Bangladesh's payment service providers will have to take prompt remedial measures against frauds and forgery for ensuring public confidence in the financial system, the central bank has said.
Cross-border financial transactions need to be dealt with due diligence because of increasing cyber threat, complexity of transactions and involvement of multiple cross-frontier jurisdictions, it warned.
The Bangladesh Bank (BB)'s latest warning came against the backdrop of rising trend in Fintech ecosystem in the last couple of years mainly on payment and clearing systems in Bangladesh.
Fintech is the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.
The use of smartphones for mobile banking and investing services are examples of technologies aiming to make financial services more accessible to the general public.
Talking to the FE, Mohammed Nurul Amin, advisor of ipay, the country's first payment service provider (PSP), said, "We're making cross-border transactions in line with Bangladesh Financial Intelligence Unit (BFIU)'s rules and regulations to avoid risks."
The PSP submits its monthly transactions report to both the BFIU and Payment Systems Department (PSD) of the BB on a regular basis, the senior banker added.
Mr. Amin, a former chairman of the Association of Bankers, Bangladesh (ABB), said ipay is complying with Know Your Customer (KYC) rules like banks using National Identity Cards (NIDs) to avoid frauds and forgery in digital payment system.
Bank account is a must for ipay users, he said while explaining security measures for avoiding risks.
"… Fintech is in nascent stage to pose any major systemic threat, it still requires close regulatory supervision and monitoring due to its constant evolutionary nature with the latest technology," the BB said in a study on the Financial Stability Implications of Fintech in Bangladesh, released recently.
Fostering well-regulated Fintech solutions in cross-border foreign exchange transactions would enhance remittance inflow through legal channels, which has favourable implications for financial stability, according to the quarterly Financial Stability Assessment Report for July-September 2018.
On the other hand, extensive use of Fintech such as credit cards for purchasing foreign goods and services might cause leakage of foreign currency from the country, it noted.
"Easily available Fintech solutions might incite transactions beyond legal boundary like hundi," the report cautioned.
Talking to the FE, Abul Kashem Md. Shirin, managing director and chief executive officer of Dutch-Bangla Bank Limited (DBBL), said the overall security system will have to be kept updated using the latest technologies for avoiding risks in digital payment system of Bangladesh.
"Each bank should focus on IT security with investing more funds for averting risk in future," Mr. Shirin said.
DBBL has already established a separate IT security department to avert possible risk, the senior banker added.
From the current perspective of Bangladesh, likely vulnerability of Fintech on financial stability may transmit largely through payment system mechanism, the stability report said.
Apart from the payment system, which might be susceptible to cyber security and other operational risks, the systemic risk from other channels of Fintech is still considerably low, according to the BB.
"Fintech paves the way for payment system development, which can contribute to develop a more integrated, efficient and less frictional financial system," the report explained.
It said a large number of players constitute Fintech ecosystem in Bangladesh including regulators, Fintech companies, investors, financial institutions and end-users.
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