Is the pathway of blooming for bKash in disarray- A deep dive in the financial indicators of the largest operator in the domestic MFS market!
If the Bangla Academy dictionary would be as dynamic as the Oxford dictionary in maintaining the vibrancy of its own language, the term ‘বিকাশ’ would have been treated as the synonym of digital transaction by now! The influence of bkash, one of the most impactful financial sector brands in Bangladesh for last decade can be felt when it is heard in any Mobile Financial Services (MFS) agent point, ‘ভাই, বিকাশ করা যাবে? (Hello, can I do ‘bkash’?)’. Started as the subsidiary of Brac Bank Limited in 2010, bkash is now the largest MFS operator in Bangladesh in any context. It has expanded the horizon of its services at diverse segments in last several years including the initiation of digital credit in collaboration with the City Bank Ltd. Yet, a common complain about bKash roams around for last few years - ‘its service charge is very high’. In a regulated industry, it is not very easy even for any monopoly operator or service provider to maintain hyper service charge or product price. Even though, a thorough reading and consultation with sector experts on this issue have been pursued by the author on this issue. As a part of that, the analysis of the audited financial statements of bkash has even been conducted at personal level. And, the findings have been fascinatingly intriguing!
Looking at the trend of the bKash from 2017 to 2019, the following has just come out(Table-1):
This backward voyage has also forwarded in 2020 while it has made Net Loss of 170.00 million BDT in the first quarter. Since the covid attack in Bangladesh at March 2020, trend of MFS transactions (Table-2) even barely provides any ray of hope on the profit trend of bkash.
Moreover, gross revenue trend (Table-3) of bKash in 2017–2019 indicating the year-wise growth exemplifies the rising market demand of its services.
Even, the first quarter of 2020 experienced higher gross revenue (6480.00 million BDT) than that of 2019 (6150.00 million BDT). So, what sucks away the honey from bKash!
The financial statements of bKash evidences that it has to remit 12% of gross revenue as VAT to the government. The Cost of Services (direct expenses for earning the revenue) consists of Agent and Distributors Commission, MNO Service Charges, Interest and Others. Cost of Services (CoS) were 64.44% of Gross Revenue in 2018 and 68.76% in 2019. The story is not finished here. In 2019, growth rate of Gross revenue was 10.87% while growth rates of Agent & Distributors Commission, MNO Service Charges and Interest & Others were 15.80%, 38.80% and 46.64%. This makes things as crystal clear that it is getting very difficult for bKash to sustain its net profit in long term. Having a deeper look on the operating profit, things appear as quite intriguing:
Mentionable that, in 2018 and 2019, operating profit has been lower than net profit. How it is possible! The one parameter in bKash financial statements has helped to uplift the picture for Net profit- “Net Finance Income” which is the composition of interest earned from bank deposits and interest paid on lease:
This rising consecutive jump in the net finance income of bKash can be explained by the investment of the capital injected by Ant Financial (Ali Pay) in 2018 in the fixed income instruments. This is also evidenced in the ‘cash flow from/(used in) in investing activities’ in the cash flow statement.
These analyses have provided a clearer indication about the looming challenge for bKash to sustain net profit in long term with current business model. But, at the consumer end, ‘service charge’ is considered as ‘VERY HIGH’. And, there is another inner story. bKash has two types of transaction at consumer end- revenue based and non-revenue based. For example, ‘cash-in’ is non-revenue based and ‘cash-out’ is revenue based transaction. That means, for ‘cash-in’, consumer does not pay any service charge and for ‘cash-out’, consumer pays. But, for both — revenue based and non-revenue based transactions, bKash has to pay commission to agent, distributor and MNO. This makes the business dynamics more critical for the operator. Interestingly, bKash had continuous growth in its net profit upto 2017. From 2018, its net profit started to go down which is still continuing. Thus, the timeframe set in this write up for analysis is 2017–2019.
There is another ‘undercover’ issue of MFS industry has huge impact in its market dynamics. This ‘under-discussed’ aspect is highly intriguing- ‘the role and behavioral pattern of agents and distributors’. At the field level, they are just ‘incalculable’. One of core probable reasons behind this is, they are extremely experienced in running agency or distributorship. For instance, in most cases, bKash agents are either grocery/stationery shop or pharmacy/laundry. Even the road side agents are age old agents of Mobile Network Operators (MNOs). Similar situation is also applicable for the distributors. They are directly connected to the end-level consumers. So, their game in market mechanism is at ‘different level’. For example, there is a common complain about cash-out charge- Tk 20 has to be paid for per Tk 1000 cash-out whereas the official cash-out charge of bKash is 1.85%. But, in the ‘Tk 20’ story, the happening is very interesting. Mr. Watson go to Agent Hunt for cash-out, but, Mr. Watson does not have any bKash account. So, the sender for him sends money to the personal bKash account of Agent Hung and he pays the amount as cash-out to Mr. Watson. But, Hunt charges 2% on cash-out amount while gets at 1.85%. There are many more issues like this which put significant impact on the profit pattern of bKash directly or indirectly which are evident in the difference between the growth rate of Gross Revenue and Cost of Services.
Anyone may think at this stage that if a corporate like bKash will move towards foreclosure for sustained loss, does it matter! Well, for bKash, it matters. It really matters! Because, if in any unfortunate possibility bKash would go to that path, it would be the failure case of first generation fintech business model of Bangladesh. Thus, the future dynamics of Fintech and Digital Financial Services (DFS) of Bangladesh is largely correlated with the sustenance of bKash. So, the business model and strategic stance of bKash nees to be revisited and analyzed by itself, the regulator and the industry experts. A detailed and deep-dived analysis will show the specific roles of bKash, the regulators, MNOs, Agent-Distributors, other MFS operators and consumers behind the financial condition of bKash as well as will provide a lot of invaluable lessons for the future pathways of fintech in Bangladesh. In the Post-Corona era, digitization will be the heart of financial service providing landscape. In this regard, the story of bKash will leave a lot of valuable learning stones for the future disruptive technologies and the market disruptors.
For instance, another remarkable disruption in MFS market has been blown by ‘Nagad’ in recent years. Although, it can’t be definitively said yet whether Nagad would be a market disruptor or a market distorter. Because, a number of unanswered questions are still looming in the market regarding this operator which started its operation officially in 2018. For example, Nagad is termed as the DFS brand of Bangladesh Post Office (BPO) and it is operated by Third Wave Technologies Limited (TWTL). The questions are — how TWTL is contracted to BPO for this operation- as subsidiary or as franchisee or as outsourcing company! Because, the Managing Director of TWTL is oriented publicly as the MD of Nagad. But, the Google and Bing search results don’t provide any website address of TWTL. So, for the public, it is not possible to know that what are the other services or products TWTL offers, the ownership structure and the corporate governance formation of TWTL, which capacity or competency record of TWTL has convinced the BPO to contract them for Nagad operation. Because, any relevant information regarding these issues are not available in Nagad website. Not even the financial performance information of Nagad are not available in Nagad website or any public domain. So, whether Nagad is making profit or not; if it makes profit, how it is distributed to BPO- still no concrete information or answers available in public on these issues. All these questions draw a huge curtain of confusion and blurriness on its institutional accountability and transparency. Even, all the institutional contracts are made in name of TWTL (Ref: http://abbl.com/ab-bank-limited-signed-an-agreement-with-third-wave-technologies-limited-nagad/
On the other side of the coin, BPO has contracted ‘D Money Bangladesh’ for operating its ‘Digital Wallet Service’ which is a licensed and regulated payment service provider. All the relevant information on D Money Bangladesh are available in its website.
Anyone may ask, what’s the problem of Nagad in operating through such business model! From an obtuse angle, there may not be any gross immediate problem. But, based on the experience of bKash discussed above, the story of Nagad requires a deep-dive analytics for assessing its sustainability potential. Because, currently Nagad runs with a range of unique advantages as well as institutional and corporate indemnity. This strategy will not be workable in the long run in market mechanism. Millions of examples are available in this regard. Moreover, in April of 2020, Nagad availed an interim approval as MFS operator. The approval conditions strictly stipulate that Nagad has to comply with all provisions and clauses of national MFS regulation. But, since the commencement of business, the approach of market expansion Nagad adopted has a number of non-alignments with the MFS regulation like the difference in transaction limits. So, when Nagad will comply all the MFS regulations in proper and if Bangladesh Bank will not make any alteration in the regulations or any exemption for Nagad, the probability of business sustainability for Nagad may face tough challenges.
So, the core concern is- the sustainability of business models of different operators MFS industry. Because, if the operators will not sustain, the industry stability will be vulnerable. Fintech requires disruption in technology, not in the business models of the operators. And, if the long term stability of the operators will be shaken, consumer confidence will gradually be shattered. So, the evolution of the business models of MFS operators need to be evaluated and analyzed prudently, critically and impartially by the industry stakeholders. Otherwise, going through its infancy now, the fintech industry of Bangladesh may have a hard-hitting time in its adolescence and youth!
Information Source: Audited Financial Statements of Bkash- 2017, 2018, 2019; Official websites of Bangladesh Bank, bKash, Nagad and D-Money.