Shifting From Cash to Digital Remittances During the Pandemic: A Case Study of BRAC Bank in Bangladesh

Introduction

Remittances are a lifeline for Bangladesh and its people. Before the COVID-19 pandemic, formal remittance inflows totalled US$22 billion, and estimates suggest that informal inflows were as high as $14.5 billion.¹ As of 2018, 10 million people in the country, or 9 percent of the adult population, received remittances. Of these, 60 percent were women and 78 percent lived in rural areas.²  

BRAC Bank Limited is a commercial bank in Bangladesh that, since its inception in 2001, has partnered with 57 exchange houses and 7 banks to build a worldwide remittance network. bKash, one of BRAC Bank’s subsidiaries, is the country’s largest mobile wallet provider with 40 million customers, including 400,000 digital remittance recipients.

Compared to cash, digital remittances are cheaper and faster, promote formalization of international remittance flows, and may support the national economy by fostering foreign currency exchange — supporting the balance of payments, improving sovereign credit ratings and reallocating capital resources towards more productive and inclusive growth.³ As such, BRAC Bank partnered with UNCDF to improve Bangladeshi remittance recipients’ access to digital channels and to strengthen the use of remittance-linked, value-added services.  

UNCDF is also providing data- and research-related technical assistance to help BRAC Bank better understand its data, act strategically on emerging insights, and ensure that innovation remains inclusive and migrant-centred. The research partnership aims to help BRAC Bank better understand the markets in which it operates, reach new customer segments, and better position itself in the market.

To kick off the research collaboration, the two organizations conducted institutional and data mapping, completed a detailed market scan of Bangladesh’s remittance market and analyzed 3.8 million transaction records covering 800,000 international remittance customers. This blog shares the initial insights on remittance access, usage, and the financial inclusion and resilience generated so far. It is part of a wider UNCDF insights series on migrant- and gender-centric remittance innovations.

Access to digital remittances 

Access to digital remittances depends on the availability, safety and convenience of such solutions in both the home and host countries. Gender and proximity to urban centres are key dimensions of access.

Uptake of digital remittance channels is low among women customers

Although women comprise 60 percent of remittance recipients in Bangladesh,⁴ only 37 percent of BRAC Bank’s digital remittance recipients are women. This is largely due to low levels of digital and financial literacy and limited adoption of digital and financial services among women in Bangladesh broadly. For example, only 65 percent of women in Bangladesh own mobile phones compared to 84 percent of men,⁵ and only 43 percent of adult women have an account with a bank, financial institution or mobile money provider, compared to 63 percent of men.⁶  

Despite these challenges, digitization has the potential to bridge the gender gap given its ability to increase the accessibility, efficiency and convenience of financial services.

We have a separate product segment called Tara (meaning ‘star’) which not only offers specialized products for female customers, but also works for women’s empowerment, gender parity and inclusivity. Together with UNCDF, we will explore how to make our remittance products more accessible to women.

Sabbir Hossain, Deputy Managing Director, COO and Member of Steering Committee, BRAC Bank

End-to-end digital transfers have the potential to reach the most remote rural areas

More than 70 percent of Bangladesh’s population lives in rural areas, where mainstream banks struggle to reach customers. As a result, as many as 92 percent of women in rural areas do not have access to a formal bank account.⁷ Moreover, agent banking for cash transactions is not always available in rural areas. As shown in Figure I, digital remittances, especially through mobile wallets, offer excellent coverage, efficiently reaching customers in every corner of the country.  

Disclaimer: The designations employed and the presentation of material on this map do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNCDF concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries.

We do not want remittances to stop at cash withdrawals. We want to grow remittance-linked deposits and bring the migrants and their families under the umbrella of our financial inclusion, which is a key goal of our engagement with UNCDF.

Mahiul Islam, Head of Retail Banking and Member of Steering Committee, BRAC Bank

Usage of digital remittances

The extent to which migrants use digital financial services depends on many factors, for instance, whether the services are designed with migrants’ needs in mind and whether migrants understand and trust the services. In 2020, the pandemic, national policies, and the BRAC Bank and UNCDF initiatives led to dramatic shifts in remittance frequency, values and channels. The move towards digital receipts and the development of mobile wallet channels, especially with key sending countries, has enabled smaller, more frequent transactions.

The COVID-19 pandemic led to increased use of digital remittances. When the pandemic broke out in early 2020, there were concerns that remittances in Bangladesh would decline, which would negatively impact the economy, specifically the well-being of migrant recipient families. While remittances to low- and middle-income countries around the world did fall by 1.6 percent in 2020, the opposite effect occurred in Bangladesh, where inbound remittances increased by 18 percent.⁸ 

Digitization is in our DNA. Long before the pandemic, we were focusing on automated payments and partners that have strong digital footprints. That is why our customers were able to access cashless remittances as soon as the pandemic hit. 

Shahrear Zamil, Head of Remittances and Team Lead of Project Committee, BRAC Bank

As shown in Figure II, at BRAC Bank specifically, the number of inbound remittance transactions increased, and despite a temporary dip, the volume of transactions remained relatively stable.

The uptake in remittances to Bangladesh was due in part to the pandemic-induced cancellation of the Hajj pilgrimage, which led families to reallocate travel funds to remittances for family members, as well as to the July 2020 flooding in Bangladesh.⁹  

However, the increase was also largely thanks to a rapid and dramatic, largely pandemic-induced shift from cash to digital—and likely from informal to formal—remittance channels. As Figure II shows, the proportion of BRAC Bank remittance transactions that were received digitally, in either a bank account or mobile wallet, increased from 37 percent in 2019 to 75 percent in 2020. By nature, pandemic lockdowns restricted remittance transactions to formal, digital channels. At the same time, a BDT 30.6 billion (US$361 million) Government of Bangladesh programme offered a 2 percent discount on remittances sent through formal channels. Many financial service providers offered additional incentives, for instance, bKash offered an additional 1 percent discount.¹⁰ Finally, after the launch of their partnership in May 2020, BRAC Bank, with the support of UNCDF investments, scaled existing digital remittance delivery channels such as Bank direct credit and bKash mobile wallet.

It was a very timely move from UNCDF, promoting and endorsing cashless remittance channels at the onset of the pandemic, at a time when collecting cash from physical outlets was risky and not accessible to most. The traction we achieved speaks to the massive potential for digital remittances in the coming days. 

Selim R.F. Hussain, Managing Director and CEO, BRAC Bank

Digital channels enable customers to send more remittance transactions of smaller amounts 

Digital transfers are not just cheaper, faster and safer than cash remittances. They also enable smaller, more frequent transactions, as the BRAC Bank transaction data displayed in Figure III demonstrates. As many as 86 percent of transactions received through bKash mobile wallets are under $200, compared to 30 percent of those received in a bank account and 19 percent received in cash.

The development of mobile wallet channels is corridor specific and greatly depends on partnerships with remittance service providers in sending countries. Figure III shows that among the main countries sending remittances to BRAC Bank customers, South Korea, Singapore, and the UK, where significant mobile wallet channels have been developed, send the lowest value transactions. Mobile wallet uptake has been lower along the Malaysia, Qatar and Saudi Arabia channels, which are still dominated by larger transaction sizes.

Financial inclusion and resilience 

Improving people’s financial resilience — their ability to withstand setbacks, for instance by linking remittances with value-added products and services can reduce people’s vulnerabilities during times of crisis and beyond.

Remittances can be an important component of financial inclusion and resilience. Even before the pandemic remittance recipients in the Bangladesh market had higher rates of financial inclusion,¹¹ at 55 percent, compared to 47 percent for the overall population. At the same time, the majority of recipients in the market cashed out their remittances and often spend them on consumption. In 2018, only 1 out of 4 remittance receivers saved money and often through informal means rather than in the bank. The dashboard provides more information on the financial inclusion and resilience of remittance recipients in the country.  

The recent shift from cash to digital remittance channels in Bangladesh offers opportunities to promote broad-spectrum financial inclusion through remittance-linked financial services such as domestic payments, deposits, savings and insurance. Digitization may also support remittance use cases such as spending remittances on education, health or utility bill payments. The BRAC Bank and UNCDF partnership is further exploring the addition of such value-added services and will share lessons learned in future blog posts.

Achievements and next steps 

After a year of implementation, BRAC Bank reached the targets it set with UNCDF at the outset of the project, scaling up existing digital remittance channels to reach 265,000 migrants and their family members in Bangladesh with over 1 million transactions, two-third of which were valued at under $200. Transaction data shows that during the period of project implementation, the percentage of women customers using digital channels at BRAC Bank increased from 37 to 45 percent. The partners also invested in developing and launching new channels including Upay mobile wallet, Visa Direct, REMITnGO, RippleNet and Western Union’s Cash to Digital platform, all of which are gaining momentum.

The next phase of the joint activity will explore remittance-linked savings deposits.The next steps of the research collaboration will include:

• In partnership with KIT Royal Tropical Institute, a lean data survey of 500 BRAC Bank remittance recipients will explore demand-side challenges and constraints and look at barriers to access that women face.
• In partnership with Innovations for Poverty Action,¹² a quantitative impact evaluation exploring women’s access to digital remittance services and the potential for BRAC Bank to move toward providing a fuller suite of remittance-linked savings services.

By the conclusion of the partnership, the aim is for BRAC Bank’s digital financial services to be more gender-inclusive and migrant-centric,¹³ better addressing the specific needs of last-mile customers.

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References

1. Leon Isaacs, “Study on remittance regulatory frameworks and accessibility of regular remittance channels of the Colombo Process member states”. (Colombo, International Organization for Migration Sri Lanka, 2019). Available at https://publications.iom.int/books/study-remittance-regulatory-frameworks-and-accessibility-regular-remittance-channels-colombo.
2. InterMedia Financial Inclusion Insights Program, “Bangladesh: Wave 6 report FII tracker survey 2018”, Data Fiinder database.
3. Amil Aneja, Robin Gravesteijn and Byoung-Hwa Hwang, “Remittances as a driver of women’s financial inclusion”, UNCDF, 2017. Available at https://www.uncdf.org/article/2173/remittances-as-a-driver-of-womens-financial-inclusion-in-the-mekong-region.
4. InterMedia Financial Inclusion Insights Program, “Bangladesh: Wave 6 report FII tracker survey 2018”, Data Fiinder database. Available at http://fii-website.staging.interactive.columnfivemedia.com/data_fiinder.php. This financial inclusion data was analysed using an interactive dashboard that provides more information on digital and financial gender divides in Bangladesh.
5. GSMA, The Mobile Gender Gap Report 2022. Available at https://www.gsma.com/r/wp-content/uploads/2022/06/The-Mobile-Gender-Gap-Report-2022.pdf?utm_source=website&utm_medium=download-button&utm_campaign=gender-gap-2022.
6. World Bank, “Account”, The Global Findex Database. Available at https://www.worldbank.org/en/publication/globalfindex/Data#sec3.
7. InterMedia Financial Inclusion Insights Program, “Bangladesh: Wave 6 report FII tracker survey 2018”, Data Fiinder database. Available at http://fii-website.staging.interactive.columnfivemedia.com/data_fiinder.php.
8. Dilip Ratha, Eung Ju Kim, Sonia Plaza and Ganesh Seshan, “Resilience: COVID-19 crisis through a migration lens”, Migration and Development Brief No. 34 (Washington, D.C., KNOMAD-World Bank, 2021). Available at https://www.knomad.org/publication/migration-and-development-brief-34.
9. Ibid.
10. Amil Aneja and Sheikh Tanjeb Islam, “Bangladesh faces a crisis in remittances amid COVID-19”, World Economic Forum, 16 June 2020. Available at https://www.weforum.org/agenda/2020/06/bangladesh-faces-a-remittances-crisis-amid-covid-19/.
11. Defined as percentage of adult population who hold an account with formal financial services under some form of government regulation. See InterMedia Financial Inclusion Insights Program, “Bangladesh: Wave 6 report FII tracker survey 2018”, Data Fiinder database. Available at http://fii-website.staging.interactive.columnfivemedia.com/data_fiinder.php.
12. See more information on ‘The Impact of Migrant Remittances and Financial Services on Savings’ at https://www.poverty-action.org/study/impact-migrant-remittances-and-financial-services-savings
13. See further reading, UNCDF (2021) Migrant-Centric And Gender-Smart Digital Remittances The Principles To Designing Digital Remittances That Migrants Want And Need, by Ogba, Kamau and Vossenberg. https://migrantmoney.uncdf.org/wp-content/uploads/2021/12/Designing-gender-smart-and-migrant-centric-digital-remittances-.pdf