Financial inclusion is easily one of the most talked about subjects. From NGOs to human rights organizations, and governments to multinational corporates, everyone agrees that it’s not happening fast enough.
Can fintech technology help solve this for a developing country like Bangladesh? The founder and managing director of fintech company Circle FinTech, Redwan-ul K Ansari thinks it can. His nascent company is working toward interoperable platforms that can transform the digital environment and play a disruptive role.
We find out more in this interview with the young and visionary entrepreneur.
Tell us about Circle Fintech and how it started?
I sit on the board of a bank as well as Circle FinTech. I’m familiar with a lot of issues banks deal with every day. Although quickly resolved but for many reasons, whether it’s red tapes or ignorance or sheer laziness, they are never rectified.
There is a general lack of innovation, and penetration is largely limited due to bankers knowledge on the technology being very benign. For SMEs, banks end up with a high-risk portfolio. Thus, they are reluctant to finance this category. On the other hand, consumers walk away from banks as they find them unnecessarily complicated. What I am trying to say is that no one is addressing the white elephant in the room. There is a considerable room for positive change as an effect of robust technology and product innovation. The road needs to be paved for challengers enter the economy and create more competition. Competition drives innovation and benefits the consumers at the end.
And that’s where we fit in. My experience in the banking sector gives me a unique birds-eye view on the defragmented issues at large. I felt that there has to be a way to bridge the gaps.
But banks themselves are inflexible and restricted by how they operate. Central bank rules and regulations limit the utilisation of digitalistion to a large extent. For example if one wants to open a bank account one has to still use pen and paper in this day and age.
The GDP growth in Bangladesh indicates strong growth in the economy. But it is mostly activities on the top tier. Positive movement across different sections of the society is a must if we are to move into a “mid-income country” category soon. Despite the positive growth, the gap between the top and lower economic tier is increasing. You need to have a balance in all the stages.
And that is the broader economic context behind Circle FinTech. We are basically a financial inclusion company. We offer a range of platforms, but ultimately, the goal is to have a 100 percent inclusion.
We want to accommodate the top tier in the economy that already has smartphones, to the farmer working in the field.
MFS has come a long way in Bangladesh. bKash is very big and in most cases very deserving as well. However, its legal limitation is that it cannot provide credit, and neither is it capable of offering savings instruments.
bKash has the presence; it solved a huge part of the problem, but not the entirety of it.
The MFS model is still a ‘cash-digital-cash.’ Real digitization does not take place. What MFS has achieved is the acceleration of money transfer. It finally moves into cash again, which is a significant issue.
The reason you go back to cash is that there aren’t enough means for you to be in digital.
For us, we don’t have an aspiration to become another bKash. We don’t even want to be dictating banks either. Both are partners. What we want to do is play a platform role. What we focus on is to provide robust infrastructure so that digitization can happen fast and in a sustainable manner.
Tell us about your main products and services
We have three different platforms currently. The first is an interoperable digital network. It is a unified payment interface we call it CONNECT and it is a trademarked brand in Bangladesh. India has this, and they call it ‘UPI.’ Every authorised body can connect to this platform and access ‘Account Information and Payment Initiation’ as a service securely across all authorised stakeholders in the market, so that digitisation can happen faster and traceability is maintained.
Entities that are trying to connect in an ad-hoc manner are not realising now but soon will understand that the cost associated with an ad-hoc modality is going to be a negative impediment to their business growth in the near future. Our goal is to create a ‘plug and play’ platform for our Strategic Partners (SPP) such as Bank, NBFI, MFS, PSP, MFI, SEC, Insurance, and Telcos to engage in financial transactions amongst each other. We want to make the transition smooth.
Security is of paramount importance to us because we are connecting to everyone. Our system cannot be compromised. We have already implemented ISO:27001 for Information security, and we are doing PCI DSS for card payment security. Nearly 20 percent of our budget is allocated to security compliance. The bottom line is if we need to maintain a standard or compliance, we will make sure that we comply.
Through this network, we can expose API that authorised institutions can consume. In some cases, we also bring in partners. We call them digital inventory partners. So, we now have inventory from companies like Sheba, Pekhom. We are extending their digital catalogs to the strategic partners, so that partner customers get those services in their own platforms. Similarly, we are taking banking facilities, payment services to the digital inventory partners.
The second platform is ‘ConnectAUX,’ and it’s poised to start somewhere in the last quarter this year. It is our physical distribution hub. The model is much like a money market model. We are planning to deploy 100,000 touchpoints across the country.
Our system is MIS activated, which means we can track everything in real-time. It makes us better equipped than anyone currently in the market to handle incidents related to real-time reporting, AML, and CFT. All transactions are located using GPS triangulation, enabling us with the ability to track any ongoing fraud and intercept quicker than any player in the market.
Our touchpoints will not be limited to only the banking services. As I said, we will have digital inventory partners, Banks, NBFI, MFS, PSP, MFI, SEC, Insurance, and Telcos to activate real interoperability. We are trying to take away the expense that companies have in deploying that infrastructure, be it physical or digital.
We will have a revenue share model. We are not out there to sell things. So far, we are not asking anything from the banks for providing our software. There are no AMC or integration costs, etc. Maybe it might not be free owing to expenses in the future.
Why are you not charging the banks right now if you have to do it later?
All banks have procurement policies and other red tapes for almost everything. It’s complicated, and usually, it slows down the pace of impact of our cause. So, we wanted to bypass the tender process. I’m not against due-diligence and standard operating procedures. Those should be in place. But if we remove the monetary transaction out of the way, then there is no room for ‘under the table’ negotiations as there is no money involved. We are new entrants to the market and are always subject to unfair competition such as collusion, staged denial of entrance by some market incumbents.
Nonetheless, we are not bothered about the harmful practices that are so rampant in the financial sector. We believe that our platforms will create positive disruption in the market, and that will eventually dictate our cause be recognised and accepted by all. We are already receiving calls from a lot of Banks, NBFIS as such who are very curious to know how they can utilise our platforms achieve better business growth for themselves. At this moment of time, our strategy is to reach the target market share.
What we offer as a platform to our partners, far outweigh the cost that they will bear.
What is the third platform?
The third platform is the merchant acquisition. As I said, consumers are predominantly in a ‘cash-digital-cash’ state at the moment. Consumers are going back to cash because merchants don’t accept digital. That’s the main barrier to digitisation.
This is why we are placing a substantial focus on activating as many merchants as possible that can accept digital payment. That is why we are working with all sorts of partners. The most interesting is the FMCG partners. They trade with so many different stores regularly.
There is a particular model that we use. We are trying to see where we can team up with these entities. FMCGs tell us that the stores need credit. They ask us to facilitate relations with banks for credit. This, in turn, can significantly benefit the banks and NBFI as their Non-performing loans (NPL) can be better utilised. Again we have a lot of interested Banks and NBFI talking to us about this. It is certainly not an easy feat, but we believe we have the means to help the lending community access to these merchants for the ultimate goal of Financial Inclusion.
So, when we tried to work one solution – ‘digital merchant,’ we found out that there’s a bigger problem and are well on our way to solve this issue that will impact millions of SMEs in the country. What we are trying to do with merchant acquisition is something very new in Bangladesh. If we can do this properly, then it will be a revolution, especially when it comes to empowering the SME sector.
We are calling this one, the third platform, ‘ConnectReach.’ It’s purely payment, merchant and supply chain orientation focused. It’s both B2B and B2C.
When you will fully deploy, what would it mean for the market?
When ConnectReach is fully deployed, it will usher an era of digital payments, unlike anything this country has seen. Think of what Alipay and WeChat Pay did for China. We expect the same for Bangladesh. We expect a stronger national GDP growth, and the Government tax collections should increase under NBR. International/local trade facilitation will be streamlined.
We expect living standards to increase, and most of all the achievement of Government’s “My village, My City” will finally be a success.
You said you will have 100 thousand agents for the ‘ConnectAUX’ service. Walk us through how it will function in the real world.
‘ConnectAUX’ is a physical distribution network, which primarily will do work on the agent banking side, but it also has the capability to be interoperable, which means all Strategic Partners (SPP) such as Bank, NBFI, MFS, PSP, MFI, SEC, Insurance, and Telcos will be able to take advantage of it.
We are talking about cross-channel interoperability. So, let’s say we have Jamuna Bank and Sonali Bank in our channel. You are a customer of Jamuna Bank, and you are on a trip away from Dhaka where Jamuna doesn’t have a branch. But there’s a Sonali Bank branch or one of our ConnectAUX touchpoints. What you can do is walk into that branch or our touchpoint and get the service of either “Transfer, Payment, Deposit or Withdrawal” for your Jamuna Bank account.
This is not a new concept. But no one has been able to make this happen. We believe we can make this work with the use of our advanced technology and infield operations procedures.
Our Global KYC and settlement system are built on blockchain technology, that is virtually impossible to corrupt. Banks operate in a closed-loop environment. We are proposing to open that up through a secure channel that will be under the supervision of Bangladesh Bank. This will bring down the cost and increase utility for the consumers. In England, there is something called the Open Banking Movement. European Union has recently introduced PSD2 or Payment Service Directive 2. It’s designed to open up the banking system much more comprehensively, but with much more control as well. This accommodates for extendibility of the banking services at great lengths.
We are trying to do the same thing here. It could be through the ATM channel, could be branches or POS channel, or could be our own touchpoints. It can be all sorts of combination.
Going forward, what we will promote our network, so if a customer sees the CONNECT logo, he/she can legitimately expect that they will get the services there. The services are transfer, payments, deposits, and withdrawals. These are our four channels.