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Exploring the fintech landscape & opportunities in Bangladesh

Mohammad Ashraful Islam Khan | March 17, 2023 00:00:00

The financial technology (fintech) industry is currently experiencing a significant transition in both its technological advancements and business models. Regardless of whether one is the CEO of a well-established financial institution or the founder of a fledgling fintech startup, maximising investments is crucial for success. However, the second half of 2022 presented unique challenges for the global fintech sector, which faced a combination of economic and market pressures, including high inflation and interest rates, limited exit opportunities, declining valuations, and margin pressures for companies involved in buy now, pay later services.

To remain competitive and thrive in today's fast-paced financial services industry, innovation is essential. The sector is constantly transforming, thanks to the emergence of novel products, channels, and business models. This shift is driven by changing customer expectations, digitalization, and ongoing regulatory and cost strains.

Recent examples of fintech innovation include widespread adoption of decentralised finance (DeFi) platforms, which use blockchain technology to offer alternative financial services, such as lending and borrowing, without the need for traditional intermediaries. Furthermore, the use of artificial intelligence and machine learning to analyze data and provide personalized financial advice to consumers is becoming increasingly popular

The fintech industry is undergoing a significant transformation, driven by technological innovation, changing customer expectations, and regulatory pressures. While the industry faces unique challenges, fintech companies that prioritise innovation and investment optimisation will likely thrive in this evolving landscape.

The fintech industry in South Asia, particularly in Bangladesh, is currently in the developing phase. Despite being a Least Developed Country (LDC), Bangladesh has made significant strides in adopting digital financial services. The government has also initiated various programmes to promote the growth of the fintech sector, recognising its potential to improve financial inclusion and economic growth.

One of the significant challenges that Bangladesh faces is financial inclusion, with a large segment of the population still unbanked. However, fintech is rapidly changing this landscape. The government has taken several endeavours to promote fintech innovation in the country. For instance, the Bangladesh Bank, the central bank of Bangladesh, has launched a regulatory sandbox to foster the development of fintech solutions. This initiative allows fintech startups to test their innovative products and services in a controlled environment before launching them in the market. Additionally, the government has set up a digital financial services lab to facilitate the development of fintech startups.

Fintech startups in Bangladesh are also making significant strides. One example is bKash, a mobile financial service provider that has revolutionised the way people transfer money and pay bills in the country. Founded in 2011, bKash now has over 60 million registered users, and its services have been instrumental in promoting financial inclusion in Bangladesh.

Another example is ShopUp, a fintech startup that provides working capital loans to small and medium-sized businesses. ShopUp uses data analytics and artificial intelligence to assess the creditworthiness of borrowers, making it easier for small businesses to access financing.

South Asia is home to many emerging economies, and the fintech sector is growing rapidly in the region. While Bangladesh has made strides in developing its fintech industry in recent years, it still lags behind some of its neighbors

In terms of fintech development, India is currently considered the leader in the region. The country has a large pool of tech talent, a supportive regulatory environment, and a robust startup ecosystem. India's fintech sector has seen significant growth in recent years, with companies like Paytm, PhonePe, and PolicyBazaar achieving unicorn status.India is currently the third largest FinTech market, following the US and the UK, with over 7300 startups in the segment, supported by an overall funding volume of around $30.2 billion.

Other countries in the region that are also making substantial strides in fintech include:

SINGAPORE: The city-state is known for its supportive regulatory environment, and has become a hub for fintech startups in Southeast Asia. Companies like Grab, Razer, and InstaReM have all set up operations in Singapore.

INDONESIA: With a large and growing population, Indonesia has become an attractive market for fintech companies. Startups like Gojek, OVO, and Tokopedia have all made waves in the Indonesian fintech sector.

SRI LANKA: While still in the early stages of fintech development, Sri Lanka has a growing startup ecosystem and a supportive government that is encouraging innovation in the financial sector. Companies like PayHere and FriMi have emerged as key players in the country's fintech space.

While Bangladesh has made progress in developing its fintech industry, it still faces challenges such as a lack of investment and a regulatory environment that is not always supportive of innovation. However, with a large and growing population and a strong entrepreneurial spirit, there is significant potential for the country's fintech sector to grow and flourish.

Bangladesh has made progress in developing its fintech industry in recent years, with mobile money services like bKash and Nagad becoming popular among the country's unbanked population. However, there are still areas where Bangladesh can adopt new fintech products to further boost its economic development.

One fintech product that Bangladesh could adopt is blockchain technology. It is also an area where Bangladesh could explore further. Blockchain offers a secure and transparent way to record transactions, making it useful for a variety of applications, including remittances, supply chain management, and identity verification. Blockchain technology has the potential to benefit local people in Bangladesh in a number of ways. Here are some examples:

REMITTANCES: Bangladesh is a major recipient of remittances, with millions of people relying on money sent from overseas to support their families. Blockchain technology can make remittances faster, cheaper, and more secure. For example, blockchain-based platforms like BitPesa and BitSpark allow users to send money across borders with lower fees and faster transaction times than traditional remittance providers.

SUPPLY CHAIN MANAGEMENT: Bangladesh is a major player in the global textile industry, with millions of people employed in the sector. However, the supply chain for textiles can be complex, with many different actors involved in the production process. Blockchain technology can help improve transparency and accountability in the supply chain, making it easier to track products from raw materials to finished goods. This can help ensure that labor and environmental standards are being met, and that products are authentic and not counterfeit.

Blockchain technology has the potential to benefit local people in Bangladesh by making financial transactions faster, cheaper, and more secure, improving supply chain transparency, providing a secure way to verify identity, and enabling greater access to microfinance. As the technology continues to evolve and mature, it is likely that we will see more and more innovative use cases emerge in Bangladesh and around the world.

Also Bangladesh could benefit from the adoption of robo-advisory services, which use algorithms to provide investment advice to customers. Robo-advisory services can help democratise access to financial advice, making it more affordable and accessible to a wider range of people.

Fintech contribute significantly to Bangladesh's GDP growth by increasing access to financial services, reducing transaction costs, and increasing efficiency in the financial sector. This can lead to increased investment, entrepreneurship, and job creation, which can all contribute to economic growth. Fintech can help increase efficiency in the financial sector by reducing the costs and time associated with traditional banking services. This can lead to increased investment, entrepreneurship, and job creation, which can all contribute to economic growth.

Some countries like China, Kenya have made significant progress in using fintech to drive economic growth. China's fintech industry has seen tremendous growth in recent years, driven in large part by the success of companies like Alibaba's Ant Financial and Tencent's WeChat Pay. These companies have helped to increase financial inclusion and drive innovation in the financial sector.

As the world becomes increasingly digital, the need for fintech education is becoming more important than ever before. In Bangladesh, there is a growing recognition that fintech can play a key role in driving economic growth, but there is still much work to be done to ensure that the country is fully prepared to take advantage of these opportunities. To achieve this, there are several steps that can be taken to improve fintech education in the country.

Firstly, there is a need to increase awareness of fintech among students, educators, and policymakers. This can be achieved through the development of workshops, seminars, and other training programs that focus on fintech and its potential applications. By raising awareness of fintech, more people can be encouraged to explore the field and consider careers in fintech-related industries.

Secondly, it is important to improve the quality of fintech education in Bangladesh. This can be achieved by developing specialised fintech courses and curricula that are relevant to the needs of the local market. Fintech education should cover not only technical skills but also business and regulatory aspects of fintech, as these are critical to success in the field.

Thirdly, there is a need to establish partnerships between universities, industry players, and regulators to facilitate the exchange of knowledge and expertise. Such partnerships can help to bridge the gap between academia and industry and ensure that students are exposed to real-world challenges and opportunities in fintech.

Finally, there is a need to invest in fintech infrastructure in Bangladesh, including the development of fintech labs, incubators, and accelerators. These facilities can provide students and entrepreneurs with access to the latest fintech tools and resources, as well as mentorship and funding opportunities to help them develop and launch their fintech ideas.

In conclusion, the adoption of fintech education in Bangladesh has the potential to transform the country's economy and drive growth in the years to come. By increasing awareness, improving the quality of education, establishing partnerships, and investing in infrastructure, Bangladesh can position itself as a leader in fintech in the region and beyond.

Mohammad Ashraful Islam Khan, a Management Consultant, is Head of Supply Chain Advisory Services, Management Consulting KPMG Bangladesh.

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