Navigating Bangladesh’s P2P Payment Revolution

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    A boom of peer-to-peer payment solutions is creating myriad business opportunities in South Asia’s second largest market.

    P2P payments in Bangladesh. Peer-to-peer (P2P) lending transactions between individuals through an online platform. No need to go through banks or financial institutions, marketplace connecting borrowers around world.
    Yasser Arafat

    Yasser Arafat

    Sr. Analyst – Bangladesh Lead

    South Asia’s second-largest economy,1 Bangladesh, is experiencing a financial revolution driven by the growth of peer-to-peer (P2P) payments in its market. Since 2018, the number of P2P transactions in the country has soared at a CAGR of 20% to 22 billion, while in volume there was a 23% year-on-year increase in the period, leading to a remarkable figure of US$395 billion.2 But what factors and players are propelling this financial transformation? And what opportunities does this evolving landscape create?

    One of the driving factors behind Bangladesh’s P2P payment boom is the country’s high levels of digital literacy and smartphone penetration. Its 170 million population — including 46 million youths — is nearly 100% mobile-ready.

    Today, Bangladesh boasts 186 million mobile connections,3 129 million internet users, and 93 million smartphone owners. Yet, at the same time, the number of unbanked adults in the country remains at 60 million4 and the penetration of financial accounts stands at a mere 53% — which sheds light on the vast market opportunities that exist for those willing to build solutions to advance the country’s financial inclusion.5

    In this context, P2P payments have emerged as a bridge that unites both urban and rural citizens, upper and lower-income classes. The success of this payment solution has improved the convenience of financial transactions and re-shaped the way people make payments and interact with the financial world in their daily lives.  In this article we will provide insights into Bangladesh’s P2P payment phenomenon.

    The P2P Payment Ecosystem

    P2P payments refer to the transfer of funds directly from one individual to another through digital platforms or mobile applications. These transactions enable people to pay for goods and services, split bills, or send money to family and friends with just a few taps on their smartphones.

    Variety of Services: P2P players in Bangladesh offer diverse service offerings, including cash in & cash out operations, P2P merchant payments, government-to-person (G2P) transfers of public funds, salary disbursements, talk time purchases, utility bill payments, inward remittances, and real-time bank transfers.

    Public & Private Involvement: While P2P services are largely provided by private fintechs and Mobile Financial Service (MFS) providers, the government is also taking part in the sector by disbursing public funds through G2P services. This year, these services have accounted for 332 million transactions, with a total value of US$4 billion.

    Additionally, the Bangladesh Bank, the country’s central bank, has a key role in ensuring a secure and compliant P2P ecosystem through efficient regulation and oversight.

    Collaborations with banks: Most traditional banks in Bangladesh are partnering with fintech companies to enhance their P2P capabilities. These collaborations aim to offer a seamless, user-friendly experience for real-time transactions.

    Key Players

    According to the Bangladesh Bank there are 13 MFS operators in the country, all of whom provide P2P payments. The major players in this sector are Bkash, Nagad, and Rocket, which jointly account for over 80% of the market.

    Bkash6 is the market leader in P2P payments in Bangladesh, responsible for more than 60% of all transactions in the country. Its mobile payment platform enables top-ups, bill pay, P2P transfers, savings, payment at merchants, and cash out.


    Facilitating millions of transactions per year, Bkash was the first unicorn in Bangladesh. It boasts over 70 million registered users, 330,000 agents, connections to 44 commercial institutions, and a 40% share of female customers. Its leading competitor, Nagad7 is operated by the Bangladesh Post Office. Launched four years ago, it also became a unicorn in August 2023. By the same time, it reached the milestone of 74 million customers, with its daily transactions hitting the average of US$12 million.8

    Rocket9: Operated by Dutch-Bangla Bank, Rocket is known for its efficient P2P money transfer services. This was the first MFS operator in Bangladesh, but now it is losing market share to its more agile fintech competitors.

    P2P Use Cases

    The P2P revolution has helped Bangladesh make strides in several areas, from financial inclusion to the efficiency of its remittance services. Below, see some key P2P use cases in the country:  

    Financial Inclusion: P2P services have made it easier for unbanked and underbanked populations to access financial tools and services. According to the Bangladesh Bank, there were over 212 million MFS accounts in the country in August 2023. Of these, almost 120 million were owned by individuals in rural areas.10 Additionally, around 122 million accounts were owned by males and 90 million by females, reflecting a relatively small gender gap in the sector.

    Domestic Remittances:  P2P services have been widely used for “domestic remittances” — alsoreferred to as “cash-in and cash-out” operations — allowing individuals to send money to their families in rural areas or other urban centers quickly and securely. In 2022, cash-out transactions in Bangladesh reached US$30 billion11 and they are expected to further increase 24% in 2023.

    Everyday Transactions: Bangladeshi people use P2P services for their everyday transactions, including splitting bills at restaurants, sharing expenses, and paying for goods and services. In 2023, the total value of these personal transactions are expected toreach US$33 billion, up 23% from 2022 values.12

    Online and In-Store Purchases: Increasingly, P2P apps are being used for online and in-store purchases. Additionally, the Bangladesh Bank recently introduced a system of interoperable QR codes, the Bangla QR. This system has been widely adopted, although some MFS providers, banks, and fintechs prefer to use their own QR code system.

    Some key providers of P2P systems for online and in-store purchases are Bkash, Nagad, Rocket, Upay, SSL Commerz, Amarpay, Mutual Trust Bank, Citybank, Brac Bank, Meghna Bank, Eastern Bank, Midland Bank, Sheba Fintech, Tallypay, and Dmoney. Typically, these providers charge an MDR fee of around 1%-2% for a P2P payment, far more competitive than the typical 3.5% charged for card transactions.

    MFS operators are the top players in this segment. In 2023, they are expected to process over $5 billion in purchases, a 53% increase over 202213 In terms of number of transaction, the projected growth rate is 63% for 2023.

    International Remittances: The Bangladesh Bank allows MFS operators to receive inward remittances, which are expected to reach $1 billion in 2023, up  50% on 2022 figures.14

    A game-changing innovation?

    In 2022, the Bangladesh Bank and the country’s Ministry of Information Technology jointly launched an interoperable digital transaction platform called Binimoy to facilitate real-time transactions among MFS operators, banks, and payment service providers (PSPs). As this platform was rolled out, it connected 11 banks, MFS operators, and PSPs.15

    Binimoy was inspired by the model of India’s UPI and before it was launched, Bangladesh had only two real-time digital gateways for interbank transfers, ATM networks, Point of Sale (POS) transactions, and cards networks:  the National Payment Switch Bangladesh (NPSB),16 which currently connects 53 banks; and the Real Time Gross Settlement System (RTGS), focused on large-value transactions. The difference is that Binimoy connects MFS, PSP, and banks, while the other two gateways only make bank-to-bank connections.

    Conclusion

    Although Bangladesh seems to be gradually moving towards a payment ecosystem driven by cashless digital transactions, there is substantial room for improvement in its interoperable infrastructure. Other challenges also need to be addressed to ensure the country will continue to progress swiftly in this direction. For instance, the rates of digital literacy and access to smartphones still have room to grow in certain sectors of the country’s population. Cybersecurity is another issue that needs to be tackled in the medium term. Additionally, part of Bangladesh’s population still prefers hard cash transactions, and changing consumers’ preferences will take some time.

    Another issue is that outward cross-border remittances are not allowed in the country and the volume of international transactions are still limited. Finally, around $0.10 per transaction fee for P2P transfers pose a substantial obstacle to rapid penetration.

    On the other hand, payment providers that can offer consumers a superior user interface and experience in their P2P platforms have great chances to thrive, as many players have struggled to gain users’ confidence due to problems in this area.

    Initiatives of collaboration between banks and fintechs will probably also become a source of competitive advantage in the next few years. Finally, many business opportunities are likely to be created in the area of cross-border P2P payments.

    The future of P2P payments in Bangladesh seems bright — so in the coming decades the country is likely become a key destination for both local and global companies operating in this sector in South Asia.


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    Sources

    1. World Bank ↩︎
    2. Bangladesh Bank Open Data Initiative, 2023 ↩︎
    3. BTRC, 2023. মোবাইল গ্রাহক ↩︎
    4. TBS News, 2023. Growth in financial account ownership has slowed down in Bangladesh: Findings ↩︎
    5. World Bank Global Findex Database 2021 ↩︎
    6. Bkash, 2023. 12 years of bKash: an era of empowerment. ↩︎
    7. Nagad, 2023 ↩︎
    8. Daily Star, 2023. Nagad becomes Bangladesh’s fastest unicorn ↩︎
    9. Dutch Bangla Bank Rocket, 2023 ↩︎
    10. Bangladesh Bank Open Data Initiative, 2023 ↩︎
    11. Bangladesh Bank Open Data Initiative, 2023 ↩︎
    12. Bangladesh Bank Open Data Initiative, 2023 ↩︎
    13. Bangladesh Bank Open Data Initiative, 2023 ↩︎
    14. Bangladesh Bank Open Data Initiative, 2023 ↩︎
    15. The Financial Express, 2022. How inter-MFS transaction system ‘Binimoy’ works ↩︎
    16. Bangladesh bank, 2023. Payment and Settlement Systems ↩︎

    Yasser Arafat
    Yasser Arafat
    yassera@paymentscmi.com

    Yasser Arafat is a FinTech entrepreneur, leading buynow.biz, a startup revolutionizing SME payments in Bangladesh. Committed to enhancing SME credibility, Yasser excels in financial inclusion with real impact since 2021, targeting the 80% unbanked or under-banked SMEs of Bangladesh. His expertise spans include e-commerce, digital payments, real-time payment systems, etc.