Interoperability in Bangladesh: The Stakes, the setbacks, and the way ahead

Interoperability is widely acknowledged as one of the most powerful enablers of digital finance. When customers can send, receive, and use money across various providers—such as banks, payment system providers, wallets, and cards—the payments ecosystem becomes faster, more convenient, and potentially cheaper.

The World Bank and CPMI's Principles for Financial Inclusion (PAFI) emphasise that interoperability increases competition, reduces fixed infrastructure costs, enables economies of scale, and significantly enhances customer convenience.

Globally, interoperable systems—from India's UPI to Tanzania's mobile-money rails—have demonstrated that shared infrastructure significantly increases transaction volumes, lowers marginal costs, and fosters innovation. Interoperability also strengthens merchant acceptance and makes digital ecosystems "sticky", reducing customer dropout, increasing digital uptake, and improving trust.

Yet Bangladesh did not have interoperability for years, and relied on bilateral arrangements

Despite having one of the world's most dynamic mobile-money sectors, Bangladesh operated without true interoperability for more than a decade. Before 2019, the market relied heavily on bilateral arrangements such as bank-to-wallet transfers through individualised agreements (e.g. BRAC–Rocket partnerships), card-to-wallet top-ups using specific bilateral integrations (e.g. bKash–Mastercard), and wallet-to-wallet transactions between select partner providers, rather than across the whole ecosystem.

This bilateral approach had three consequences:
a) high integration costs for each new partnership;
b) no uniform pricing, leading to market distortion;
c) digital silos, where each large provider captured its own customer base and ecosystem.

Given the dominance of leading MFS providers such as bKash, Nagad and Rocket—and the associated float income, agent-network investments, and branding advantages—there was little commercial incentive for them to open up to competitors voluntarily.

How things have changed

To address these structural barriers, the UK-funded Business Finance for the Poor in Bangladesh (BFP-B) programme undertook extensive technical work on interoperability from 2017 to 2020.

BFP-B concluded that Bangladesh could unlock enormous value if it shifted from bilateral, provider-led integrations to a switch-based, rules-driven interoperable ecosystem under Bangladesh Bank.

Under the BFP-B programme, MSC developed a comprehensive framework to support the Bangladesh Bank in the rollout of interoperable digital financial services. The operational guidelines defined key use cases—including wallet-to-wallet, bank-to-wallet, card-to-wallet, PSP-to-wallet, and merchant payments—and outlined a phased, switch-based implementation sequence with real-time settlement through the National Payment Switch Bangladesh (NPSB).

These guidelines were comprehensive, detailed, and technically robust—yet adoption was limited at the time for various reasons, including a lack of provider participation.

After more than five years, Bangladesh Bank has enabled interoperability through NPSB

Recently, Bangladesh Bank formally enabled account-to-account interoperability through NPSB, updating the regulatory framework to include banks, mobile financial services, microfinance institutions, and payment service operators. The switch now supports real-time clearing and multi-party settlement. This marks a significant regulatory commitment as NPSB rules are upgraded, settlement processes standardised, and technical processes established for providers to follow.

Despite regulatory readiness, the adoption of interoperability through NPSB has lagged. Providers question the commercial benefits as they face high integration and transition costs. They also argue that current interchange and fee structures do not offset lost float income and ongoing agent commissions, particularly for high-volume players with large agent networks. Many still doubt NPSB's uptime, message integrity, fraud controls, and real-time-payments performance, and may hesitate to integrate until reliability at scale is demonstrated. Integrating with the central switch also requires significant technological upgrades, testing, and reconciliation changes, which weigh heavily on smaller or legacy institutions. Unresolved questions on SLAs, liability, AML/CFT, and interoperable pricing can further delay decisions and the onboarding of providers onto NPSB.

What can now be done to resolve concerns and bring large providers on board?

For successful uptake of interoperability, four specific actions—based on our experience—are necessary:

Reset the commercial model through a structured, transparent interchange framework: A well-designed pricing structure is key to successful interoperability. It must incentivise players to cover the costs of managing payment infrastructure, fraud prevention, and customer management and servicing. In Bangladesh, major players will also consider the impact on float income, transactional revenues, and distribution expenses before fully embracing interoperability.

Conversely, customers generally expect little to no cost for digital payments, as cash is considered "free".

To address this, Bangladesh Bank may consider:

• Publishing a long-term roadmap or vision, to be reviewed annually

• Establishing a high-powered steering group comprising major players as well as smaller players and think-tanks to determine the fee and incentive structure

• Allowing temporary transition incentives for providers with large distribution networks

This mirrors strategies from Brazil (PIX pricing standards) and Pakistan (regulated 1Link pricing).

Implement a formal phase-wise onboarding model with readiness audits

A five-phase rollout sequence is recommended to give providers adequate time to prepare and integrate their systems, ensuring a steady adoption of interoperability.

This phased approach is akin to building a payment highway: Phase 1 starts by connecting the two biggest cities (MFS wallets), where traffic is densest. Phase 2 connects these cities to the national rail network (banks), already established on the switch. Subsequent phases handle smaller connections (cards, PSPs) and specialised infrastructure (merchants/QR codes), ensuring the system prioritises high-volume traffic before being overwhelmed by complexity.

Bangladesh Bank can also adopt a readiness-audit model similar to Kenya's PesaLink, ensuring that each provider meets minimum requirements such as real-time-settlement capability, cybersecurity capacity, fraud-monitoring systems, system redundancy, and uptime before onboarding. These strict audits ensure providers are fully prepared before joining the "highway".

Strengthen and enforce dispute-resolution and AML frameworks: Effective interoperability requires a robust, regulator-led dispute-resolution framework to manage the risk of errors, fraud, and customer harm that arise from cross-network transactions. Stakeholders expect Bangladesh Bank to establish fast, transparent processes—with clear turnaround times, dedicated monitoring teams, mandatory provider cooperation, and digital logbooks of disputes. Typical TATs vary: technical timeouts can be resolved within minutes, whereas cases involving the wrong recipient may take several working days. Providers must freeze disputed funds, act in good faith during reversals, and maintain teams capable of resolving issues quickly to safeguard customer trust.

Interoperability also increases AML/CFT and fraud-related vulnerabilities, demanding strict compliance and oversight. All participating entities must follow the Money Laundering Prevention Act, Anti-Terrorism Act and BFIU guidelines; ensure robust and regularly updated KYC practices; and report suspicious or fraudulent activity immediately. Strengthened internal controls, clear governance roles, and risk-mitigation protocols are essential to protect the ecosystem and maintain system integrity as digital financial services become increasingly interconnected.

Phased onboarding and regulatory concessions: Interoperability introduces significant integration and compliance costs, especially for newer or smaller providers who must upgrade systems, hire technical staff, and strengthen their capacity for real-time payments. Similar challenges were seen in Kenya, where smaller banks struggled with capital-intensive upgrades during the PesaLink rollout, underscoring the need for phased onboarding and regulatory support.

International experience shows that temporary regulatory concessions can accelerate adoption and create a more level playing field. For example, Jordan's JOMOPAY waived all provider fees, and providers themselves agreed to forgo interchange for the first two years, allowing the ecosystem to stabilise before cost-recovery mechanisms were introduced. Drawing on these lessons, Bangladesh Bank can promote integration testing through the central sandbox and waive switch and interchange fees for a defined period.

To support providers and customers in adopting interoperability, Bangladesh Bank and the Government can explicitly support zero-switch fees during the early stages.

Conclusion

Interoperability aims to address a significant economic challenge, extending far beyond a technical project. The BFP-B programme outlined operational and pricing options; Mojaloop now provides the technical rails. What is required now is coordinated execution: regulators setting clear, fair rules and timelines; dominant providers accepting temporary concessions in the interests of long-term market expansion; smaller players committing to strong operational standards; and donors and partners financing transition costs and technical assistance.

When each stakeholder plays their part—regulators guaranteeing a level playing field, market leaders managing migration responsibly, and development partners de-risking initial costs—interoperability will move from pilots and conferences to everyday transactions that lower costs and broaden access for millions.

Bangladesh can finally achieve interoperable digital payments—unlocking enormous value across households, MSMEs, government services, and the broader digital economy.

Samveet Sahoo is an Associate Partner at MSC (MicroSave Consulting) with 15 years of experience in strategy, product development, and policy advisory across digital and inclusive finance

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard