The payment ecosystem plays a vital role in the overall functionalities of the economy. With the shift of digitization in finance, the digital payment ecosystem in Bangladesh is going through a great transformation to cater to the best possible services. We will explore all the issues you need to know with respect to the economy of Bangladesh.
Table of Contents
What is a payment system?
A payment system covers all the processes and parties involved in the fund transfer between parties. The parties may be individuals, business entities, governments, communities, etc.
What is a digital payment system?
The digital or e-payment system is the payment settlement between parties using digital devices and processes. Electronic payment plays significant roles for building a cashless economy. The processes and devices may include the following:
- POS
- Mobile Phone
- Cards (credit, debit, prepaid, shopping, entertainment, charge)
- QR Codes
- Software
- Apps
- E-wallets
- SWIFT
How is your payment ecosystem?
Digital payment does not require everything online. The involvement of digitization may be:
- Partially digital: A fraction of the process is digital; other steps are manual. For example, an online transfer of funds between parties requires digital transfer but manual cash deposit by the sender and cash collection by the receiver.
- Primarily digital: The initiation may be digitally, but the end-user may need manual intervention: An example may be the fund transfer to agent/bank online/via apps, but the receiver receives the Cash physically.
- Fully digital: Full digital payment requires all procedures digitally. An example of full digital payment may be the digital or online, or app-based fund transfer directly to the app or account of the receiver who does not go for physical cash collection.
Benefits of Digital Payments
The whole world is moving fast towards digital payments. If you go digital in your payment ecosystem, there are many benefits and takeaways. Some of the benefits available for digital payments are in brief:
Financial inclusion
Digital payments can remove the bottlenecks of distance and time. In addition, financial inclusion may be more accessible by way of access to savings, credit, insurance, and transfer.
Transparency
Digital payment services ensure the best possible transparency with necessary documents and traces. Moreover, such documents are easy to preserve, share, and access.
Low cost
Transaction cost for digital payments is less than traditional ones. The cost of physical movement, time, etc., is not necessary if you go digital. The cost of cash printing and transport also goes down when digital platform outnumbers the amount of cash for transactions.
Security
Digital payments are more secure than cash transactions. The chance of theft, tear, and damage is no more when you use digital wallets and channels.
Gender equity
When dealing with physical transactions, gender issues matter significantly in many societies. However, digital payments are almost free from gender dependence and ensure gender equity to a great extent.
Fast
Digital settlements are usually instant and real-time. It is faster than traditional transactions.
Boon for small business
The growth of digital payment systems has accelerated the development of small businesses. Easy and instant fund transfers without physical visits make the small entities run efficiently. Microfinance and microloans get momentum with the excellent service of digital payment systems.
Time-saving
Digital payments require a few clicks on your screen. You do not need to visit anywhere in most cases. So, you can focus on other priority projects and tasks.
Contactless
The digital ecosystem for payments promotes contactless payments. You can transfer funds without coming in touch. During the coronavirus and social distancing, such contactless feature was the most prominent.
Factors influencing the digital payment ecosystem in Bangladesh
Some factors paved the way for the digital payment ecosystem to reach today’s scenario. Let’s discuss some of the driving forces:
Digital Bangladesh Vision
Digital Bangladesh has been a buzzword since the declaration in 2008. The government is trying hard to go digital in all possible ways. Payment systems have also got the motivation and pressure to keep pace with the digital government mandates. Around 70% of government payments are digital, and the rate is increasing day by day.
Automated Challan System
The government of Bangladesh has started Automated Challan System from July 2021. It is a milestone for government cash collection digitally. Now, people can make payments to the government with their bank or mobile money. Almost all the banks are helping the revenue collection mission in digital form.
Coronavirus
Coronavirus encouraged the government and corporates to implement digitization in the payment ecosystem. It was necessary to tackle unforeseen scenarios like the lockdown and shutdown. Bangladesh Bank came with some initiatives to go digital for payments. In addition, salaries and government cash aids were encouraged with digital modes of payments. Corporate firms especially the garment factories were also willing to use digital wage payments. Many innovations and startups
- MFS Accounts in August 2019 is 73.60 million, whereas in August 2020 is 93.90 million
- Internet banking customers in August 2019 is 2.30 million, whereas in August 2020 is 2.90 million.
- Urban MFS Accounts in August 2019 is 27.20 million, whereas in August 2020 is 46.40 million.
- Rural MFS Accounts in August 2019 is 35.30, whereas in August 2020 is 58.60 million.
Stimulus through digital channels
Government cash aids disbursement through mobile financial services led to a significant jump in account opening. Besides, salary payments of garment sectors were encouraged using MFS that increased the account opening and usage. For a long time, government stipends for the students have been given in MFS.
Players in the payment system ecosystem in Bangladesh
Mobile Financial Services
With the growth of mobile users in Bangladesh, Bangladesh Bank initiated mobile financial services in 2011 for meaningful financial inclusion for unbanked people. Primarily, the poor population was the target, but now the MFS has reached anywhere and everywhere. Though the MFS in Bangladesh is bank-led, Post office-led Nagad is also in operation. There are 14 MFS providers now in Bangladesh through bkash, Nagad, Rocket, and Upay control more than 95% of users.
Payment Service Providers and Operators
With the provision of “Bangladesh Payment and Settlement Systems Regulation-2014 (BPSSR-2014)”, Bangladesh Bank allows license for Payment Service Provider (PSP) and Payment System Operator (PSO). PSP company facilitates payment(s) or processes to the clients and settle their transactions through a scheduled bank or financial institution; for example, Mobile Wallet, E-wallet, etc.
PSO licensees operate a settlement system for payment activities between participants where the principal party is a scheduled bank or financial institution. It may be as a payment gateway, payment aggregator, etc.
List of Authorized PSOs in Bangladesh
- IT Consultants Ltd
- SSL Commerz Ltd ( Licensed by BB as White Label Merchant Acquiring on 12/12/2022)
- ShurjoMukhi Ltd
- Portonics Limited (Licensed by BB on 12/01/2021)
- Soft Tech Innovation(aamarPay) (Licensed by BB on 22/02/2022)
- Optimum Solution & Services Limited (Licensed by BB on 23/08/2022)
- Service Hub Limited (Licensed by BB on 22/09/2022)
- Fingerprint Information Technology Limited(Licensed by BB on 23/08/2022)
- DGepay Services Limited (Licensed by BB on 02/08/2023)
- Paperless Limited (Licensed by BB on 26/09/2023)
WalletMix Limited was Licensed by BB on 22/02/2022 as PSO and Licence cancelled by BB on 20/11/2023.
List of Authorized PSPs in Bangladesh
- iPay Systems Ltd
- D Money Bangladesh Ltd
- Recursion FinTech Ltd (Licensed by BB on 04/06/2020)
- Green & Red Technologies Ltd (Licensed by BB on 16/03/2021)
- Progoti Systems Ltd (Licensed by BB on 17/11/2021)
- ABG Technologies Limited (Licensed by BB on 18/05/2023)
- Digital Payments Limited (Licensed by BB on 02/04/2023)
- Sheba Fintech Limited (Licensed by BB on 21/08/2023)
Progoti Systems Ltd received the PSP license after surrendering the PSO license on November 17, 2021.
Payment ecosystem in action
Central Bank initiatives
As the driver of the payment ecosystem, Bangladesh Bank is the decisive party and takes initiatives for healthy, safe, fast, and efficient payments. It has helped the digital journey of payment systems in Bangladesh in all possible ways. All the world-class concepts are encouraged taking the country’s perspective into account. The central bank needs to ensure digital infrastructure to encourage digital payments and discourage cash payments.
Payment ecosystem regulations
BB Order 1972 mandates Bangladesh Bank to regulate the payment ecosystem. Payment Systems Department manages everything regarding regulations, policy formulations, supervision of payment systems for easy, secure, and efficient fund transfers.
Bangladesh Bank plays a decisive role in digitizing payment systems in Bangladesh by supporting innovative ideas and ventures. For efficiency, it established Payment Systems Department in 2012 for dedicated service in payments, clearing, and settlement systems. The department ensures the law, regulation, licensing, and oversight of the payment systems. The department performs functions in the following broad categories:
- Strategy formulation of National Payment Systems,
- Operation of BACH with its two wings – BACPS and BEFTN,
- Implementation of NPSB for inter-bank electronic payments
- Facilitating e-Payment Gateways.
- Developing framework for Mobile Financial Services,
- Encouraging m-Commerce and e-Commerce.
- Modernize payment and settlement systems.
- Monitor and supervise the country’s payment system.
- Implementing Real Time Gross Settlement (RTGS) System
Payment Systems Oversight
Payment Systems Oversight is a vital role by the Bangladesh Bank to ensure the safety, efficiency, and soundness of payment systems. Bangladesh Bank facilitates the necessary infrastructural and regulatory support and monitors if everything goes right. It attempts to:
- Collect onsite and off-site data from systems and participants regarding the operation, risk exposures, business continuity plan, disruptions, disputes, etc., for monitoring.
- Assess compliance of systems and participants
- Identify the areas that need improvements or intervention.
- Facilitate ‘Self-Assessment’ based on regulatory requirements and International Standard.
a. Bangladesh Automated Clearing House (BACH)
The launching of BACH is one of the most remarkable initiatives by the Bangladesh Bank for payment digitization. It brought all the possibilities to settle the inter-bank payments digitally. BACH has two aspects:
(i)Bangladesh Automated Cheque Processing Systems (BACPS)
The digital cheque clearing system, BACPS, started in Bangladesh in October 2010. It processes paper-based payment instruments (cheque, pay order, dividend & refund warrants) with Cheque Imaging and Truncation technology in a batch processing mode. Presentation and the cut-off time for high-value cheques (Tk. 500000 and more) are 12.00 pm and 3.00 pm, respectively.
Presentation and the cut-off time for regular-value cheques are 12.30 pm and 5.00 pm, respectively.
(ii)Bangladesh Electronic Funds Transfer Network (BEFTN)
BEFTN started in Bangladesh in February 2011 to facilitate paperless inter-bank fund transfers. Both the credit and debit transactions s) are settled.
Credit transactions may include payroll, social security payments, foreign and domestic remittances, company dividends, corporate payments, bill payments, person to person payments, social security payments, and government tax payments.
Debit transactions may cover utility bill payments, insurance premium payments, Club/Association payments, EMI payments, Govt. salary, social benefits, all social safety net payments, and other government payments.
b. National Payment Switch Bangladesh (NPSB)
NPSB started its operation in Bangladesh in 2012 to facilitate account and card-based transactions for interoperable banks. It processes ATM, POS, and internet banking transactions with a balance inquiry, cash withdrawal, and mini statement. Currently, 53 banks are interoperable for ATM transactions and 25 for internet banking services.
c. Bangladesh Real Time Gross Settlement (BD-RTGS)
A milestone by Bangladesh Bank to settle instantly is the implementation of BD-RTGS in 2015. Most of the bank branches can settle real-time for Tk 1,00,000 or more.
d) Regulatory FinTech Facilitation Office (RFFO)
One of the most proactive initiatives by Bangladesh Bank is the launching of RFFO in October 2019. It is for the sake of accommodating and supporting the fintech and techfins with innovative ideas. Any creative idea in the financial sector is encouraged with pilot projects, sandbox, and regulatory supports. If any FinTech needs, it may contact RFFO for query or support through the email at:rffo.psd@bb.org.bd with required information and documents.
e) Government e-Transaction Processing Hub (GeTPH)
Bangladesh Bank has recently launched Government e-Transaction Processing Hub (GeTPH) officially on December 19, 2021. It is an in-house developed software by Bangladesh Bank to automate and facilitate the expenditure management of the government. GeTPH will facilitate the G2P fund transfer timely and effectively. The present EFT system transfers G2F funds with a limitation of 1,15,000 EFTs per day. The new system will be capable of more transfers as it processed more than 9,50,00,000 transfers during 2020-21 financial year.
Some of the key officials present on the event include:
- Fazle Kabir, Governor, Bangladesh Bank
- Abdur Rauf Talukder, Senior Secretary, Ministry of Finance
- Kazi Sayedur Rahman, Deputy Governor, Bangladesh Bank
FAQs on digital payment ecosystem in Bangladesh
Which Payment Gateway is best in Bangladesh?
SSLCOMMERZ is the best and also the largest digital payment gateway in Bangladesh. It is one of the oldest PSOs founded in 2010.
Why digital payment is better than cash?
Digital payments are faster, safer, and cheaper.
Is bKash a FinTech? Is bKash a unicorn?
Bkash is the first fintech unicorn in Bangladesh. It is a great achievement in the journey of digital Bangladesh.
How many FinTech companies are there in Bangladesh?
There are more than 114 FinTech companies in Bangladesh.
What includes digital banking?
Digital banking includes high-level automation, app-based and web-based processes to perform banking services.
What is the difference between BEFTN and RTGS?
BEFTN has no amount specification and settles later at a point of time whereas RTGS is a real-time settlement for more than Tk. 1,00,000.
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