Payments systems befitting 21st century economy
Sunday, 21 September 2008
Richard Boulter
Improvement in payment systems is a must for a modern economy. This will, for example, allow migrants' funds to be transmitted faster, cheaper, and more securely. New payment systems will encourage more rapid payment of salaries and wages by Government and businesses direct to employees' bank accounts. And upgraded electronic payment systems will provide banks with the capability to link in with new technology processes such as ATMs, swipe card machines, and mobile phone enabled banking.
Two years ago, the Bangladesh Bank joined in the Remittance and Payments Partnership (RPP) with the UK Department for International Development (DFID). The goal of this multi-million-pound partnership is to modernise the country's payments systems by fostering more reliable, faster and cheaper methods for overseas migrant workers to send money home. And this effort, marking its two-year anniversary now, is about to bear fruit.
The Bank's new Payment Systems Division, comprises bright, capable officers with both banking and technical expertise. They have studied the payments operations of other countries like Sri Lanka, Thailand, the Philippines, Singapore and Malaysia, learning of their best practices. And they have successfully completed an intensive training programme to enhance their understanding and technical grasp of modern payment systems.
Led by Bangladesh Bank staff, the RPP team has brought professional expertise from the UK, US, Canada and South Africa, as well as local talent, to develop a strategy to catapult Bangladesh into the payments systems of the 21st century. Based on detailed requirements defined by Bangladesh Bank, and following an open, competitive tender process that complied with international best practice, a contractor has been appointed to provide state of the art technology. This supplier is working with the RPP team to build two national payments systems that will move Bangladesh from a 1950s-era cheque-clearing system, to one of the most modern electronic payments systems in the world.
The first aim is to reduce cheque clearing from a high of three weeks to just three days maximum, across the country. The system will link all banks together, large and small, urban and rural, through dozens of cheque clearing centres throughout the country. Consumers, businesses and organisations can still write cheques just as they do today, but the cheques will be electronically scanned and captured and cleared electronically, in line with modern best practice.
Second, Bangladesh Bank is building a nationwide electronic funds transfer system, connecting all the banks, so that inexpensive, highly efficient electronic transfers can be made between bank accounts, whether in one bank or in multiple banks. It can be used for government payments, company payroll payments to employees, as well as business-to-business and for payments between consumers and businesses. Banks can then use this system to provide services like online bill payment.
Bangladesh Bank technical staff have been working with the RPP team on the infrastructure changes necessary to make these systems work. New rules and regulations are being drafted to cover electronic transfers. Training and coordination with each of the nation's banks is underway. A National Payments Systems Council, which includes representation from the banks, has been formed to set overall strategy.
Expanding the reach of these payments systems nationwide will be the key performance indicator. Banks need to make affordable accounts available to all Bangladesh's citizens. An astonishing 87 per cent of Bangladeshis today do not have bank accounts. But 35 per cent of the population have a mobile phone. Regulations are therefore being developed by Bangladesh Bank to allow for banking through mobile phones. This service will eventually facilitate quicker delivery of international and domestic wage earners' remittances in the rural areas.
The electronic funds transfer system can also provide a new channel for new account acquisition for banks, utility bill payments, purchases of other goods and services, and funds transfers (e.g. person-to-person payments, company payroll payments). Such payments systems have been highly successful in countries like Canada, Finland and the UK. Bangladesh Bank is working hard to make sure such a system is both safe and accessible to citizens throughout the country.
For expatriate migrant workers who need to send money home, these new systems will help: but first they must get their money into the country. Under the RPP project, grants are being made to private organisations to help them start innovative, new services to move money quickly and inexpensively, both within the country and overseas.
Finally, word of these new systems and how to use them must be spread throughout the migrant community, both here and abroad. The RPP project is funding a variety of outreach and education programmes through the University of Dhaka-affiliated Refugee and Migratory Movements Research Unit and through the International Organisation for Migration.
Over the next few years Bangladesh should leapfrog from the 1950s to 2010 and beyond in its payments systems. During the same period, we can look forward to the advent of mobile phone payments services that will provide a critical tool to bring the un-banked population under the financial services umbrella.
The UK, through its development partnership, is very proud to be working with the men and women of the Bangladesh Bank, who continue to work toward these goals. They are playing a critical part in building the foundation upon which the next generation of growth can further boost the nation's economy, and thus benefit all of its citizens.
The writer is Deputy Head, and Senior Private Sector Adviser, at the UK's Department for International Development (DFID) in Bangladesh.
Improvement in payment systems is a must for a modern economy. This will, for example, allow migrants' funds to be transmitted faster, cheaper, and more securely. New payment systems will encourage more rapid payment of salaries and wages by Government and businesses direct to employees' bank accounts. And upgraded electronic payment systems will provide banks with the capability to link in with new technology processes such as ATMs, swipe card machines, and mobile phone enabled banking.
Two years ago, the Bangladesh Bank joined in the Remittance and Payments Partnership (RPP) with the UK Department for International Development (DFID). The goal of this multi-million-pound partnership is to modernise the country's payments systems by fostering more reliable, faster and cheaper methods for overseas migrant workers to send money home. And this effort, marking its two-year anniversary now, is about to bear fruit.
The Bank's new Payment Systems Division, comprises bright, capable officers with both banking and technical expertise. They have studied the payments operations of other countries like Sri Lanka, Thailand, the Philippines, Singapore and Malaysia, learning of their best practices. And they have successfully completed an intensive training programme to enhance their understanding and technical grasp of modern payment systems.
Led by Bangladesh Bank staff, the RPP team has brought professional expertise from the UK, US, Canada and South Africa, as well as local talent, to develop a strategy to catapult Bangladesh into the payments systems of the 21st century. Based on detailed requirements defined by Bangladesh Bank, and following an open, competitive tender process that complied with international best practice, a contractor has been appointed to provide state of the art technology. This supplier is working with the RPP team to build two national payments systems that will move Bangladesh from a 1950s-era cheque-clearing system, to one of the most modern electronic payments systems in the world.
The first aim is to reduce cheque clearing from a high of three weeks to just three days maximum, across the country. The system will link all banks together, large and small, urban and rural, through dozens of cheque clearing centres throughout the country. Consumers, businesses and organisations can still write cheques just as they do today, but the cheques will be electronically scanned and captured and cleared electronically, in line with modern best practice.
Second, Bangladesh Bank is building a nationwide electronic funds transfer system, connecting all the banks, so that inexpensive, highly efficient electronic transfers can be made between bank accounts, whether in one bank or in multiple banks. It can be used for government payments, company payroll payments to employees, as well as business-to-business and for payments between consumers and businesses. Banks can then use this system to provide services like online bill payment.
Bangladesh Bank technical staff have been working with the RPP team on the infrastructure changes necessary to make these systems work. New rules and regulations are being drafted to cover electronic transfers. Training and coordination with each of the nation's banks is underway. A National Payments Systems Council, which includes representation from the banks, has been formed to set overall strategy.
Expanding the reach of these payments systems nationwide will be the key performance indicator. Banks need to make affordable accounts available to all Bangladesh's citizens. An astonishing 87 per cent of Bangladeshis today do not have bank accounts. But 35 per cent of the population have a mobile phone. Regulations are therefore being developed by Bangladesh Bank to allow for banking through mobile phones. This service will eventually facilitate quicker delivery of international and domestic wage earners' remittances in the rural areas.
The electronic funds transfer system can also provide a new channel for new account acquisition for banks, utility bill payments, purchases of other goods and services, and funds transfers (e.g. person-to-person payments, company payroll payments). Such payments systems have been highly successful in countries like Canada, Finland and the UK. Bangladesh Bank is working hard to make sure such a system is both safe and accessible to citizens throughout the country.
For expatriate migrant workers who need to send money home, these new systems will help: but first they must get their money into the country. Under the RPP project, grants are being made to private organisations to help them start innovative, new services to move money quickly and inexpensively, both within the country and overseas.
Finally, word of these new systems and how to use them must be spread throughout the migrant community, both here and abroad. The RPP project is funding a variety of outreach and education programmes through the University of Dhaka-affiliated Refugee and Migratory Movements Research Unit and through the International Organisation for Migration.
Over the next few years Bangladesh should leapfrog from the 1950s to 2010 and beyond in its payments systems. During the same period, we can look forward to the advent of mobile phone payments services that will provide a critical tool to bring the un-banked population under the financial services umbrella.
The UK, through its development partnership, is very proud to be working with the men and women of the Bangladesh Bank, who continue to work toward these goals. They are playing a critical part in building the foundation upon which the next generation of growth can further boost the nation's economy, and thus benefit all of its citizens.
The writer is Deputy Head, and Senior Private Sector Adviser, at the UK's Department for International Development (DFID) in Bangladesh.