All banks and mobile banking on one platform from July

Bangladesh Bank has taken an initiative to bring all banks, mobile financial service providers and other financial institutions onto a single digital network. For this, it is launching the 'Inclusive Instant Payment System' (IIPS). The central bank has set a target of launching the new system in July next year.

Once it is launched, money can be sent instantly from any bank account or mobile wallet to a customer of another institution. Under the new system, customers will no longer be confined to the network of their own bank or financial institution. Instead, they will be able to transact directly using the account or mobile wallet of any participating institution.

Bangladesh Bank believes this will make money transfers easier, reduce the use of cash and widen the reach of financial services. The platform will be built with technical support from the Gates Foundation, using open software developed under the foundation's 'Mojaloop' initiative.

Md Sirajul Islam, executive director of Bangladesh Bank, said the main objective of IIPS is to bring all of the country's financial institutions under one common system. Once it is launched, the need to withdraw cash and to transfer money from one institution to another will gradually decline.

He said that under the new system, customers will no longer be limited to the network of their own bank or financial institution. They will be able to transact directly with any participating institution.

Through IIPS, different kinds of transactions will be possible, including person-to-person money transfers, business transactions, payments at shops and commercial establishments, and government disbursements. With the necessary operational, settlement and security arrangements in place, instant money transfer among participating institutions will become possible.

The new platform will be built on Bangladesh's existing digital transaction infrastructure. At present, the National Payment Switch Bangladesh (NPSB) has been providing interbank transactions among participating banks through ATMs, points of sale (POS) and internet banking since 2012.

However, this system has not been able to bring all kinds of financial institutions onto the same network. There are particular limitations in integrated transactions among mobile financial service providers and non-bank financial institutions.

Earlier, Bangladesh Bank had directed banks, mobile financial service providers and payment service providers to start transactions through interconnection. Under that system, the maximum transaction charge including VAT was set at 0.15 percent for banks, 0.20 percent for mobile financial service providers and 0.85 percent for payment service providers. At the same time, there was a direction not to charge any fee from the recipient of the money.

But the initiative did not achieve the expected success because several large mobile financial service providers did not join the system. Sirajul Islam said the existing system did not work as expected. That is why a more integrated technical framework is needed to bring all institutions in the financial sector together. The central bank hopes the new IIPS will overcome this limitation and establish extensive connectivity among different financial institutions.

The new platform may play a role not only in domestic transactions but also in the distribution of international remittance. If a connection is established with an approved international remittance network, money sent by expatriates can reach the bank accounts or mobile wallets of beneficiaries faster and at comparatively lower cost.

With this goal in mind, the Policy Research Institute of Bangladesh (PRI) started a research initiative in July with support from the Gates Foundation, titled 'Analysis of the Inclusive Instant Payment System (IIPS) in Bangladesh and the Use of Cross-Border Remittance'. Policymakers, central bank officials, representatives of the financial sector and researchers took part in the study.

PRI Chairman Dr Zaidi Sattar highlighted the importance of remittance in Bangladesh's economy, saying about 6 percent of the country's gross domestic product (GDP) comes from money sent by expatriates. He stressed bringing this money into the country through formal financial institutions and using it for productive investment.

According to researchers, if direct transactions among different financial institutions become possible, remittance distribution will become faster and easier. However, to launch international transactions, foreign partnerships, foreign exchange-related rules, settlement arrangements and connections with approved international networks must be ensured.

Once IIPS is launched, businesses, trade and government activities will benefit alongside individual customers. Sirajul Islam said that as digital transactions increase, the government's cost of printing, transporting, storing and managing paper notes will fall. Traders will benefit from lower cash-management costs, transparency in keeping accounts and faster transactions. The government will also be able to deliver salaries, allowances, subsidies and social safety net funds to beneficiaries easily through digital channels.