Electronic payment platform in the offing

The use of both credit and debit cards, also referred as plastic money, are increasing gradually despite the lack of adequate infrastructure facilities particularly in rural areas of Bangladesh.
Security concern is still prevailing in the digital payment system while the central bank of Bangladesh is updating its regulatory framework time-to-time to minimise its operational risks.
The government has taken a move to reduce or discourage cash transactions through establishing an electronic payment platform to prevent money laundering and terrorist financing activities, officials said.
It will also help establishing cashless payment system in future to enhance revenue earnings along with ensuring transparency of transactions.
They also expected that the move will facilitate the ongoing financial inclusion initiative through bringing more un-banked people into the banking network.
The Ministry of Finance has already formed a high-powered committee, headed by Manik Chandra Dey, additional secretary of the ministry, in this connection.
Three departments -Payment System, Cash Management and BFIU (Bangladesh Financial Intelligent Unit) - of the Bangladesh Bank (BB) are now working to prepare an action plan to establish the platform.
"We're now working on the issue and will submit our opinions to the ministry," BB spokesperson Shubhankar Saha told the FE Tuesday.
The central bank had taken different measures including interoperable of POS (Point of Sale) as part of reduction of cash transactions, Mr. Saha, an executive director of the central bank, explained.
He also said the card issuing banks have already been advised to find out merchants at district level for setting up POS to encourage the use of plastic money across the country.
Bangladesh expends around Tk 5.0 billion each year for printing of bank notes, it was learned.  
However, transactions using both debt and credit cards are increasing gradually. There has not been any massive awareness building campaign by authorities concerned, according to officials and bankers.   
Debit card transactions increased by more than 4.0 per cent or Tk 11.52 billion during the first quarter (Q1) in the current calendar from Tk 278.67 billion in the final quarter of last year, according to the central bank statistics.
During the period under review, the transactions using credit cards also rose by 3.53 per cent or Tk 714 million to Tk 20.95 billion from Tk 20.24 billion in the Q4 of 2016.
Currently, 9.0 million debit cards are being used across the country while the number of issuing credit cards stood at around 1.0 million, market operators said.
People used their credit cards mostly for purchasing at shops and online, which credit amount payment through POS increased by nearly 3.0 per cent to Tk 3.40 billion in the Q1 of this year from Tk 3.30 billion in three months before.
The cash out by credit cards through ATMs (Automated Teller Machines) also rose to Tk 153 million during period under review from Tk 144 million in the Q4 of 2016.
Officials data showed that people were using more cards issued by local private commercial banks (PCBs) than the foreign commercial banks (FCBs), operating in Bangladesh.
Dutch-Bangla Bank Limited (DBBL) is not interested to set up more ATMs for expansion of its card-based transactions network, according to Abul Kashem Md. Shirin, managing director & chief executive officer of the PCB.
Currently, around 9,000 ATM booths are now in operation across the country, of which the DBBL alone operates 5000 including Fast Tracks.  
"The regulators should encourage all the scheduled banks to set up the ATM booths through increasing transaction sharing cost," the senior banker told the FE.
He also suggested the policy markers' to facilitate POS, e-Commerce and Mobile Financial Services (MFS) instead of ATM booths to go for cashless society in future.
Some banks usually offer discounts linked with different selected outlets in the capital for their card holders to facilitate the celebration of different religious and social festivals.
Under the offer, cardholders of the banks get discounts ranging between 10 per cent and 30 per cent while purchasing goods and services from various outlets like Aarong, Perfect, Persona, Dorjibari, Rong, Khaaki and Banglar Mela during the offer period.
Besides, major banks have introduced a number of concepts including 'Buy-1-Get-1' in the market to poularise the use of credit cards.
But the banks are charging their clients higher interest rates ranging between 18 per cent and 36 per cent for credit cards loans where the overall weighted average interest on lending stood at 9.62 per cent in May, according to the BB data.
However, the interest on credit card loans are being charged to maximum 48 per cent by American Express in India while Commercial Bank of Ceylon and Sampath Bank of Sir Lanka are imposing interest rate on same product at 24 per cent.
Currently, most banks are offering 45-50 days interest-free period to the credit cardholders. Though, cardholders do not incur any interest for this period, the card issuing bank has to absorb the cost of fund.
Seventy per cent of the credit cardholders pay off their outstanding amounts within the due date and thus do not pay any interest at all in addition to enjoying all, other benefits that come with the cards, according to the Association of Bankers Bangladesh (ABB), a forum of the banks' chief executives.
The ABB also said only 30 per cent of cardholders revolve the outstanding amount and pay interest. As such, the cost of fund for all the users is in-built into the pricing to make the product financially viable.
As a result, the effective interest earned by the banks on the total average outstanding credit card portfolio ranges from 18 per cent to 20 per cent, the Association explained in an appeal, submitted to the BB earlier.  
However, nearly 2.90 billion credit card loans have already been identified as classified ones, which were 8.35 per cent of total outstanding amount to Tk 34.70 billion as on December 31 last year, according to a BB's confidential report.
A portion of credit card loan of 26 banks out of 56 has already become classified despite close monitoring by the banks concerned, it added.
The central bank is now engaged in resising the guidelines on credit card operations, allowing the banks to fix the interest rate on card users on the basis of any loan instead of consumer credit.
The banks earlier were asked not to charge more than 5.0 per cent of the highest interest rate of a consumer loan for credit card users.
The decision was taken at a meeting with leaders of the ABB held at the central bank headquarters in the capital on June 19.
The meeting also decided that the guidelines on credit card operations will come into effect from January 01, 2018 instead of May 11 last.
The central bank for the first time issued the guidelines on the banks' credit card operations to ensure transparency and mitigate business risks.
The ABB earlier submitted a proposal to the central bank, seeking revision of the guidelines on credit card operations.  
The credit card is not a conventional consumer banking product, rather it is a quasi-financial 'lifestyle' payment product, which is also one of the main enablers of a cashless and digital society.
Talking to the FE, AH Majumder, executive vice president of Prime Bank Limited said there is an enormous potential for increasing the use of plastic money than risks.
"The government should provide incentive to card users for popularizing the use of plastic money in Bangladesh," the private banker explained.
He also said the Prime Bank is now implementing a project to convert its magnetic cards into chip-based ones in line with the BB's advice.
Earlier on March 16 last year, the central bank advised the cards issuing banks for ensuring payment card industry-data security standards (PCI-DSS) certification and offer chip-based cards for a higher level of security.
The BB had taken the move after the withdrawal of funds from six ATM booths of three PCBs using duplicate debit cards during February 6-12 last year.
"Our all cards will be converted into chip-based by October this year," the private banker noted.

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