Breaking down silos in digital payment services https://businesspostbd.com/post/33631

M S Siddiqui 27 Oct 2021 00:24:50 | Update: 27 Oct 2021 00:24:50

Digital payments provide safe and efficient ways to send money home, receive

or repay a loan on time, or buy goods from a merchant. bKash, Nagad,

Rocket etc., in Bangladesh and Alipay in China are offering digital payment

system. Instant payment systems—also known as fast, immediate, or rapid

payment systems— facilitate the types of small amount, mobile payments

most frequently used by customers. During the pandemic situation, these

payment services facilitated business transactions particularly online

shopping for essentials. These instant payment systems offer continuous, real-

time availability, allowing for transactions between providers to be completed

within seconds at any time of the day or night.

Bangladesh Bank issued the regulation titled 'Bangladesh Mobile Financial

Services (MFS) Regulations, 2018 in compliance with Section 7A(e) and Section

82 of the Bangladesh Bank Order 1972 and Section 26 (cha) of the Bank

Companies Act 1991 (amended in 2013). This regulation aims to: (i) Provide a

regulatory structure to establish an enabling and competitive environment to cater

cost-effective and real time MFS; (ii) Promote affordable access to formal financial

services at an affordable cost particularly for the poor and unbanked segments of

the population; (iii) Ensure compliance of AML/CFT requirements laid down by

the AML/CFT rules, regulations, guidelines and guidance provided by the

Bangladesh Financial Intelligence Unit (BFIU).

Digital payment through mobile phone is a big business in Bangladesh. Three-

quarters of Bangladeshis have a mobile phone, but less than half have a bank

account. Migrants from rural areas to the cities find the service of sending money

to their near and dear ones very useful since most of them lack access to banking

services. But, majority of transactions are over-the-counter where senders or

receivers do not use their own accounts and instead enlist the help of an agent to

send and receive.

The major players in the MFS industry which are regulated by Bangladesh Bank

include bkash, Rocket, MyCash, SureCash etc. of which bKash holds the majority

of the market share. At present 15 operators are providing this service to 10.27

crore account holders and average transaction of 2,000 crore through about 11,000

agents. The half of the digital transaction goes through bKash but another service

provider Nagad is catching up fast.

However, they are operating independently in Bangladesh. Because of the absence

of interoperability, customers create workarounds to transact that often are difficult

and costly. Examples include maintaining accounts with several providers, using

an agent to intermediate and reverting to cash. While the fundamental role of a

payment system remains enabling, the transfer of funds between accounts, open

banking and third-party payment initiation have expanded the role for institutions

that do not hold customer funds. In many other countries these instant payment

systems introduce interoperability while maintaining the customer experience—

continuous availability and real-time delivery of funds—that has allowed these

products to effectively serve poor people.

Systems that are interoperable, improve customer value by allowing users to

transact beyond their own network. They allow customers to send money to a

friend using a different service, pay a merchant by another provider, or withdraw

funds from an agent on a different network. In the absence of interoperability,

customers often develop inconvenient and costly workarounds to make their

transactions.

Interoperability also encourages competition by removing barriers to market entry

for smaller providers. It may create economies of scale by reducing the need for

individual providers to replicate distribution networks where financial access

points already exist.

Interoperability refers to the ability of different systems to work together. In the

context of digital payments, interoperable services allow customers to transact

beyond their own network. This might mean sending money to a friend who has an

account with another provider, paying at a merchant acquired by another provider,

or withdrawing funds from the agent of another provider.

In addition to improving customer convenience, interoperability encourages

competition by removing barriers to market entry for smaller providers. It also may

create economies of scale by reducing the need for individual providers to replicate

distribution networks where financial access points already exist.

Interoperability also encourages competition by removing barriers to market entry

for smaller providers. It may create economies of scale by reducing the need for

individual providers to replicate distribution networks where financial access

points already exist.

Central banks in several countries, including Australia, India, and the Philippines,

have guided a conversation on interoperability by outlining strategic priorities

through vision statements, payment system strategies, and other policy documents.

Some markets have issued more directive guidance. In Uganda, the central bank

set a time-bound mandate that required EMIs to interoperate by a certain date. The

industry responded by connecting first through an aggregator to meet the

regulator’s deadline and later established bilateral connections.

The facility to transfer funds from their mobile wallets to other accounts belonging

to another carrier and banks by December in a development that would give the

mobile financial service (MFS) industry a massive boost.

The interoperability will eliminate the charging of fees for sending money. As a

result, users will not count any fee in transferring funds within the same carrier and

from one carrier to another. After the interoperability comes into force, MFS

providers will have to stop charging.

Bangladesh Bank has taken a decision to facilitate the service as early as possible.

It has carried out a study to establish interoperability among MFS providers and

banks. Twelve banks, two payment service providers, and one MFS provider took

part in the piloting. But the decision has delayed due to some reported

technological problem.

BRAC has many innovative and leading roles in different sectors. bkash - a

subsidiary of BRAC Bank was launched in 2011, in partnership with US-based

Money in Motion LLC. Subsequently, the International Finance Corporation of

World Bank Group, Bill and Melinda Gates Foundation, and Ant Group, an

affiliate of the Chinese Alibaba Group became core investors in bKash. Within 10

years of its inception, bKash has successfully changed the entire landscape of the

financial payment system in Bangladesh, making financial services accessible and

affordable to all segments of the population. This should be duly recognized as

innovative entrepreneurs and for a wonderful name bKASH, which is very easy to

remember by the Bangladeshi common people.

bkash is enjoying dominating service provider for last 10 years although now

facing some competition and gradually reducing their service charge and

improving the efficiency. Bangladesh Bank has issue regulation to provide a

regulatory structure to establish an enabling and competitive environment to cater

cost-effective and real time MFS. Unfortunately, Bangladesh Competition

Commission (BCC) is not playing due role in the process. It could intervene with

authority to increase number of operators and reduce exorbitant high service

charges of the present operators. BCC may now take the issue with government

and central bank to expedite the introduction of interchangeability of digital

payment as early as possible. The interchangeability of services will increase

competition, help small players in the market to provide better service as

competitive prices.

The writer is a Legal Economist. He can be contacted

at mssiddiqui2035@gmail.com