A bold move towards digital payments for 180 million people
Zero interchange fees and provider incentives could bring QR payments to every shop in Bangladesh
Digital payments are becoming basic economic infrastructure for modern countries. They do much more than make payments convenient: they connect people and businesses to the wider financial system, reduce the cost of moving money, create transaction histories and open the door to savings, credit and other financial services.
Bangladesh has already made remarkable progress in this direction. More than 90 million people use mobile financial services to send money, pay utility bills and buy mobile recharge. Millions more make digital transactions through their banks' mobile apps. Yet one important part of the economy remains overwhelmingly dependent on cash: everyday payments at shops. Walk into a neighbourhood grocery store, a pharmacy or a tea stall, and cash still dominates.
Bangladesh Bank has been working systematically to change this, and October will mark its boldest intervention yet. It has developed the policy and platform for Bangla QR payments. Banks, MFS providers and payment service providers have been brought onto Bangla QR, the national interoperable QR standard. Proprietary QR codes have been phased out, providers have been encouraged to enrol merchants, and around 3.5 million Bangla QR merchant accounts have already been opened. Now a customer of any bank or digital payment app can pay any merchant by scanning a QR code, regardless of which provider the merchant uses.
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But one major barrier remained: cost. Consider a customer of a popular MFS, xCash, who buys groceries worth 1,000 taka from a shop holding its merchant account with yBank. The customer pays 1,000 taka, but the shopkeeper receives only 990 taka after a 10-taka service charge is deducted. Of that 10 taka, xCash receives about 7 taka as interchange fee, while yBank retains the remaining 3 taka. For a merchant operating on thin margins, losing around 1% of every digital sale is significant, especially when the same customer can simply pay in cash at no direct cost. This has been the biggest barrier for merchants to accept digital payments.
To make digital payments affordable for all, Bangladesh Bank is taking a bold step: it is eliminating the interchange fee for Bangla QR transactions from October 1. Merchants will also receive Bangla QR payments through immediate settlement. In addition, for transactions of up to 2,000 taka, Bangladesh Bank will provide an incentive of 3 taka for every 1,000 taka transacted. Now replay the same 1,000-taka purchase. The customer pays nothing extra, the merchant receives the full 1,000 taka, xCash receives 2 taka and yBank receives 1 taka from Bangladesh Bank as incentives. Digital payment can therefore become economically as attractive to a small merchant as accepting cash, while offering advantages that cash cannot provide.
QR payments are now widely adopted across Asia. A QR code can be installed easily and at very little cost, and customers pay from their own phones, so the merchant needs no POS machine or expensive equipment. This is far more cost-effective than traditional card and POS systems. India's Unified Payments Interface, or UPI, shows how quickly adoption can grow when interoperability, low merchant costs and simple mobile payments come together. Today, an average adult in India makes more than 20 UPI transactions a month.
To make digital payments affordable for all, Bangladesh Bank is taking a bold step: it is eliminating the interchange fee for Bangla QR transactions from October 1. Merchants will also receive Bangla QR payments through immediate settlement. In addition, for transactions of up to 2,000 taka, Bangladesh Bank will provide an incentive of 3 taka for every 1,000 taka transacted.
The real prize of wider digital payments goes beyond convenience. Every digital transaction creates a financial record. For a small merchant who has always operated in cash, that record can establish turnover and help create access to working-capital loans, savings and insurance. The progression is powerful: digital payments create transaction histories, transaction histories support savings and credit, and better access to finance helps businesses grow.
Bangladesh Bank has now created the rails, changed the economics and introduced incentives. The next challenge is execution. Banks, MFS providers and payment companies must put QR codes on shop counters, educate merchants and customers, and ensure that payments work quickly and reliably. If they succeed, Bangladesh can move beyond using digital finance mainly for transfers and bill payments. Digital payments can become part of everyday commerce for a country of nearly 180 million people—one customer, one shop and one QR code at a time.
The author Dr Shahadat Khan is the Founder and CEO of TallyKhata and TallyPay
