Is being “cheap enough” a 4th Reason Behind bKash’s Growth?
CGAP came out with a brief last month about bKash, the dominant mobile financial services company in Bangladesh, offering three reasons behind how it managed to sign up 22% of the country’s adult population within two years, and was largely responsible for Bangladesh seeing the fastest growth in mobile financial access services accounts in 2013.
Briefly, the reasons are as follows (copy-pasted from here):
- bKash is neither bank-led or telco-led; it is a purpose-built company to provide mobile financial services.
- bKash combines a diverse group of investors, but they all at least share a vision for scale.
- Bangladesh’s central bank has been supportive and flexible in creating a regulatory environment.
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?
Comparing bKash to Peers Globally
Two avenues of exploration came to mind:
- Comparing how much it costs to use bKash with other funds transfer options in Bangladesh
- Comparing bKash with similar mobile money offerings in other countries
Yes, there are all kinds of caveats we need to keep in mind:
- The programs are similar, but not the same – other offerings might change the relative value proposition
- Countries have different mixes of funds transfer options
- Countries have different demographics and economic conditions
- The programs operate in differentially evolved mobile payments ecosystems
Nevertheless, since all these services are designed to offer the transfer of small amounts of money relatively affordably and are often taken up by folks who may not be totally linked up with the formal financial sector, it seems like a reasonable exercise to conduct to explore the question, “How are services similar to bKash priced around the world?”
Transferring and Cashing-out Costs
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.
(Note – the figures below are in USD for easier comparison, but clearly countries have different purchasing powers and so the figures are not exactly comparable.)
So, what do we see?
- 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 bKash’s 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.
To see how the cash-out cost stacks up against the rest, we’ll compare the rates as a percentage of funds transferred.
Before we do that, one quick note about the cost of transfer to unregistered clients – note how it is always the highest of the other charges of cashing out and transferring. It’s probably a result of the costs of having to support cross-platform transfers, out of platform transfers, and very probably, as an incentive to keep the e-cash in the provider’s system. Some like Vodaphone and GCash will charge the same amount for cash-outs though, perhaps reflecting their view that cash going out of the system is equally “bad”, irrespective of channel or recipient.
Cashing-out Costs at Agent
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, it’s 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.