Bangladesh’s cashless economy ambition faces a trust deficit

A few days ago, while sending money through an MFS provider, one of my friends mistyped one digit of the recipient's mobile number. The money was transferred instantly — but to a number that was not registered with the MFS provider in question. Recovering the money proved challenging. 

As per the platform's existing policy, the owner of that number would first have to open an account before returning the money. They had little incentive to go through the process, and the sender was left with no mechanism to cancel or reverse the transaction.

"If only there was a way to cancel the transaction before it went through," she said afterwards.

Her loss was relatively small. Yet it illustrates a much larger problem confronting Bangladesh's digital finance ambitions: people may increasingly use digital platforms to send money, but they still do not fully trust them to hold it.

That trust deficit lies at the heart of Bangladesh's ambitious goal of becoming a cashless economy by 2031. The central bank wants all transactions to move to digital channels within the next five years. Yet the country's economic reality presents a formidable challenge. The informal economy involves 80% to 85% of the total workforce and contributes an estimated 30% to 43% of the nation's Gross Domestic Product (GDP), and it almost entirely runs on cash. 

And this is a serious problem, as Bangladesh Bank's latest annual report shows that cash still accounted for 67.2% of all transaction value in 2025, with digital payments making up just 32.8%.

The question is no longer whether Bangladesh has enough digital payment infrastructure. Mobile Financial Services (MFS), internet banking, Bangla QR and interoperable payment systems have expanded rapidly over the past decade. For economists, technologists and bankers, the challenge is less about infrastructure than about fixing the incentives, institutions and technology that underpin the ecosystem. 

Niaz Asadullah, professor of economics at the University of Dhaka, argues that inclusion must also mean reaching the merchants current infrastructure leaves out. 

He says, "We must bridge the smartphone device gap. We can consider deploying hybrid e-wallets, low-cost integrated payment terminals, and secure USSD-based offline merchant protocols. Also, internet dependencies must be eliminated by creating offline provisions for Bangla QR, allowing transactions to queue and settle over low-bandwidth cellular channels." 

The transaction paradox

Bangladesh has one of South Asia's most successful mobile financial service sectors. Tens of millions of people routinely receive salaries, remittances or personal transfers through digital wallets. Yet much of that money exits the digital ecosystem almost immediately. Thus the digital economy has become an efficient transfer mechanism, but not yet a complete payment ecosystem.

Asif Shahriyar Sushmit, a policy analyst and former consultant of the ICT Division of Bangladesh government, argues that Bangladesh has become a nation of digital money transfer users rather than digital payment users.

"Bangladesh boasts good penetration of MFS and internet banking, but we must confront a stark operational reality: our population treats these platforms more as high-speed remittance and money-transfer utilities, less as payment mediums or wealth repositories."

He adds, "This behaviour is driven by a deep structural trust deficit. For a low-income demographic or a micro-merchant, the acute lack of agile consumer protection makes paper currency their only reliable defence mechanism against both systemic friction and financial ruin." 

That diagnosis resonates well beyond cyber fraud. 

According to Sayema Haque Bidisha, professor of economics at the University of Dhaka, such experiences shape people's willingness to embrace digital finance.

"There are several challenges. One is financial literacy. More broadly, I would say there are two related issues: financial literacy and financial awareness. Many people are uncertain about how to use digital financial services properly. They worry that they might press the wrong button or make a mistake. Mistakes do happen. That is why we need to place much greater emphasis on improving both financial awareness and financial literacy." 

"Our population treats digital platforms more as high-speed remittance and money-transfer utilities, less as payment mediums or wealth repositories. This behaviour is driven by a deep structural trust deficit. For a low-income demographic or a micro-merchant, the acute lack of agile consumer protection makes paper currency their only reliable defence mechanism against both systemic friction and financial ruin."

Asif Shahriyar Sushmit, Policy Analyst

Trust, however, extends beyond users' familiarity with technology. It also reflects how well the financial system responds when something goes wrong.

For many Bangladeshis, especially those earning daily wages or operating micro-enterprises, a failed transaction or delayed dispute resolution can mean the loss of an entire day's income. Cash, despite its inconveniences, offers immediacy and certainty.

Bangladesh continues to spend an estimated Tk20,000-22,000 crore annually printing and managing currency. Cash transactions generate little data, making businesses harder to assess for credit, reducing tax visibility and limiting financial inclusion. Small businesses without digital transaction histories often struggle to obtain formal finance because banks cannot accurately evaluate their creditworthiness.

Incentives remain weak

Moving people online requires more than highlighting those macroeconomic benefits. It requires ensuring that digital transactions become as seamless—and preferably more convenient—than cash itself.

The country's informal sector remains outside the banking system. Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank told The Business Standard earlier, "A large share of economic transactions takes place there in cash, and we have not yet been able to bring these activities into formal financial channels. Digital payment systems must become easier, more accessible and more convenient if we want people to adopt them on a larger scale." 

Street vendors, rickshaw pullers, grocery shops and neighbourhood pharmacies will not go digital simply because QR codes exist. They will catch up only if suppliers accept digital payments, wholesalers invoice digitally, transport operators receive digital payments and cashing out becomes unnecessary. At present, those incentives remain weak.

Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh (PRI), argues that policymakers need to think beyond payments alone.

"There are three core functions in the financial system: payments, deposit mobilisation, and lending, or financial intermediation. If we can make all three functions of payments, deposits and loans cashless, then our economy will move steadily towards a cashless future." 

To achieve this, he argues, we need to focus on six technological pillars.

"The first is MFS and digital wallets. The second is digital banks. The third is nano loans. The fourth is QR codes. The fifth is credit cards, and the sixth is online banking. These six technologies are the gateways to a cashless economy. We need to expand both access to and usage of each of them, and every technology requires its own dedicated action plan." 

His argument highlights a common misconception in Bangladesh's digital finance debate. Building payment infrastructure is only one part of the puzzle. A truly cashless economy requires people not only to pay digitally, but also to save digitally and borrow digitally. That is particularly relevant for the informal economy.

Niaz Asadullah frames the same problem as a change in what going digital means for a small trader. "We have to shift our digital payment ecosystem away from being a compliance hurdle to one that offers a commercial advantage for micro-merchants."

Ashikur believes technology can begin solving that problem if regulatory reforms keep pace.

"Nano lending presents another opportunity. For this to work effectively—and for digital banking more generally—we need an alternative credit scoring system. Relying solely on the Credit Information Bureau (CIB) is no longer sufficient. The government has already issued letters of intent to several credit scoring companies, but these firms need support so they can enter the market quickly." 

Building inclusive technology

Bangladesh has made interoperability a priority through Bangla QR and the National Payment Switch Bangladesh. Customers can increasingly make payments across banks and mobile financial service providers using a common QR standard. But adoption remains modest because many small merchants still see little advantage in staying digital after receiving payment.

Sushmit believes future digital infrastructure must go significantly further.

"To transition from a cash-transfer economy to a genuinely cashless society, the financial technology architecture must pivot from simple transactional rails to an ecosystem that actively incentivises keeping money digital." 

He argues that consumer protection should become far more agile. "The tech stack must integrate automated, AI-driven fraud detection with legally mandated, instant-reversal dispute protocols. If the central bank and MFS providers cannot technologically guarantee that a defrauded user's money will be frozen and restored within hours rather than months, the public will never abandon the safety of physical cash. Cash will remain the king." 

Why cash still wins

Every percentage point charged to merchants becomes an incentive to return to cash, particularly for businesses operating on thin margins. Consumers likewise have little reason to retain digital balances if withdrawing cash carries few disadvantages while paying digitally incurs additional costs.

Bidisha notes that transaction costs themselves discourage adoption. To sort this out, she says the country needs a proper digital financial ecosystem, with coherence among those making transactions, those facilitating them, and the banks and institutions providing the services.

Ashikur points to policy choices that could make digital payments more attractive.

"Consider QR codes. In countries such as India and Russia, the merchant discount rate (MDR) for small and micro-merchants is effectively zero. In Bangladesh, however, merchants still pay around 1%. Why should micro-merchants bear that cost? Bangladesh Bank could subsidise it, just as the Reserve Bank of India has done." 

He also argues that Bangladesh's regulatory framework should become more open by encouraging greater competition among telecom operators, fintech firms and digital banks, while prioritising interoperability through the Interoperable Payment System.

Underlying all these proposals is a common theme: Bangladesh's cashless transition is no longer primarily a technological challenge. It is an institutional one. And solving that challenge may ultimately determine whether Bangladesh meets its 2031 ambition by integrating the informal sector.