A large portion of our population relies on cash transactions while many other countries have passed laws that allow businesses to ban cash payments, and in some cases, even require payments by mobile applications or credit cards. People around the world are inputting their cash into mobile phones or plastic cards and moving towards a cashless society. Cash is no longer a king, rather it is dying.
Why go cashless?
During economic downturns, governments tackle the challenge of stimulating the economy by lowering interest rates, since people are likely to hoard their cash during these times instead.
Cashless economies are in a better position as people are unable to withdraw all their money from the financial systems, allowing governments and banks to leverage greater control of the economy. This stimulates more lending from banks and increased investment by businesses, as well as encouraging people to invest, borrow, and spend instead of amassing money.
Historically speaking, a cash-based monetary system is prone to corruption and unfair advantages. In a cashless economy, all financial transactions take place digitally rather than using physical money like coins or banknotes.
The central bank's initiative would promote cost-effective, secured, and card-less digital transactions in an economy that almost entirely relies on paper currencies. Cashless systems maintain transparency, accountability, and mobility in financial transactions, as well as increased security, convenience, and efficiency.
A cashless financial system is one in which people rely primarily on electronic means of payment such as credit cards, debit cards, and mobile apps rather than using physical cash or checks. All transactions are conducted electronically. This requires businesses to have the ability to accept electronic payments and for consumers to have access to electronic banking services.
In Bangladesh, mobile banking has been 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 phones.
According to the MasterCard Economic Outlook Report, published in December 2021, e-commerce has been central to the role that digital agility has played in generating more money throughout the world. And according to Goldman Sachs, Bangladesh's e-commerce market will surge to $20 billion by 2020.
Recent data from the Bangladesh Bank (BB) indicates that more than Tk3,000 crore is transacted via MFS. The government has also been promoting the use of debit and credit cards, as shown by the 24% rise in use of credit cards over the past few years, and the number of POS terminals in the country has been increasing.
QR codes: A low-cost initiative
The "Cashless Bangladesh, Smart Bangladesh" campaign launched by the Bangladesh Bank is exactly the kind of initiative the country requires to make a steady move to reducing cash dependency.
Some banks, MFS, and card service providers have joined this campaign to promote Bangla QR code-based transactions. To avail the service, one needs to have an app of his bank, card, or mobile service provider. In addition, card service providers MasterCard, Visa, and Amex have joined the service, along with MFS providers like bKash, mCash, and Rocket.
The Bangla QR is a low-cost digital payment mechanism, under which clients can pay for whatever they buy from small merchants through scanning the printed interoperable QR code -- available even to 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.
Clients will have to scan the code with their smartphones to make payments for products purchased from the stall. Merchants and users are both comfortable using it. Even small shopkeepers, cobblers, tea stall and barber shop owners can receive payments through QR. Independent workers like Pathao and Uber drivers can also take payments through QR.
Standards and guidelines
In order to speed up the countries' financial inclusion, the central bank's Payment Systems Department recently came up with this interoperable "scan to pay" initiative. A National QR code Standard for Bangla QR, an open-loop interoperable QR code-based payments, has been developed. It is a type of matrix barcode or a machine-readable optical label that contains information about the item with which it is attached.
Bangladesh Bank published guidelines on Bangla QR for building a safe, affordable, and efficient payment and settlement system at the retail level, particularly for micro-merchants, on January 6, 2021.
On January 18, 2023, the program was initiated with an interoperable Bangla QR Code among 1,200 small merchants at Motijheel Commercial Area around office of the central bank to popularize making payments for goods and services using mobile banking applications, mobile financial services (MFS), and payment service providers (PSP).
The program is to be implemented across the country, and it stands testament to the thorough planning and sustainable implementation of this necessary change. Around 10 banks and MFS providers are currently active and subsequently all the banks will come under the transaction channel.
According to the guidelines for “Bangla QR Code Based Payments,” an individual can transact up to Tk20,000 daily in case of static Bangla QR based transactions. Merchants will be able to accept funds by using this method from various payment instruments, including all types of cards and bank, MFS and e-wallet accounts.
The Bangladesh Bank strictly advised Bangla QR adopters to make sure that the cost of Merchant Discount Rate (MDR) shall not be passed on to customers. The MDR is charged to a merchant for the payment processing transactions through credit and debit cards and MFS.
There is no official data on the number of micro-merchants in Bangladesh. The last time a survey was carried out was back in 2013 when the number of small ventures, excluding cottage and micro enterprises, was 79 lakh. However, people related to this sector say the number is more than one crore.
Micro-merchants
It helps to digitize and formalize the bill acceptance process for labour-dependent micro entrepreneurs, like tea vendors, jhalmuri vendors, vegetable vendors, fish vendors, etc, as well as service providers engaged in different marginal professions, like cobblers, barbers, and hawkers. Traders who conduct their business under this account are considered micro-merchants.
Even these simple, maybe illiterate, street-side vendors do not think it troublesome to join the Bangla QR initiative. Any micro-merchant will have to manage a certificate of their profession from the local public representative for opening a personal retail account with a designated bank. If such documents from public representatives cannot be managed, banks, MFS providers, and PSPs will have to accept certificates from respective professional organizations of the micro businesses.
Some experts believe it would be tough 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 apprehensive of the taxation regime under formal banking channels.
In order to attract micro-merchants, the central bank may guarantee them other banking facilities, such as future loans if they register for Bangla QR.
Envisioning the new financial age
Personal retail account holders will also be allowed to hold Bangla QR. Bangla QR will help clients pay their bills for purchased goods and services through any mobile banking application, MFS, or PSP. Clients of any retail shops will be allowed to pay bills by debiting money from their respective accounts along with credit and debit cards.
This new digital payment method will quickly gain popularity in the remote area as BB has relaxed the rules for opening personal retail accounts for micro and underprivileged businesses. Clients will be encouraged to use the QR codes as well. If the code-based payment is accepted by all, it will reduce banking costs to a great extent.
The QR payment service will directly benefit millions of small and medium entrepreneurs, suppliers, distributors, and factory owners from all across the country. Bangla QR can be a game-changer in the country's digital transaction system. It has been reported that if Bangladesh can properly implement QR transactions, GDP will increase by 1.7%.
The government and private sector need to work together to increase access to electronic payment methods and to ensure the security and privacy of electronic payments.
MS Siddiqui is a Non-Government Adviser, Bangladesh Competition Commission.
