Bangladesh Bank to bring all financial transactions under one umbrella

Bangladesh Bank has taken the initiative to introduce an 'Inclusive Instant Payment System' (IIPS) to bring the country's banking sector, mobile financial services (MFS) and all financial institutions under a single digital framework. The target is to launch this universal payment system by July next year.

Under the proposed system, account holders of any financial institution or mobile wallet will be able to transfer funds among themselves easily. This will end dependence on separate networks for different institutions.

The move will reduce dependence on cash and ensure fast, seamless services, while also bringing people who lack access to formal banking services into digital financial inclusion.

The platform is being built with technical support from the international charitable organisation the Gates Foundation. The technology of the foundation's open-source software initiative 'Mojaloop' will be used to coordinate inter-institutional transactions.

Md Sirajul Islam, executive director of Bangladesh Bank, told the media that the main objective of the initiative is to bring all financial institutions under a common system. Gradually, this will reduce the need to withdraw cash and to transfer money from one institution to another. He said once the system is launched, customers will no longer be confined to the network of their own bank or financial institution. Instead, they will be able to transact directly with any participating institution.

Once IIPS is fully operational, personal transactions, business payments, commercial purchases and the distribution of government incentives or allowances will be completed instantly. Transactions among participating institutions will be conducted only after ensuring proper infrastructure for overall security, operations and settlement.

Although ATM, POS and online banking services among banks have been in place since 2012 through the National Payment Switch Bangladesh (NPSB), it was not possible to fully bring non-bank and mobile financial service providers under one umbrella. In the past, the central bank had set maximum fees of 0.15 percent for banks, 0.20 percent for MFS and 0.85 percent for payment service providers to launch interconnection, and had instructed that no charge be imposed on the recipient. However, as a few leading MFS institutions did not join, that initiative did not yield the expected results.

On this, Sirajul Islam said the existing system did not work as expected. That is why a more integrated technological framework is needed to bring all institutions in the financial sector on board.

Alongside domestic transactions, the new platform also appears set to play a positive role in managing international remittances. Last July, the Policy Research Institute of Bangladesh (PRI) conducted a study on this, funded by the Gates Foundation. The study discussed reducing the cost of sending remittances and increasing the flow of money through legal channels. PRI Chairman Dr Zaidi Sattar, highlighting the importance of remittances to Bangladesh's economy, said about 6 percent of the country's gross domestic product (GDP) comes from remittances.

According to the researchers' assessment, if the domestic platform is connected with approved international networks, expatriates' money could be delivered directly to beneficiaries' accounts quickly and at low cost. However, foreign exchange policy and international partnerships need to be specified for this.

Sirajul Islam said that, alongside the individual level, this will also have a major impact on the overall economy, noting that increased digital transactions will reduce the government's expenditure on printing, transporting, storing and managing paper notes.

At the same time, cash management costs in the business community will fall, and the distribution of the government's social safety net programmes, allowances and salaries will become easier. Although digital transactions have expanded in recent years, there was a lack of an integrated system. The full success of the new framework will depend on the effective participation of large institutions, cyber security, affordable charges and public trust. If implemented properly, it will ensure major transparency and modernisation in the country's overall payment structure.