

Is bKash cheap, then, when it comes to cash outs? The numbers tell us that for small amounts, its
much, much cheaper than any other comparable services around the world. However, because of
regressive fee rates, the services catch up somewhere in the USD 15 100 range. From the
financial inclusion point of view, we often take USD 100 to be a small balance threshold. Going by
that, bKash is also pretty financial inclusion friendly.

From the point of view of the universe of clients served by these companies, we would need to
know what band most of the clients transact in to be able to say which is relatively cheaper. If
most clients operate around the USD 10 band, bKash is the cheapest, while is they operate more
in the USD 200 band, then it is the most expensive.

bKash is the cheapest P2P money transfer option amongst the peer providers we looked at. It is
the cheapest cash-out option till about USD 16, and then becomes the most expensive one after
about USD 100-200, depending.
Can Bangladeshs mobile
money service repeat M-
Pesas boom?
bKash has vast scope to grow in a populous nation
and parent looks like a good investment
Business Day28 Aug 2017FLORIS STEENKAMP

There are few clearer signs that a business has really


entrenched itself than when its brand becomes a verb think
Google or Uber. In Kenya, Should I just M-Pesa you the
money? has now entered common usage.

But what excites us is the potential of M-Pesa, a business


started in 2007 as a service to transfer money using a
cellphone that specifically targets people without bank
accounts.

Low banking penetration and supportive regulations,


particularly at the time when MPesa was launched, resulted in
a rapid uptake. M-Pesa now accounts for 27% of Safaricoms
revenue and has grown to 26million customers, 19-million of
whom were active in the past 30 days. This means two out of
every five Kenyans have used M-Pesa in the past month.
M-Pesa has a phenomenal ecosystem with a strong moat of
agents and satisfied customers, as well as large economies of
scale. The velocity of money within M-Pesa is quite spectacular
and continues to grow. In the most recent financial year alone,
$18bn was deposited into the system and $16bn personto-
person (P2P) transfers were made using M-Pesa.
The service is now quickly evolving from P2P transfers into an
integrated payments platform. Supermarkets are allowing
customers to use M-Pesa to pay for goods, businesses
increasingly use M-Pesa for bulk payments such as wages and
you can now even buy government bonds using M-Pesa.
The profit margins of these new services are significantly higher
than for P2P transfers where Safaricom has to pay an agent
commission. And there is significant potential to add more
services to the platform as over 90% of transactions in the
Kenyan economy are still done with physical cash.
M-Pesa is increasingly looking like a payments network such as
Visa or Mastercard.

It has already begun to disrupt the banking landscape in Kenya.


Although M-Pesa does not at present have intentions to
become a fully fledged bank, we view this as a natural
progression over time. Deposits in the M-Pesa system are
larger than those of at least 26 banks in Kenya. Safaricom is
not entitled to keep the interest earned on the float it is paid
to charities but there is potential to mobilise the deposits
should M-Pesa get a full banking licence.

Over the past few years, Safaricoms share price often


appeared to be expensive on near-term multiples, but by
looking a number of years out and valuing the business based
on what we believed to be a normalised earnings level, we
continued to find the valuations attractive. We believe today is
no different and that M-Pesas evolution over the coming years
will surprise investors.

Across frontier markets, the low banking penetration in


countries such as Mali, Pakistan and Zimbabwe offers the ideal
environment for mobile money. But the investment opportunity
we are most excited about is bKash in Bangladesh, another
brand that became a verb.

bKash has close to 80% market share of mobile money


transactions in Bangladesh. The business is run by a
management team with a lot of experience in mobile money
and, similar to Kenya, Bangladesh has low banking penetration
with supportive regulation.

We believe that bKash is today where M-Pesa was about four


or five years ago.
bKash should experience strong revenue growth as the
network effect results in more transactions per user as the
number of users increase. Although Bangladeshs population is
almost four times the size of Kenya, its mobile money revenue
is still lower than that of M-Pesa, clearly highlighting the
potential for bKash.
Furthermore, the profit margin of bKash is still well below where
it could be. bKash is investing heavily to build its agent network
and entrench its market position. This and the fact that virtually
all its transactions are still the traditional lower-margin P2P
transfers point to significant growth in margins in future. The
gross profit margin of bKash has grown to 19% in 2016, but we
see no reason why this cannot be similar to that of M-Pesa,
which we estimate to be in excess of 50%.
At the net profit level, bKash should eventually be even more
profitable than M-Pesa, given that it is entitled to the interest
earned on the float balance.
If M-Pesa had this benefit, its profit margin would have been
more than 10 percentage points higher. The bKash float has
grown to more than $200m, but has the potential to be a
multiple of this balance in a few years.
Investors can get exposure to bKash through its listed parent,
Brac Bank. Similar to Safaricom, we believe that while the Brac
Bank valuation might look stretched on near-term multiples, the
share price does not yet fully reflect the growth potential and
optionality inherent in the mobile money business. We believe
that this offers an attractive opportunity for longterm investors.