While COVID-19 is affecting Bangladesh as everywhere, the economy is still projected to grow at 6% – possibly the fastest in the world. As Bangladesh enters this less-contact phase, we’re excited by fintech’s potential to scale and improve lives.
Flourish leaders Smita Aggarwal and Tilman Ehrbeck talked about these trends on a webinar moderated by SBK Tech Ventures Founder Sonia Bashir Kabir and joined by Brankas CEO & Founder Todd Schweitzer.
A summary of the discussion is below, and you can watch the full webinar on YouTube.
“I’ve been tracking Bangladesh for over a decade, and every time I visit, I find it a very high energy environment,” Smita said in the opening of the webinar. “The adoption of mobile and internet has taken off so dramatically. Social commerce is becoming a huge source of income for small entrepreneurs.”
However, there’s still a big gap. In a country with 99% mobile penetration, less than half the population has ever used a formal banking service. Making financial services accessible and affordable to all is fintech’s big opportunity. Fintech allows new business models that can bring down costs and have unprecedented reach. Merchant payments and small business credit are the types of areas fintech can tap into. Fintech can thrive through an ecosystem of banks, non-bank financial institutions (NBFIs), start-ups and microfinance institutions collaborating with each other.
“For Bangladesh, being a late entrant could actually be an advantage,” Smita added. “You could leapfrog several generations of innovation and take the learnings from other markets. Other examples include going straight into API-enabled open banking, or leapfroging card-based payments right into QR codes.”
Not Just Digitizing Traditional Banking
Two specific opportunities we discussed were digitizing P2B and B2B payments (still predominantly made in cash) and working capital for missing middle businesses that are too big for microfinance and too small for banks or NBFIs. At the right economics, digital credit could help these people grow their businesses.
Sonia emphasized fintech innovation is about more than digitizing traditional banking. In the early stages, there’s a tendency to do radio or TV, but fintech is most powerful when it’s “reinventing things and providing services that previously simply weren’t feasible,” said Tilman.
Bite-sized, embedded insuretech is one example – a product that could not exist without the smartphone. Digital credit is another, where ecommerce storefronts create streams of data, a proxy for cash flows, which can be used to underwrite loans that a bank would not touch.
Start with the Customer, Solve Problems Creatively
Data-driven credit scoring is one area where fintech excels, opening partnership opportunities with regulated banks. Customer acquisition is another. Fintechs could unlock new revenue streams for banks that provide secure APIs.
Solving connectivity problems, between fintech and banks, or fintech and merchants, or fintech and other digital platforms, is essential for the ecosystem.
“In an emerging market like Bangladesh, you could take an approach of solving a very specific problem, such as credit for small farmers,” said Todd. “Or, you could go one level deeper. Fintech is so new, can you develop an infrastructure layer that enables others to build fintechs much faster?”
Whether pursuing a specific use case or an infrastructure play that would make it easier for 100 different fintechs to take off, entrepreneurs should start by focusing on the customer.
“Listen to your customer. Find their problem, then come up with a really creative solution,” Smita said. “Don’t do it the other way around.”
Bangladesh is a young country, a large and growing market. And it is at an inflection point in development, where the financial sector could lead that growth. In this environment, fintech has the potential to create totally new value propositions, and that’s why we’re excited for this space.