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A paradigm shift for fintechs: Why a coherent data strategy has become a business necessity

Posted on by MSC

The increase in internet accessibility through human-to-human (voice, text chats), human-to-machine (internet searches), and machine-to-machine (Internet of Things or IoT) interactions has led to an explosive proliferation of digital data, with 33 zettabytes of data produced in 2018 alone – a number predicted to increase to 175 zettabytes by 2025 (1 zettabyte is 1 trillion gigabytes). And despite the fact that our digital footprints have increased vigorously, and various data-focused organizations have stepped in to map them, according to this 2016 Mckinsey article only 1% of the enormous amount of data that exists has been analyzed.

Meanwhile, the advent of machine learning and IoT has changed the way we look at this information. Companies are increasingly adopting data analytics to draw insights for their businesses. The analyzed information has helped upend customer expectations, while enabling businesses to optimize operations to unprecedented levels.

This explosion in data and analytics technologies can provide a decisive competitive edge to fintech companies. Below, we’ll explore how they can leverage these tools to their benefit – and the benefit of their customers.

Why should fintechs value data ?

Data and analytics can allow fintechs to combine innovative business models and technology to enhance financial services. Fintechs, owing to the highly digital nature of their work and the burgeoning mobile access of their customers, can access large pools of customer information as valuable data points. Their ability to harness these data points to gain insights and drive business decisions can help them outrun their competitors. To that end, data analysis applications can be used to generate insights for diverse elements of fintech business models. Here are a few areas in which data analytics can play a critical role.

Some early adopters among fintechs have already made use of their organizational data to gain a competitive edge. Zest AI, a U.S.-based technology firm, uses machine learning to accurately predict a borrower’s ability to repay. Microcred (rebranded as Baobab) offers financial services to unbanked people in Africa by doing consumer analysis locally using cloud business intelligence. And Coverfox, an Indian fintech, uses insights derived from AI algorithms to allow users to compare and choose from a range of plans across top insurance companies.

MSC, as a partner of IIM Ahmedabad’s CIIE.CO’s Financial Inclusion Lab, has helped fintechs grow their businesses through capacity building and technical assistance. Our data domain has been working alongside partnering fintechs to build their data strategies, and to integrate analytics in their business decision processes. Based on our experiences so far, we see that many fintechs fail to fully embrace the vast potential of data. The prevailing wisdom is to keep heads down, maintain the status quo and rely on a gut feeling about the market – often driven by qualitative data and anecdotal information – in order to dedicate maximum time to managing the growth of the business. However, while this strategy may yield limited results and generate short-term tactical gains, it is inherently conservative and rarely leads to significant and sustainable growth.

The three stages of a coherent data strategy

Our experience working with fintechs indicates that they need to take a bolder approach, embarking upon a journey of adopting data-driven ways of doing business. We can divide the journey into three different stages.

These three stages to creating a coherent data strategy consist of:

Robust and diligent data collection: For fintechs to leverage their organizational data, the first step is stringent data collection. This requires robust processes and quality checks to screen for missing or false information.

Creating proper data storage protocol: Once data collection has started, fintechs must implement effective standard operating practices regarding data storage. Maintaining a central database of all existing organizational data helps to ensure data privacy, and also allows fintechs to easily “slice and dice” the data for use in different business objectives.

Embracing statistically backed models: The end objective of this entire exercise is to use data to assist in business decision making. Hence, it is imperative that organizations use robust and accurate data modelling methods to help develop actionable insights.

Incorporating these three stages into a workable data strategy can be easier said than done. Quite a few fintechs use data primarily to monitor operations and track growth. The idea of converting data into insights to inform strategic business decisions is not clear to them. Similarly, fintechs with low understanding of data quality and completeness also suffer from under-utilization of data. This lack of understanding often leads them to collect and store data in non-analyzable formats, or to fail to integrate their different datasets to drive maximum potential. And even fintechs with a well-developed data strategy often struggle to move beyond descriptive analysis and delve into predictive or prescriptive analytics to guide their broader business strategy.

MSC’s work with our fintech clients has illustrated both the challenges these companies face in this journey, and the benefits they can obtain. For instance, we helped one fintech revise their credit scoring methodology by removing 75% of their parameters (which were redundant) to zero in on just 13 of them, while adding some important ones that they had overlooked. This made their credit scoring model robust, and reduced the overall cost of data collection and customer acquisition.

Another client was providing a blockchain platform for chit funds, and they wanted to use data to examine their customer retention. Though this fintech had a data strategy in place, the team was not integrating the different datasets to draw meaningful conclusions about their business processes. After a deep-dive diagnosis, MSC used unsupervised learning methods to develop a robust customer segmentation model for them. We also worked on integrating their data from segregated systems, including customer and chit fund payment details, to conduct this analysis for them.

Some fintechs are data-savvy and understand the value of their data, but lack the organizational prowess to leverage it to drive business decisions. MSC worked with one such fintech, which provides last-mile delivery to rural customers. We developed a decision tree model to identify determinants for high performance among its staff, to bolster its recruitment strategy. We also performed market basket analysis on their sales data to identify product combinations for cross-selling, thus strengthening their sales strategy.

These experiences have generated three key realizations:

  • Data as a key driver of competitive advantage in business is here to stay, and the sooner players adopt it, the better they can run their businesses.
  • Data can support all business-related decisions, ranging from customer acquisition to risk assessment and employee recruitment.
  • Fintechs need to assess their current data practices, identify any shortcomings, and build a holistic data strategy to support their business growth.

The potential of data cannot be ignored in today’s world. Organizations that quickly adapt to this new reality will not only ensure their survival, they will flourish and continue to grow. Hence, it is imperative that fintechs understand the value of data collection, storage and analysis, to enable them to leverage this invaluable tool in the near future.

This blog was also published on Next Billion on 16 December 2020.

The Landscape of Climate and Disaster Risk Insurance (CDRI)

Posted on by MSC

Data from countries in Asia, South Asia, and the Pacific suggests that disasters caused losses worth USD 140 billion in the past decade. Of these, only USD 20 billion, or a mere 14.2% were insured across all sectors. While countries have well-defined disaster response and management frameworks, risk transfer through insurance needs systematic adoption. MSC, with support from GIZ, conducted a landscape study to understand the status of climate and disaster risk insurance in South and Southeast Asia and Oceania. Our report provides recommendations for policymakers and financial service providers to mitigate and manage disaster-induced losses.

 

 

Growing a microenterprise through social commerce and digital payments

Posted on by MSC

“The pandemic has changed my business for good. From a small shop in Vung Tau, I can now reach millions of young women across Vietnam. Going digital has not only helped my business to survive but also to grow,” says Nguyen Huong, a micro-entrepreneur in Vung Tau.

The role of social networks and digital payments within the microenterprise environment has been changing rapidly across the globe. The ongoing shift to digital consumerism has had a significant impact on the way micro-enterprises operate, forcing them to find new and better ways to engage with their customers and cater to their demands. Microenterprises no longer consider digital payments purely transactional. They are now necessary to improve customer engagement, meet consumers’ expectations, and reduce operating costs.

 

Mapping Huong’s journey as a micro-entrepreneur

Nguyen Huong, aged 38, sells garments, shoes, and fashion accessories at her store in Vung Tau, a port city and the capital of Bà Rịa-Vũng Tàu Province, located on a peninsula in southern Vietnam. Once a French colonial town, Vung Tau is now a popular seaside resort that draws many visitors from Ho Chi Minh City.

When asked about her journey as a micro-entrepreneur, Huong revealed that after graduating from a local university, she worked with different organizations in Ho Chi Minh City for more than five years before deciding to start a venture in Vung Tau. After she graduated from a local university, Huong worked with different organizations in Ho Chi Minh City for more than five years before deciding to start a venture in Vung Tau. Born and raised locally, Huong is well known within the community and has established a small yet successful business over the last 12 years. “My shop sees a footfall of around 30-40 customers per day. This is enough to earn around VND 8-10 million (~USD 345-432) per month,” says Huong.

Like many urban Vietnamese, Huong uses a smartphone to access social networks and messaging apps. She also uses her smartphone for airtime top-ups, utility bill payments, and taxi payments regularly. “Social networks and messaging apps help me stay up-to-date with the latest trends. Over the last couple of years, these apps have also become an effective channel for shopping,” says Huong.

However, for a large part of her business, Huong makes and accepts payments mainly in cash. This is because most of her suppliers and customers find it convenient. “It is embedded in our culture. Unlike our neighbor China, most of us still prefer to buy everything from groceries to automobiles in cash. Many shop owners, big and small, make multiple trips to banks with sacks of cash on motorbikes,” says Huong.

The pandemic has changed the reliance on cash for many such Vietnamese businesses.

Unfolding the impact of the pandemic

The COVID-19 pandemic continues to be a stress test for all businesses, especially microenterprises. Highly dependent on daily cash flows, many microenterprises struggle with a shortage of working capital due to the lack of demand and low revenue. Besides, restricted mobility due to lockdowns suspended public transport, which has affected the logistics of input supplies and finished goods.

Women-led MSMEs, which comprise 21% of the formal MSME sector in Vietnam, are particularly vulnerable to business disruptions. The pandemic has forced 50% of such women-led MSMEs to either temporarily suspend or completely stop or reduce business operations. The ones that survived had to make significant operational adjustments to their business models.

The outreach of social media and the convenience of digital payments helped Huong ensure business continuity in times of crisis.

Vietnam is a mobile-first nation of internet users, with mobile devices as the dominant means to access e-commerce. With an annual growth of 24.2%, mobile commerce is set to outpace the country’s overall e-commerce growth and represent a USD 7.8 billion market by 2021. Shopping through social networks and messaging apps has become a trend for the rising generation of younger, tech-savvy citizens.

Huong mentions, “Over the last six months, I have started selling some of my merchandise through social networks and messaging apps. My customers find it easy to navigate, convenient to compare prices, and easy to checkout with safe payment options.”

She adds, “The concern that cash could transmit the coronavirus has made customers appreciate the safety and convenience of digital payments. Suppliers, too, ask for payments through bank transfers and mobile money now.” With an annual growth of 28%, digital wallets are the fastest-growing payment method in e-commerce. The rapid uptake of smartphones that offer app-based payment methods will continue to boost the adoption of digital wallets. PayPal and domestic brands Momo and ZaloPay are currently the most popular digital wallets in Vietnam.

Huong feels that social networks and mobile money are a promising avenue for businesses like hers, with the potential to make transactions quicker, cheaper, and safer. They can help grow her business across and beyond Vung Tau. “To increase online sales, I plan to use social media and messaging apps to showcase my merchandise and client testimonials to potential buyers. With time, I expect more walk-in customers will get familiar with digital payments, such as mobile money or QR codes, as they are safer and more convenient. For a change, the pandemic may help my business grow digitally,” says Huong.

Key takeaways

Micro-entrepreneurs like Huong play a crucial role in Vietnam’s economy as avenues to market locally produced goods. These enterprises search for solutions that can equip and support them in the post-pandemic “new normal.” With the increasing consumer preference for electronic payments in the country, digitizing the payment streams of these microenterprises is an attractive opportunity to drive competitiveness. It can also enhance efficiency by making transactions less dependent on cash.

A more holistic understanding is needed around the businesses of microenterprises, especially their business relationships with suppliers, creditors, and cash flows. This can help identify the right value proposition for this segment to pivot their business models to digital payment solutions in 2021 and beyond. Also, targeted capacity-building support to utilize the benefits of digital payments and social networks will help microenterprises navigate their way through severe and sudden economic downturns.

MicroSave Consulting (MSC), with support from MetLife Foundation, has been implementing the i3 Program in Bangladesh and Vietnam since 2018.  The i3 Program, which stands for “Innovate, Implement and Impact,” works to utilize digital technology and uncover deep insights into the needs, aspirations, and behaviors of low and moderate-income (LMI) people to build and deliver financial services for the mass market. MSC has been working with frontrunners in financial services, from banks to FinTechs and wallet providers to governments, to help LMI segments move toward better financial health by supporting micro-entrepreneurs like Huong through demand- and supply-side interventions.

We look forward to continued dialogue, learning, and supporting financial inclusion in Vietnam. Stay tuned for more updates on www.i3program.org.

Making bank accounts work for women: Lessons on designing gender-centric financial services

Posted on by MSC

“This is my first ever bank account,” says Mary Ladim, a 60-year-old from Goroka, Papua New Guinea (PNG). Mary has opened a Hibiscus account, which is a special bank account targeted to women in PNG, at an agent outlet of MiBank. She believes this account will provide her security and stability.

Below, we’ll discuss how MiBank, a micro-bank in PNG, accelerates women’s financial inclusion through gender-transformative strategies. The bank has a women-centric product design and uses its agent network to reach a wider audience. But before we discuss MiBank, let’s take a brief look at the status of gender equality in PNG.

The struggle for gender equality in Papua New Guinea

Out of the 157 countries assessed by the United Nations Development Program’s Gender Development Index, PNG ranks 124 on the Index with a score of 0.529. Women have limited opportunities for employment in PNG, with only 5% of the women workforce engaged in formal employment. Efforts made by the government to encourage women to enter into formal employment have largely been ineffective. While many women work in the informal sector in both urban and rural areas, the lack of data makes it difficult to report the exact numbers. But it’s widely known that women working in the informal sector are commonly engaged in activities that earn little profit, including the sale of agricultural products and home-cooked food in markets or on streets.

Reports suggest that two out of three women in PNG face domestic abuse. Due to a lack of formal saving facilities for women, their hard-earned money often ends up with their husbands, who often waste it on gambling or drinking. Despite working tirelessly in coffee fields, betel nut markets, vegetable gardens and honey farms, women often fail to get their fair share of agency over financial resources. In the Pacific region, PNG has the highest gender gap in financial inclusion, with women 29% less likely to have access to formal financial services.

MiBank attempts to break gender barriers

Despite this clear need, addressing women’s financial exclusion in PNG presented a challenge to MiBank, when it attempted to boost inclusion through its MiCash bank account offering.

“When MiBank initiated the MiCash mobile wallet, the percentage of women’s bank accounts was approximately 25% in PNG, which is similar to the industry average,” says Tony Westaway, the bank’s CEO. “We set a financial inclusion target of 50% women account holders. With the launch of the MiCash mobile wallet, the percentage lifted to 38%. We believe that women liked the confidential nature of having a bank account on a mobile phone. However, the percentage of women account ownership did not move beyond 38%. We could not get it to climb until we introduced a ‘women-only’ dedicated product.”

In response, MiBank launched Hibiscus, a deposit product that was specifically designed as a bank account for women, with add-on features that went beyond MiCash’s offering. Hibiscus has the following unique features:

  • An interest rate of 1.5% per annum, compared to the normal 0.5%
  • No account-opening fee for women (men have to pay the fee)
  • Savings tips through SMS text messages
  • Access to a WhatsApp group for all Hibiscus account owners under a bank branch

Hibiscus constitutes 56% of the total accounts at MiBank, as of September 2020. This uptake has made it a successful product for MiBank and was evident from its Agri-Agent Network Innovation Lab, which operates in Goroka, the capital of the Eastern Highlands Province of PNG. The lab is supported by UNCDF’s Pacific Financial Inclusion Programme, and its core focus is to enhance financial services access in PNG in a commercially viable manner, with a particular emphasis on women and farmers, according to Jagdeep Dahiya, country manager at UNCDF PNG. While the key objective of the lab is to test different agent network models that promote financial inclusion, it has also helped generate clear lessons on how the Hibiscus product advanced the financial inclusion of women. (Learn more about the innovation lab here.)

How MiBank attracted women customers in PNG

In Goroka, agents opened a total of 5,459 accounts in 12 months. Out of these, women opened 79% of the accounts, while men opened the remaining 21%. For many of these women, it was their first account.

Other than the strategic decision to launch the Hibiscus account to target women customers, MiBank made two critical changes to its product offerings in Goroka. These changes affected women more than men:

  • Relaxed Know Your Customer (KYC) norms: The absence of KYC documents is a critical impediment for women in opening accounts, not just in PNG but across the globe. (Read here for more details). In response, MiBank relaxed the KYC norms involved in the process of opening Hibiscus accounts. It allowed customers to use a reference letter as a valid ID while adhering to the guidelines laid out by BPNG, the central bank of Papua New Guinea. This expansion in the list of accepted KYC documents encouraged more customers to open accounts, and particularly impacted women: 70% of women customers opened their account using a reference letter as a KYC document, as compared to 50% of men.
  • A focus on the acquisition of women agents: The innovation lab project focused on onboarding women agents. As of August 2020, three women agents (among a group that included 11 male agents) had opened 40% of the agent-managed accounts, both MiCash and Hibiscus. On average, each female agent opened 141 Hibiscus accounts compared to 62 Hibiscus accounts per male agent. This indicates that women agents were more successful in onboarding women customers. Evidence from other geographies like India and Kenya also suggests that women agents draw more women customers.

This access to female agents also facilitated change in financial behavior among women. Although amounts deposited per account for women remain almost half that of men, the bank generated more deposits with women accounts than male accounts. In 12 months, a total of 4,292 Hibiscus accounts mobilized US $98,222 in deposits – a tremendous response, from MiBank’s perspective.

As MiBank’s innovation lab expands its activities beyond Goroka, we estimate a ten-fold increase in total deposits into Hibiscus accounts over the next two years. This will happen in part because women in business and elderly women now have access to banking points near their markets. This makes it easier to save their daily earnings. Previously, these women had used traditional methods of saving, either hiding the money inside a pit or in bamboo poles. As a result, the cash was often soiled or even lost. They can now use MiBank’s deposit service conveniently every day through the nearest agent point.

How to increase women’s inclusion takeaways for banks

Ultimately, for banks that want to increase product uptake among women, it is essential that senior management develop product and services specifically for women customers. This will require them to address women’s unique challenges in accessing financial services.

Here’s how the innovation lab in Goroka addressed three critical challenges that women users face:

  1. The bank made the account free for women customers. This reduced women’s dependency on men or their families, since they no longer needed money to open an account. Of course, this did not resolve the challenges in decision-making, as women still had to ask their husbands or families for permission to open accounts due to cultural practices. However, the free account made the decision easier.
  2. The decision to use easily available KYC documents helped women more than men. MiBank made use of PNG’s strong wantok system and used referrals to ease the KYC requirement in the country. This step was in line with BPNG guidelines on KYC that allow banks to use reference letters for low-income groups.
  3. MiBank purposively added women agents to the agent network. The absence of a women-friendly channel often impedes female customers’ use of financial services. A woman agent makes for a more favorable environment for these customers.

The senior management at MiBank decided to make changes to their Hibiscus account product design to serve the large unbanked and under-banked women customer segments – without delaying the product launch due to overly lengthy analysis of the business case for each change. The management recognized the barriers around women’s access to formal financial services and saw business sense in capturing the segment – then they moved confidently to act on this assessment. They realized the value of servicing such women customers and designed appropriate products for them.

MiBank’s story demonstrates that it is possible to design financial services for women customers through a gender-centric, design-thinking lens. It also highlights the significant role of senior management in the development of products and services for women customers. If they want it, it will happen.

This blog was also published on Next Billion on 24 November 2020.

A boon for online commerce: How is COVID-19 transforming the industry in Bangladesh?

Posted on by MSC

COVID-19 has been merciless to the world and its economy in general, with extended lockdowns and social distancing measures harming businesses from both from the supply- and demand-side perspective. But it has helped a few sectors – like digital/contactless payments, e-commerce and Facebook commerce (or f-commerce) – to grow.

Though panic, uncertainty and increasing unemployment slowed down demand in these sectors initially, they quickly recovered due to their innovation, agility and the ongoing paradigm shift in consumer behavior from physical to digital means of buying, selling and paying. To take just one example, Amazon doubled its net profit in the second quarter of 2020 (compared to the second quarter of 2019), as customers shifted to online shopping due to the lockdown. As a result of these changes, the e-commerce and fintech industries (in general) have seen a V-shaped recovery – especially in emerging economies such as Bangladesh.

The pandemic’s impact on e-commerce and f-commerce in Bangladesh

According to news reports, Bangladesh currently has 2,500 e-commerce sites selling products worth over $2 billion, making it the 46thlargest country globally in terms of e-commerce revenue. Additionally, according to the monthly business review (2019) of the Industrial Development Leasing Company of Bangladesh Limited, more than 300,000 Bangladeshi stores are operating through Facebook. Of these stores, women own 50%. Facebook has transformed Bangladesh’s online business landscape. The social media platform boasts 30 million users and 50,000 business pages in the country.

During the initial stages of the pandemic, e-commerce almost halted in the country, and the industry lost $78.64 million directly in revenues. But thanks to burgeoning digital financial services and mobile financial services, e-commerce and f-commerce started innovating, and soon these businesses began recovering rapidly, with some even scaling to new heights.

According to the e-Commerce Association of Bangladesh (e-CAB), which serves as a common platform for the industry, the country’s e-commerce sector has been revolutionized during the COVID-19 pandemic. Online sales increased by 70–80% in the last quarter (July-September 2020), and online shopping has generated $708.46 million in revenues during these pandemic times. Not surprisingly, sales of essentials and grocery products were the main contributors to this trend. To cite one example, Chaldal.com, an established player in this market, saw daily orders spike to 16,000 during the pandemic, compared to 2,500 before March 2020. Their average check-out size also increased by roughly three-fold, from $15 to $45, while their virtual medicine platform’s daily order numbers rose by almost seven-fold.

Bangladesh e-commerce and f-commerce trends during COVID-19:

Based on secondary data and discussions with a few players, MSC has observed some interesting market trends in Bangladesh’s growing e-commerce and f-commerce sectors.

  • E-commerce shoppers are mainly urban. About 80% of e-commerce buyers live in metropolitan centers like Dhaka, Gazipur and Chattogram. The other two major cities for e-commerce are Narayanganj and Sylhet. Among e-commerce users, 85% are between the ages of 18-34. Clearly the e-commerce industry attracts young consumers living in urban areas, while leaving a large market outside of major cities untapped. Logistics chains and the cost of serving far-flung areas in a nascent industry are some of the reasons.
  • Recognizing the needs of customers and the market potential, some players have changed their business models. These changes have included adding essential services such as medicines and groceries to their product offering, providing door delivery services, and integrating with other suppliers. For instance, online players such as AjkerDeal.com and PriyoShop.com, which had never sold any groceries or essentials, have joined this new segment of essential goods. And Advanced Chemical Industries Limited’s Shwapno, a market leader, has collaborated with the food delivery platform FoodPanda to launch a delivery serviceonline and through phone calls, in addition to its mobile app. This collaboration is part of FoodPanda’s on-demand groceries and medicine delivery service PandaMart.
  • Lockdowns and panic buying have led to a surge in online sales of medicines, safety products and sanitizing kits. Pharmacy.com, one of the few e-commerce businesses to offer pharmacy products via a digital storefront, has seen a substantial rise in sales. Many other pharmacies are expanding into online-based sales during this pandemic period.
  • Most of the f-commerce businesses in Bangladesh sell non-essential items such as clothing, lifestyle products, baked goods, arts and crafts, and jewelry. As consumers became more conscious of their expenses and prioritized spending on essential items in the early days of the pandemic, non-essential businesses took a massive hit in terms of sales. But after the first few weeks of lockdown (from March to April of this year), these f-commerce platforms started regaining traction, and their recovery during the country’s Eid festivities helped to minimize their losses.

Case in point: ShopUp

ShopUp, a startup in Bangladesh, illustrates how the country’s businesses have leveraged e-commerce and f-commerce to adapt to the challenges and opportunities of the pandemic. ShopUp is an online platform that hosts over 500,000 micro, small and medium enterprises (MSMEs). These MSMEs get easy access to business-to-business procurement of goods, last-mile logistics for delivery, digital credit and business management solutions through the ShopUp f-commerce platform, where consumers can also buy their products.

After a month’s stoppage of operations due to the pandemic-induced lockdown, ShopUp pivoted its model and improved revenues by selling essential items such as medicine, food and groceries (where previously it had mostly hosted MSMEs selling clothes, electronics, etc.) Thanks to this adaptability, the number of neighborhood shops transacting weekly on the ShopUp platform grew by 8.5 times between April and August 2020. Additionally, to cope with the pandemic’s impact, many smaller retail shops in Bangladesh have moved to online channels such as Facebook to reach new customers. These online channels have created a massive long-tail demand for last-mile logistics. ShopUp’s last-mile logistics team, RedX, is partnering with these shops and is now the largest last-mile delivery service provider in Bangladesh, processing 13 times more parcels daily than it did in April.

Omidyar Network‘s 2018 infusion of seed funds provided a shot in the arm for ShopUp, which has helped it navigate the current crisis. It has managed to retain its entire workforce without pay cuts, despite a 50% decline in business during the pandemic. With a relatively stable runway of 18 months, ShopUp has pledged to raise funds for at least 1,000 MSMEs which have growth potential but require support to survive amid the lockdown. Siffat Sarwar, ShopUp’s Chief Operating Officer, aptly sums up the situation, saying, “COVID has significantly hampered sales of all the entrepreneurs. But it has also brought in opportunities, because customers are adopting online commerce rapidly. Every problem also brings with it a set of options, if you can adapt.”

The challenges to e-commerce and f-commerce

As illustrated in the figure below, the e-commerce market in Bangladesh provides an enormous opportunity for gig workers. But despite the millions of transactions taking place daily through e-commerce and f-commerce platforms, there exist two critical challenges.

First, most e-commerce and f-commerce platforms accept both digital payment and cash on delivery (COD). Not surprisingly, COD, estimated at around 80%, dominates the payment system. However, COD has its own challenges. They include customers’ last-minute payment decline (in which customers change their minds about their purchase after the product is delivered to their doorstep, leaving the vendor or platform to accept the cost of transport as a loss), additional time taken to complete the transaction as customers gather cash to pay, and the risk of carrying cash from customers’ homes to the business hub. COVID-19 adds another risk in terms of cash acting as a potential vector of infection. These challenges impact delivery efficiency, and ultimately the overall operation. If mobile and digital financial services providers can collaborate with online commerce players to incentivize and nudge customers to pay digitally, these businesses can grow faster. Based on the typical users’ profile in the e-commerce sector, digital payment methods should be easier to adopt than cash payments, and able to replace COD.

Second, there are regulatory gaps. With challenges in the existing National Digital Commerce Policy of 2018, customers and entrepreneurs face challenges such as fraudulent activities, fake products, uncompetitive pricing, customer harassment and quality issues in the existing industry. These challenges make both the customer and the entrepreneur vulnerable. Authorities such as e-CAB, the Metropolitan Chamber of Commerce and Industry, and the Ministry of Commerce should formulate and enforce regulatory actions. These regulatory measures should include product quality, customer satisfaction, monitoring transactions, pricing, competition and taxation. The Bangladesh Competition Commission, under the Ministry of Commerce, can play a significant role in monitoring the market for quality control and consumer rights protection.

Meanwhile, as per current practice, many e-commerce and f-commerce platforms have been working on their consumer protection policies based on their internal codes of conduct. One option could be for these platforms to explore an industry-wide online/digital consumer protection framework as an intermediate step. Nevertheless, unless there is a set of laws and regulatory frameworks, fraud and mistrust in online purchases will grow.

The way forward

COVID-19 has been a catastrophe for most businesses and segments of the global economy, especially in developing countries. Bangladesh is no exception to that. However, some sectors took this crisis as a “nudge” to go digital. The unprecedented growth of e-commerce and f-commerce in Bangladesh, despite the pandemic, illustrates the likelihood that various segments of users will continue to seek opportunities to use online marketplaces. This growth creates an excellent opportunity for the fintech industry to move even faster to enable cashless transactions, provided the ecosystem players can work together and build a value proposition for all stakeholders.

Moreover, financial institutions can also leverage the rise of e-commerce and f-commerce. Banks and other financial service providers have the opportunity to build digital credit products in this space, leveraging the data generated by both suppliers and customers. Bangladesh stands at the cusp of more widespread innovation in online commerce, and it can learn from relevant examples from many countries, in both developed and developing economies. This opportunity could enable it to accelerate the sector’s growth, both during the pandemic and as the world transitions to the new normal.

The blog was also published on Next Billion on 3rd December, 2020

Non-cash payment helps promote financial inclusion in Vietnam

Posted on by MSC

By 2020, the number of mobile phone connections in Vietnam is projected to reach 145.8 million, which presents a favorable platform to promote mobile payments, DFS, and e-commerce. With support from the MetLife Foundation, MSC has been implementing the “Innovate, Implement, Impact” or i3 Program. Through the expansion of mobile financial services, the program seeks to improve the livelihoods of the poor by providing access to affordable and convenient financial services.

Watch the video to follow the i3 Program in Vietnam.