Building towards a cashless economy

While a large portion of our population relies on cash transactions, many other countries have passed laws that allow businesses to ban cash payments and, in some cases, require payments through mobile apps or credit cards. People around the world are moving towards a cashless society by entering their money into mobile phones or plastic cards. Money is no longer king, rather it is dying.

Why go penniless?

During economic downturns, governments deal with the challenge of stimulating the economy by lowering interest rates because people are more likely to hoard their money during these times.

Cashless economies are better off because people can’t withdraw their money from financial systems, allowing governments and banks to gain more control over the economy. This stimulates more lending by banks and more investment by businesses, as well as encourages people to invest, borrow and spend instead of hoarding money.

Historically, a cash-based monetary system has been prone to corruption and unfair advantage. In a cashless economy, all financial transactions take place digitally rather than using physical money such as coins or banknotes.

The central bank’s initiative will promote cost-effective, secure and cardless digital transactions in the economy. Cashless systems maintain transparency, accountability and mobility in financial transactions, as well as increase security, convenience and efficiency.

A cashless financial system is one in which people rely primarily on electronic payments such as credit cards, debit cards, and mobile apps rather than using cash or checks. All transactions are conducted electronically. This requires businesses to have the ability to make electronic payments and consumers to have access to electronic banking services.

In Bangladesh, mobile banking is the most popular form of electronic payment, with the use of mobile financial services (MFS) such as bKash, Rocket and Nagad. These services allow customers to make payments, transfer money and access other financial services using their mobile phone.

According to the MasterCard Economic Outlook report released in December 2021, e-commerce is the key to the role played by digital agility in generating more money around the world. And according to Goldman Sachs, Bangladesh’s e-commerce market will grow to $20 billion by 2020.

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The latest data from Bangladesh Bank (BB) indicates that more than Tk3,000 crore is transacted through MFS. The government has been promoting the use of debit and credit cards, with the last few years showing a 24% increase in the use of credit cards, and the number of POS terminals in the country increasing.

QR Codes: A Low-Cost Initiative

The „Cashless Bangladesh, Smart Bangladesh” campaign launched by Bangladesh Bank is an initiative that the country needs to take a sustainable step towards reducing cash dependency.

Some banks, MFS and card service providers have joined the campaign to promote Bangla QR code based transactions. To avail the service, one needs to have the app of his bank, card or mobile service provider. Additionally, card service providers such as MasterCard, Visa and Amex have joined the service along with MFS providers such as bKash, mCash and Rocket.

Bangla QR is a low-cost digital payment mechanism under which customers can pay for whatever they buy from small merchants by scanning a printed executable QR code — also available at roadside vendors.

A quick response code (QR code) is a two-dimensional code of black and white squares that can be read by smartphone cameras, point-of-sale (POS) terminals, or other devices. It is a type of barcode that stores information as a series of pixels in a square grid.

Customers have to scan the code with their smartphones to pay for items purchased from the stall. Both merchants and users are comfortable using it. Even small shopkeepers, cobblers, tea shop and barber shop owners can get paid through QR. Independent workers like Padao and Uber drivers can also pay via QR.

Standards and Guidelines

To speed up the financial inclusion of countries, the Central Bank’s Payment Systems Department recently came up with this operational „Payment Scan” initiative. A national QR code standard for Bangla QR, open-loop operable QR code-based payments has been developed. It is a type of matrix barcode or machine-readable optical label that contains information about the item it is attached to.

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Bangladesh Bank on January 6, 2021 issued guidelines on Bangla QR to develop a secure, affordable and efficient payment and settlement system at the retail level, especially for micro-merchants.

On January 18, 2023, to popularize payment for goods and services using mobile banking applications, Mobile Financial Services (MFS), the scheme was launched with a mobile QR code among 1,200 small traders in the Motijheel commercial area around the central bank’s office. and Payment Service Providers (PSP).

The project is to be implemented across the country and is a testament to the thorough planning and consistent implementation of this necessary transformation. About 10 banks and MFS providers are currently active and later all banks will come under the transaction channel.

According to the “Bangla QR Code Based Payments” guidelines, a person can transact up to Tk20,000 daily during standard Bangla QR based transactions. Merchants can receive funds using this system from various payment instruments including all types of cards and bank, MFS and e-wallet accounts.

Bangladesh Bank has strictly advised the Bangla QR acceptors to ensure that the cost of the Business Discount Rate (MDR) is not passed on to the customers. MDR is charged to a merchant for credit and debit cards and payment processing transactions through MFS.

There is no official data on the number of micro traders in Bangladesh. A survey was conducted again in 2013, when the number of small businesses excluding cottage and small scale industries was 79 lakh. However, this number is more than one crore, say people belonging to this sector.

Small traders

It helps digitize and streamline the bill acceptance process for labor-intensive micro-entrepreneurs like tea sellers. Jalmuri Vendors, vegetable vendors, fishmongers, and service providers are engaged in various marginal occupations such as cobblers, barbers, and traders. Traders running their business under this account are considered small traders.

Even these simple, perhaps illiterate, street vendors did not find it difficult to join the Bangla QR initiative. Any small trader must manage their business certificate from the local public representative to open a personal retail account in a designated bank. If such documents cannot be managed from public representatives, banks, MFS providers and PSPs should accept certificates from their respective professional bodies of micro businesses.

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Some experts believe that it will be difficult to convince a micro-merchant to open an account with Bangla QR access. This is because they are not used to such activities. Many of them are also afraid of the taxation system under formal banking services.

To attract small businessmen, the central bank may guarantee them other banking facilities, such as future loans if they register with Bangla QR.

Envisioning a new financial age

Individual retail account holders are allowed to hold Bangla QR. Bangla QR enables customers to pay bills for goods and services purchased through any mobile banking application, MFS or PSP. Customers of any retail outlets are allowed to pay bills with credit and debit cards by debiting money from their respective accounts.

As BB has relaxed rules for opening individual retail accounts for small and underprivileged businesses, this new digital payment system will soon gain popularity in the remote area. Customers will also be encouraged to use QR codes. If everyone accepts index-based payments, it will reduce banking costs tremendously.

The QR payment service will directly benefit millions of small and medium entrepreneurs, suppliers, distributors and factory owners across the country. Bangla QR can be a game changer in the country’s digital transaction system. It is reported that if Bangladesh can implement QR transactions properly, the GDP will increase by 1.7%.

Government and the private sector should work together to increase access to electronic payment systems and ensure the security and privacy of electronic payments.

MS Siddiqui is a Non-Government Consultant, Bangladesh Competition Authority.

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