Whitepaper on Evolution of the Payment Industry of Bangladesh

Whitepaper on evolution of the payment industry of Bangladesh

June 2016

WHITE PAPER on

Payment Industry of Bangladesh


i

Table of Contents

1. Background ............................................................................................................................................................. 1

2. Payment Systems in Bangladesh ............................................................................................................................. 2

3. Payment instruments in Bangladesh ....................................................................................................................... 3

4. Evolution of Payment instruments in Bangladesh ......................................................................................................... 3

4.1 Cash ....................................................................................................................................................................... 3

4.2 Paper Based (Cheque, Demand Draft, Pay Order etc.) ............................................................................................ 4

4.3 Internet (Electronic Fund Transfer) ......................................................................................................................... 4

4.4 ATM/Debit/Credit Card .......................................................................................................................................... 4

4.5 MFS (Mobile Financial Service) ............................................................................................................................... 5

4.6 Foreign Remittance ................................................................................................................................................ 5

4.7 Gift-cards/Closed-loop cards? ................................................................................................................................ 5

4.8 Money Transfer & Telegraphic Transfer ................................................................................................................. 6

5. Payment Instrument’s Technological Advancement...................................................................................................... 7

5.1 Automated Cash Counting & Cheque Processing .................................................................................................... 7

5.2 EMV Technology .................................................................................................................................................... 7

5.3 MFS (USSD based) .................................................................................................................................................. 7

5.4 OTP & SMS Alert .................................................................................................................................................... 7

5.5 NFC & Tokenization ................................................................................................................................................ 8

6. Regulatory Authority’s Payment Systems strategy ........................................................................................................ 9

6.1 Real Time Gross Settlement (RTGS) ........................................................................................................................ 9

6.2 NPSB (National Payment Switch Bangladesh) ........................................................................................................ 10

6.3 Payment & Settlement .......................................................................................................................................... 11

7. Current Payment Scenario in Bangladesh .................................................................................................................... 12

8. Bangladesh Payment Domain’s Key Players ................................................................................................................. 15

8.1 Central Bank of Bangladesh................................................................................................................................... 15

8.2 Commercial Bank .................................................................................................................................................. 15

8.3 MFS (Mobile Finance Services) .............................................................................................................................. 17

8.4 Smart Card/ Plastic Card Vendors/Suppliers .......................................................................................................... 17

8.5 Payment Networks ............................................................................................................................................... 20

8.6 Payment Gateways/Facilitators ............................................................................................................................ 21

9. Non-traditional Payment Platform: ............................................................................................................................. 23

9.1 Micro-Finance Institute: ........................................................................................................................................ 23

9.2 Payment/ Fund Transfer via Courier Services ........................................................................................................ 23

10. Future Trends of the Payment Industry of Bangladesh ............................................................................................... 24

11. Legal & Regulatory Framework .................................................................................................................................. 26

12. Sources of Information .............................................................................................................................................. 27


1 Copyright © 2016. All Rights Reserved

1. Background Payment has always been an integral part of human life. It’s the mechanism that enables smooth

transfer of funds between buyers and sellers, and/or between banks/financial institution. In the

modern society, no economic activities are possible without the transfer of money. In this sense, we

can easily say, that payment systems are one of the most significant social infrastructures. Starting

from the ancient barter system to the latest tap N pay, the payment industry has seen some amazing

landscape of evolution globally. Over the time, technological advancements were introduced and

ideas integrated considering one single goal; ensuring convenient payment method. Convenience

became priority for mass, which triggers industry experts to think about payment security as well.

During last couple of decades, payment industry has seen a lot of innovations. In any country, central

bank and commercial banks play a key role in payment systems. However, the people on the street

seldom or never notice their role and importance of payment systems. That is why, payment systems

have sometimes been regarded as the “behind-the-scenes activities,” which are not seen by a large

audience.

In the early days, the payments among the banks used to be made by exchanging paper payment

instructions, which is called the “paper-based payment system”. But, as the number of payments

increased dramatically, it became very difficult to process paper work with paper instructions and

manual handling. Therefore, people tried to utilize information technology (IT) with regard to the

payment system. This endeavor resulted in developing the payment systems using the computers and

networks. The use of mobile technology these days for funds transfers has increased dramatically and

the market wants payment services that offer speed, convenience, ubiquity, safety and value for

money.

The payment system plays a pivotal role in circulating funds all over the economy. If some

malfunctions were to happen to a payment system and hinder the flow of funds, the impact would be

extraordinary and disruptive. The economic activities and functions of financial markets would

become completely paralyzed. Therefore, we can conclude that payment systems are social

infrastructures that support all economic activities, including commercial activities and financial

transactions. A safe and efficient payment system is an important mechanism that props up the

functions of financial markets and the financial system.



2. Payment Systems in Bangladesh With a Hundred and Sixty Six Million people and a growing Per Capita Income of USD 3’100,

Bangladesh is one of the rising economies in South East Asia. Traditionally, The Central Bank is key the

role player in the existing payment system of Bangladesh. Imposing regulations, amending infra-

structural changes, introducing new service enhancing securities related to payment, all basically

comes from this entity. The commercial banks are mostly responsible for providing general and

specialized banking services to the mass people.

Until 2009, Bangladesh’s banking system had been following a paper based transaction route. After

that, with the supportive role of Bangladesh Bank, it moved towards an automated banking system

that is compatible with international standards. In the provision of Bangladesh Bank's order, it is said

under 7A (e) that Bangladesh Bank will have to promote, regulate and ensure a secured and efficient

payment system. From 2009 onwards Bangladesh Bank has issued as many as six sets of regulations

starting from automated cheque clearing, BFTN, electric fund transfer and, of late, mobile service. In

2013, they introduced agent banking system. In the meantime, both government and private banks

have invested a good amount of resources to make the system automated and updated both

horizontally and vertically.

The financial system of Bangladesh comprises following 3 major categories- Formal, Semi-Formal &

Informal sectors. In case of payment system, all the related players are considered as a part of formal

sector. Where Central Bank is the key decision maker and ensures following functionality-

Prevent systemic risk, thereby maintaining financial stability

Promote the efficiency of payment systems and instruments

Ensure the security of and public trust in the currency as the settlement asset

Safeguard the transmission channel for monetary policy

A well-functioning payment system ensures the efficient and safe execution of monetary policy

operation and facilitates the smooth and homogenous transmission of monetary impulses. The

smooth functioning of payment systems is a precondition for users' confidence in these systems and,

ultimately, public confidence in the local currency.



3. Payment instruments in Bangladesh Payment instruments are an essential part of a payment system. In a simple word, Payment

instruments are the elements that are being used to transfer payments between individual or financial

institution. The safety and efficiency of payment instruments are important for both maintaining

confidence in the currency and keeping the economy running smoothly. In Bangladesh, cash/cheque

is still the most important payment instrument with a wider acceptance level. In last few years due to

change in global payment arena and the improved mindset among local customer base, money

transfer via internet and mobile is slowly gaining confidence. In general, at this moment following

instruments are well accepted as standard payment instrument in Bangladesh.

Cash

Paper Based (Cheque, Demand Draft, Pay Order)

ATM/Debit/Credit Card

Internet (Electronic Fund Transfer)

MFS (Mobile Financial Service)

Foreign Remittance

Gift Card/Close Loop Card

Money Transfer/Telegraphic Transfer

4. Evolution of Payment instruments in Bangladesh The mode payment has seen lots of changes over time. Where, cash still remains as a major

instrument for transaction in the developing part of the world. In a mature economy like some

parts of Europe and America, china and a few parts of Africa, the regulators and market controllers

are encouraging people to move from cash to cashless transaction and that is increasing more

transactions via plastic money, wireless transfer of balance over mobile and internet. The scenario

in South East Asia is still in an early phase where MFS is slowly taking over Cash transactions. In

recent year’s people has also moved a lot towards plastic money and electronic fund transfers

over internet. Earlier e-transfers of money was limited to personal level only; but now in

commercial sectors many organizations are moving towards e-transfer to avoid paper & time

hassle.

4.1 Cash Cash is the simplest example of a payment instrument and said before that, cash is still used for

most payment transactions (in number, not in value) in developed countries like Bangladesh. The

physical standards to protect cash from forgery vary by country and might have features with

respective spec (unique size and color, denomination, special paper and security features (ink,

watermark, micro text, see-through features, line structures etc.). In Bangladesh, one major



movement was the introduction of cash counting machine which has reduced the cash handling

hassle a lot while saving time for both customers and the counter officers.

4.2 Paper Based (Cheque, Demand Draft, Pay Order etc.) Paper-based payments are mostly considered as a safe instrument for payment in the commercial

level due to its in built paper based authentications. The major disadvantage of paper payments

is that they require physical handling and transportation to enable the exchange between parties.

Paper based instrument has seen some major improvements when Bangladesh Bank has initiated

the Bangladesh Automated Cheque Processing Systems (BACPS) on 7th October 2010 in the Dhaka

Clearing House area. BACPS uses the Cheque Imaging and Truncation (CIT) technology for

electronic presentment and payment of paper instruments (i.e. cheque, pay order, dividend &

refund warrants, etc.). The system supports both intra-regional and interregional clearing and is

based on a centralized processing center located in Dhaka and in designated clearing regions.

There are two types of cheque clearing under BACPS, i.e. High Value (HV) and Regular Value (RV)

Cheque clearing.

4.3 Internet (Electronic Fund Transfer) Electronic payments are instructions passed between banks without reliance on paper processing

or shipment. These systems are ideal for high volume, repetitive payments such as wage and utility

bills and for moving large, time sensitive payments. Electronic payments are not always cost

effective for high volume, low value payments that are not time sensitive, particularly in emerging

countries with limited access to technology. In Bangladesh since 2010, the use of internet banking

has increased dramatically due to more banks offering electronic fund transfer facilities with

improved security integrated to the system. This allowed lots of corporate moved in to e-transfers

than paper based money transfer. In recent times, most corporate house prefers e-transfer when

high value transactions are involved.

4.4 ATM/Debit/Credit Card Card-based payments are used for consumer payments made at the point of sale (POS). Examples

of card payments are ATM cards, credit cards and debit cards. In Bangladesh plastic money was

introduced in late 80s and credit card was introduced in late 1996 by Standard Chartered Bank.

Gradually all banks started offering ATM/ debit cards for their account holders and DBBL played a

vital role here to offer different varieties of cards for different types of consumers. The plastic

money saw a significant movement in late 2010 when few major commercial banks (BRAC, SCB,

City Bank, EBL) started to push credit cards among their customers with lucrative shopping

benefits. This movement encouraged a big chunk of customers to move from cash transactions to



cashless mode. Increased number of POS acceptances in various commercial places played a vital

role for increased card usage.

4.5 MFS (Mobile Financial Service) MFS recorded phenomenal growth in Bangladesh in terms of financial inclusion. The biggest

achievement of MFS was to capture the unbanked population by availing them a comfortable and

simple money transferring facility. With MFS sector now has more than 17 million customers

among which 80% are unbanked population. Even though Bangladesh’s central bank has approved

more than 20 licenses to offer mobile financial services, more than 80 percent of transactions are

through a single company—BKash. BKash launched in the second half of 2011, grew to 2 million

accounts by the end of 2012, expecting to have 13 million registered accounts by the end of 2016.

4.6 Foreign Remittance Foreign Remittances from more than 10 million citizens abroad are very important for Bangladesh

and it is one of the key sources of foreign exchange. The country’s economic stability is critically

dependent on this to a certain extent. Bangladesh is experiencing substantial growth in remittance

field since couple of months. A huge increase in manpower export, backed by the central bank's

proactive measures to facilitate the inflow through formal channel, is believed to have driven the

remittance growth.

4.7 Gift-cards/Closed-loop cards? Merchant Gift Cards or Gift vouchers are slowly getting acceptance at the consumer level in

Bangladesh market. One of the initial example of Gift card in Bangladesh is Prize Bond. It is still

quite popular among many customers due to its intrinsic monetary value and a future scope of

availing bigger draw able amount. Limited number of merchants are offering prepaid gift cards

-

200

400

600

800

1,000

1,200

1,400

1,600

USD

(m

l)

Remittance (USD/ml)/month (Data of 2015 & 2016)



these days of different values. Customers are still using gift cards/vouchers as an unconventional

gift items.

4.8 Money Transfer & Telegraphic Transfer Telegraphic Transfer or Telex Transfer, often abbreviated to TT, is a historic term used to refer to

an electronic means of transferring funds abroad. A transfer charge is often charged by the

sending bank and in some cases by the receiving bank. Money Order is another form fund transfer

that can be availed through post office in Bangladesh. However, both of these fund transferring

technologies are becoming almost obsolete due to the available alternatives.



5. Payment Instrument’s Technological Advancement Payment system is evolving globally and Bangladesh is not out of this process as well. The country’s

central bank has imposed several regulations and introduced technologies that has helped the

industry stakeholders to integrate improved service in the system which enabled the users to get

access toward advanced payment methods.

5.1 Automated Cash Counting & Cheque Processing In Bangladesh, one major movement was the introduction of cash counting machine which has

reduced the cash handling hassle a lot while saving time for both customers and the banks. Paper

based transactions has seen some significant changes in transactions rate (60% increased) as well,

when central bank introduced Bangladesh Automated Cheque Processing Systems (BACPS) on late

2010.

5.2 EMV Technology Plastic card became significantly popular among the customers due to wide merchant

acceptability and convenience over carrying cash. Increased no. of card users triggered the

security concern for industry professionals. That’s why many banks are coming up with EMV Card

instead of traditional Magnetic Strip Card these days. EMV over Mag Strip can be considered as a

major breakthrough, because in this scenario, security has been increased without compromising

the convenience of a plastic card.

5.3 MFS (USSD based) People were demanding for more convenience in payment style and that’s how MFS came in to

the field. Initial operation started based on USSD and heavily dependent on MNO network.

However, marketers are trying to introduce application based service because of the increased

no. of smartphone users.

5.4 OTP & SMS Alert Security became a critical concern for many formal financial institutes due to the increased usage

of plastic card products. Many banks are offering online shopping via debit/credit card these days

and while increasing convenience, this also brings a matter of secured transaction. The

introduction of OTP (One Time Password) while doing online transactions is one of the key

milestone in the payment industry of Bangladesh which enabled the plastic card users to make

secure and safe online payment. Instant SMS alert on ATM cash withdrawal, retail purchase via

card are also security measures that almost all commercial bank has implemented in their system.

Several online gateways are facilitating online transactions on multiple e-commerce sites and that

is engaging customers more in to online purchase.



5.5 NFC & Tokenization While globally many financial institutions are trying to introduce wireless payment via contact less

EMV Cards or using NFC based smartphones; Bangladesh is still lacking behind in several aspects.

One of the key setback is lack of NFC enabled handsets and also NFC enabled POS hardware’s

unavailability. Industry players are also quite not aggressive to go with relevant investment.

However, low cost technologies are encouraging smartphone manufacturers to come up with

handsets having NFC and fingerprint features and this might encourage industry deal breakers to

introduce new handset in the market soon. Bangladesh Bank and other trend setters are still

exploring the options of introducing advanced tech like HCE (Host Card Emulation) & Tokenization

which will turn the plastic card in to a virtual form while maintaining both security and

convenience.



6. Regulatory Authority’s Payment Systems Strategy A well-defined strategy acts as the guiding flagship for any attempt. Considering that, Bangladesh Bank

published a 'Strategic Plan 2010-2014' highlighting the foremost near and medium term strategies for

the development of payment and settlement systems of Bangladesh. Most of these goals are already

achieved by this time while others are in the implementation process. To be with the trend, Payment

Systems Department (former DCMPS) has revised the earlier strategies and devised newer priorities.

The new strategy has been set to – "Develop effective and efficient currency management alongside

establishing fast and secure electronic payment systems for facilitating financial inclusion".

PSD has also revised the earlier objectives and devised newer priorities. Importance are given to

implementing newer payment platforms i.e. National Payment Switch (NPS), e-Payment Gateway and

Real Time Gross Settlement (RTGS) while upgrading the required legal and regulatory framework

befitting the electronic payment platforms.

Newly set objectives for Modernizing country's Payment and Settlement Systems are listed below -

Establish required legal and regulatory framework for electronic payment systems.

Promote and encourage the use of electronic funds transfer, mobile financial services, e-

commerce, m-commerce, shared ATM, POS, etc.

Establish National Payment Switch (NPS) for facilitating electronic payments originating from

different delivery channels e.g. ATM, POS, Internet, Mobile, etc.

Establish e-Payment gateway.

Establish Real-Time Gross Settlement (RTGS).

6.1 Real Time Gross Settlement (RTGS) An RTGS system is a gross settlement system of money or securities in which both processing and

final settlement of funds transfer instructions can take place continuously (i.e., in real time). It will

enable instant settlement of high value local currency transactions as well as government

securities and foreign currency based transactions. As it is a gross settlement system, transfers

are settled individually, i.e., without netting debits against credits.

An RTGS system can thus be characterized as a fund transfer system that is able to provide

continuous intraday finality for individual transfers. In RTGS or large-value funds transfer system,

the transmission and processing of payment messages are typically automated or electronic, while

settlement takes place in central bank funds. Along with these individual interbank transactions

all other Deferred Net Settlement Batches (DNSB) such as BACPS, BEFTN or NPSB will settle their

net position through RTGS system, RTGS in turn will be linked to BB core banking solution.



6.2 NPSB (National Payment Switch Bangladesh) One of major breakthroughs in the history of Bangladesh’s payment system was initiation of NPSB

in 2012. It is a common platform for the country's commercial banks for electronic payments with

an intention of revolutionizing E-commerce in Bangladesh. NPSB enables customer using a credit

or debit card of any bank to draw cash from any ATM and POS (point of sales) in the country. Thus

transaction costs have gone down significantly as the transactions are routed through the NPS

instead of Visa, Master or Amex card networks abroad. Moreover, purchase and sale can be done

with cards through internet within the country (Integration still in process). NPS will facilitate easy

access to funds, an increase in tax revenue, more flow of money in the economy, and financial

inclusion. Individual payment platforms introduced by different banks will be abolished once all

banks join the common platform. At present, transactions among 42 (out of 56) banks are being

routed through NPSB. NPSB connectivity diagram is following- (Figure-1)

NPSB

ATM

POS

Payment Gateway

Internet

MFS

Bank



A view of historic transactions through NPSB is given below:

National Payment Switch Bangladesh comparative summary statement April, 2015

Serial no. Description Amount (in April, 2015)

1 No. of Banks connected with NPSB 48

2 No. of total transaction 4,55,518 3 Total transaction amount in taka 267,35,60,600

4 No. of daily average transaction 15,184

5 Average daily transaction amount in taka 8,91,18,686

6.3 Payment & Settlement A well-functioning payment system ensures the efficient and safe execution of monetary policy

operation and facilitates the smooth and homogenous transmission of monetary impulses. The

smooth functioning of payment systems is a precondition for users' confidence in these systems

and, ultimately, public confidence in the currency. Central bank has a strong interest in promoting

safety and improving efficiency in payment systems as part of their overall concern with financial

stability. Following is the Settlement system diagram (Figure-2)

Financial stability requires efficient and convenient settlement procedure. Central bank plays a vital

role here by implementing procedures and amending required changes to ensure a smooth

operational settlement system which allows players from different payment arena to interact and

exchange settlement requirements.



7. Current Payment Scenario in Bangladesh Being a growing economy with a sensible GDP, Bangladesh is still falls under developing nation

category where the population is slowly changing their perception in terms of payment and economic

involvement. Due to the nature of the business, wide availability of acceptance points and small

amount transferability, cash still remains as a leading mode of payment in Bangladesh. However,

Internet penetration, increased mobile phone subscriptions, rapid expansion of effortless MFS

services are encouraging people to try out more cashless methods. Following graph will give a visual

representation of the current payment scenario (May-2016) of Bangladesh-

Introduction of Plastic Money in early 80’s and credit card in mid-90’s changed the scenario of the

Bangladesh payment system quite a lot. Commercial Banks & marketer made a combined effort to

made purchase through plastic money more beneficial. Despite of that, customer also realized that

carrying card than cash will be more secure, convenient and pocket friendly.

13%1%

0%1%

0%

2%0%

83%

Payment Method(%)/Month/BDT- (chart-1)

PaperbasedEFT

Credit Card

Debit Card

I-Banking

M-Banking

AgentBankingCash

92%

8%

No. of Users (May, 2016)- (chart-2)

Debit Card

Credit Card

Payment Instrument

Amount (Cr.)/Month

Paper based 128,971.70

EFT 7,075.60

Credit Card 535.22

Debit Card 10,853.28

I- Banking 2,184.00

M- Banking 16,376.11

Agent Banking 314.52

Cash (Bank

Deposits only)

808,184.80

Type of Card No. of Users (May, 2016)

Debit Card 8,652,212

Credit Card 743,507

Total Card 9,395,719



Regarding plastic money the following data explained the usage pattern of card consumers as per the

age group-

Referring to a relevant survey, 34% of the credit card users have a credit limit of 500, 000 BDT or

equivalent in USD. Plastic money transactions are also increasing gradually. Following tables shows

the trend –

Month No. of Transactions (Credit Card) No. of Transactions (Debit Card)

Nov-15 840,571 11,599,529

Dec-15 922,951 12,188,909

Jan-16 925,007 11,959,045

Feb-16 857,999 15,907,129

Avg. Monthly Transaction 886,632 12,913,653

Internet Banking played a critical role in the changing dynamics of the payment system of Bangladesh.

Considering all major banks started offering I-banking services with diversified features keeping (EFT)

electronic fund transfer facility as the prime goal. Significant internet penetration growth also played

a vital role in the rapid growth of EFT.

2000 2007 2009 2010 2011 2012 2015

Users 100,000 450,000 556,000 617,300 5,501,609 8,054,190 53,941,000

Population 134,824,00 137,493,99 156,050,88 158,065,84 158,570,53 161,083,80 168,957,74

% Pen. 0.10% 0.30% 0.40% 0.40% 3.50% 5.00% 31.90%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

Internet Penetration in Bangladesh - (chart-3)

Users Population % Pen.

% usage (Out of Total Debit Card Users)

Age Group

42 % (21-30) 32% (31-40) 21% ( 41 and above) 5% (10-21)

% usage (Out of Total Credit Card Users)

Age Group

28 % (21-30) 51% (31-40) 21% ( 41 and above) 0% (10-21)



This has reduced physical hassle for the customers and the integrated security in the I-banking facility

has added an extra dimension to the overall payment system security in terms of (EFT) electronic fund

transfer mechanism. Following graph shows the current I-banking penetration in brief-

As said before, due to high mobile penetration and affordable internet availability people has

gradually started to consider mobile banking as a strong alternative of traditional payment methods.

The below graph will give a glimpse of the current mobile banking state-

607,730 607,511

626,771

620,095

595,000

600,000

605,000

610,000

615,000

620,000

625,000

630,000

No. of Transactions

Internent Banking Transaction Snapshot/Month- (chart-4)

November-15 December-15 January-16 February-16

1 2 3

Year 2014 2015 2016

No. of Subscribers 28,625,131 34,303,615 35,875,017

2014 2015 2016

28,625,131

34,303,615 35,875,017

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000

40000000

No. of Mobile Banking Subsrcibers- (chart-4)

Year No. of Subscribers



8. Bangladesh Payment Domain’s Key Players

8.1 Central Bank of Bangladesh The most important and dominant player of Bangladesh’s payment domain is the Central Bank of

Bangladesh. Central Bank also is the regulator of the financial system of Bangladesh. Central bank

control the flow of financial changes, define regulatory frameworks, ensure secured transfer of

funds, introduce technological advancement which ensure smooth and secure operational

relations retains among all the financial institutions in the country. Central bank also have the

authority to bring changes which is required for the betterment of the overall economy. A

country’s payment system is a part of the overall financial system that the Central Bank have

regulatory supervision on.

8.2 Commercial Bank One of the key players who operates the flow of money in Bangladesh payment market is the

commercial banks. Currently 56 banks are in operational state, where 42 banks are connected with

NPS. Rests are in process of connecting. Commercial banks are increasing their operations in all

possible locations within the country ensuring customer’s satisfaction by full-filling regular banking

demands and augmenting additional baking facilities which indirectly affect the payment

mechanism. Setting up new ATM Booths, engagement of agent banking are movement which is

really triggering banking service in wider scale. It was not very long ago that Bangladesh was

dubbed as an under-banked country. Financial inclusion was a far cry at that time. Discussions were

limited to the challenges, such as lack of knowledge and awareness in financial inclusion in

Bangladesh. A research conducted by the Bangladesh Institute of Bank Management shows that

financial inclusion of the total population was 39.76 percent in 2004 which rose to 56.42 percent

in 2010 due to the opening of 90 lakh Tk 10 farmers' accounts in state banks.

Commercial banks are the main stake holders in terms of plastic money. Due to security concerns,

commercial banks has started to shift from traditional Mag-strip cards to EMV chip card for their credit

56 Scheduled Banks

Banks which received licenses to operate under Bank Company Act, 1991 are called Scheduled Banks

20 Private Commercial Banks are offering Mobile Banking Facility 56.9% of total adult population

have access to

formal banking service

30, 285 no. of POS terminal and growing

12,669 Bank Branches

5 SCOBs 3 Specialized Banks

39 PCBs 9 FCBs

Agent Banking -241 Agents

State Owned Commercial

Banks

Established for Specific objectives and aiming niche

Private owned

commercial banks

Foreign Commercial

Banks More than 7,000 ATM Booth



and debit card service. However, Mag-strip & EMV both are available in single plastic card to ensure

backward compatibility.

The City Bank has outpaced its rivals in credit card business, thanks to a strong marketing drive with

its American Express cards that offered unique and higher lifestyle benefit to users. Although the

sector has long been going through a slow period, City has grown exceptionally -- 25 percent a year.

Market Share in terms of credit card issuers-

Card based product currently consist 28% share in the current consumer finance product market

profile of Bangladesh. This is certainly an indication that people are moving more towards plastic

money for payment alternatives. The following graph shows the current state of consumer finance

market state of Bangladesh (based on 2015 data)-

44%

28%

11%

28%

20%

14%

14%

7%

11%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Personal Loan(Secure)

Consumer Goods (loan)

Home Loan

Credit Card

Personal Loan (Unsecure)

Auto Loan

Land Purchase

Professional Loans

Others

Market Share (%) of Consumer Finance Products (2015)-(chart-6)

Leading Banks partnering with KONA for EMV Migration

SL Banks Migration Facilitator

1 NRB KONA

2 NRB Global KONA

3 NRB Commercial KONA

4 National Bank KONA

5 Standard Bank KONA

6 IFIC Bank KONA

7 Jamuna Bank KONA

8 Trust Bank KONA

9 Bank Asia KONA

10 EXIM Bank KONA

11 Meghna Bank KONA

12 Modhumoti Bank KONA

13 Uttara Bank KONA

14 South Bangla Agricultural Bank KONA

15 Mutual Trust Bank KONA

16 EBL KONA

27%

21%

11%

7%

5%

29%

Market Share (%) of Credit Card Issuers (chart-5)

The City Bank Standard Chartered

Brac Bank Eastern Bank

Dutch-Bangla Bank Others



8.3 MFS (Mobile Finance Services) Depending on the operation, responsibility and relationship(s) among MFS Solution Provider and

customers mainly two types of mobile financial services (Bank-led and Non-Bank-led) are followed

worldwide. Bank-led model - Every customer has a direct contractual relationship with a licensed

Bank even though the customer may deal exclusively with an agent who is equipped to

communicate directly with the bank server (typically using a mobile phone). Non-bank-led model-

Customers have no direct contractual relationship with a licensed Bank. Bank works behind the

screen to manage the total fund.

In case of MFS, Bank-led models are winning overwhelmingly in almost all countries, the non-bank

led model exists in a few undeveloped countries. A brief snapshot Bangladesh’s MFS market is

below-

Leading MFS- BKASH, DBBL,

UCASH, MCASH & MYCASH

In Bangladesh, the Central Bank has concluded this debate and allowed 28 banks to offer MFS, of which 19 banks have already started to work on their MFS products and 10 Banks are commercially active.

594, 932 no. of Agents

BKASH DBBL MYCASH UCASH MCASH 3.8 million transactions per day 545.85 Cr. BDT/Daily

Transactions volume 135K

Agents 116K

Agents 95K Agents 105K

Agents 86K

Agents

3,905 ATMs 16.61 ml customers

4.75 ml customers

0.85 ml customers

2.20 ml customers

2.43 ml customers 43 % active

subscribers

MFS Model Non-Bank Bank Bank Bank Bank

Market Share as per subscriber’s base for the MFS players is below –

8.4 Smart Card/ Plastic Card Vendors/Suppliers With 56.9 % (out of total population) banking penetration and 9.3 million (growth rate of 5%-20%)

debit & credit card users, Bangladesh is one of the thriving market for the smart card manufacturers,

58%17%

8%

8%

6%

3%Market Share/Subscribers of MFS

bKash (Brac Bank)

DBBL M banking (DBBL)

mCash (Islami Bank)

Ucash (UCBL)

Others (Trust, Bank Asia, FSIB)

MYCash ( Mercantile)



vendors, suppliers and relevant facilitators. Following players are active in Bangladesh smart card

market for a considerable amount of time.

Chip Suppliers Card Suppliers Solution Suppliers Hardware Vendor System Integrators

Infineon Kona I X-InfoTech Data card ITCL

NXP Gemallto Data card - Affina VeriFone LOS Technologies

Samsung Future Card TechTrex Wincor Nixdorf Lark Technologies

MonyPal CompusPlus NCR Aamra Technologies

EastcomPeace KonaSL Thales Leads Corporation

AB Notes Safe net Tiger IT

Matica Data Edge Ltd.

NBS Instrumental Clique

CIM DNS Software Ltd.

King Teller Techno media Ltd.

Net world Bangladesh Ltd.

AND Technologies

A brief info about few leading players those who are active in local market are given below-

Infineon: Infineon Technologies is a German semiconductor manufacturer founded on 1 April

1999 are one key chip supplier in Bangladesh card industry. They also have an off-shore

settlement here name AplombTech BD.

NXP: NXP Semiconductors N.V. is a global semiconductor manufacturer headquartered in

Eindhoven, Netherland. They are also a key chip supplier for the plastic cards available in

Bangladesh.

Samsung: Samsung a major manufacturer of electronic components such as lithium-ion

batteries, semiconductors, flash memory and hard drive devices for clients such as Apple,

Sony, HTC and Nokia and a supplier of chips for plastic cards.

KONA I: KONA I has over ten years of experience as a leading player in the smart card industry.

Starting in 1998 as KEBTechnology, in March 2012, it changed its name to KONA I

(International) reflecting its vision to become the world’s leading smart card company. In

Bangladesh they have their biggest R&D center named Kona Software Lab (KSL). KONA I is also

is a supplier of plastic cards & chip in Bangladesh market.

Gemallto: Gemallto is an international digital security company providing software applications,

secure personal devices such as smart cards and tokens, and managed services. It is the

world’s largest manufacturer of SIM cards. Gemallto has a strong position in Bangladesh

market as a smart card supplier with their proprietary solution called maltos.

Future Card: Future Card is an international corporation, expert in the design, manufacturing

and customization of all types of cards, from the most basic plastic cards to the most advanced

smartcards.



Eastcom Peace: EastcomPeace Technology Co., Ltd is a world leading provider and server of

smart card products, related system integration and overall solution, founded in 1998.

AB Notes: ABnote provides global products and solutions including; smart cards, ID cards, gift

cards, financial cards, and secure documents.

X-InfoTech: X INFOTECH is a global system integrator and developer of the premium software

solutions for the issuance, management and verification of payment cards and electronic ID

(e-ID) documents.

TechTrex: TechTrex Inc. (TTI) is a leading provider of turnkey custom solutions for the Card

Issuance and Payment Industries. The company's strength lies in its ability to provide a

comprehensive blend of superior technology and customized software solutions.

KONASL: Kona SL is a private limited company registered under Companies Act 1994

Bangladesh. It’s a sister concern of Korea Based Smart Card Solution Provider Kona I, Key

business areas include Smart Card Solutions, payment solutions and Security Solutions.

VeriFone: VeriFone is the global leader in secure electronic POS solutions. VeriFone provides

solutions, services, and expertise that enable electronic payment transactions. VeriFone has

a strong market share in Bangladesh as a POS device supplier.

NCR: The NCR Corporation is an American computer hardware, software and electronics

company that makes self-service kiosks, point-of-sale terminals, automated teller machines,

check processing systems, barcode scanners, and business consumables. They are the leading

ATM hardware supplier in Bangladesh market.

Safe Net: SafeNet is the world's leading provider of data encryption, crypto management,

multi-factor authentication, and software monetization solutions. Founded in 1983.

ITCL: Established in 2000, IT Consultants Limited (ITCL--owns payment processing consortium,

which is popularly known as ‘Q-Cash’) is the local leader in the rapidly evolving arena of

Electronic Payment & Transaction Processing System.

LOS: LOS Technology has established its network of clients and services since 2011. With

advance communication technology gateways to increasing possibilities, LOS is ready to

provide its clients with exciting solutions from the convergence of banking technology &

information solutions.

Aamra: Leading IIG, ISP & a local tech reputed tech brand who aims to provide digital services

and connectivity for the local banks to extend limitless dimension. They are one oldest

supplier of ATM & POS hardware to commercial banks in Bangladesh.



Tiger IT: Tiger IT is local software company who developed a solution for the national ID and

voter registration project for the general election of Bangladesh in 2008. They are in expert in

Smart ID management and security solutions service,

Data Edge: Data edge limited (data edge) is a leading technology consulting firm in

Bangladesh. They provide Card Management and Personalization Solutions, Lending

Application System Processing, Credit Risk Management System, Debt Collection and

Recovery Solutions, Telephone Banking Solutions, ATM, POS, HEM & Embosser Hardware to

commercial banks.

Net world: Net World Services Limited is a major security solution provider company in

Bangladesh. Net World Services Limited is the Authorized Distributor of Certis Technology

International Pte. Ltd for the Security products and solutions.

8.5 Payment Networks Payment network (VISA, AMEX, MC, Discover etc.) is a critical player in the payment system. These

payment network brands provides financial institutions with own-branded payment products that

commercial banks use to offer credit, debit, and prepaid cards for the mass customers. Globally both

VISA and Master Card are leading and the scenario is quite similar in Bangladesh market too.

However close loop networks like DBBL Nexus and QCash are also getting popular due to extended

merchant acceptability scope. In Bangladesh market in terms of transaction volume VISA is leading

from the front. Following is the graphical analysis for all the relevant payment network brand’s

market share-

Visa50%

MC32%

Amex12%

Discover5%

Nexus1%

Market Share(%) on Transaction Volume



8.6 Payment Gateways/Facilitators A payment gateway is an e-commerce application service provider service that authorizes

debit/credit card payments for e-businesses, online retailers etc. In Bangladesh, since last couple of

years, consumer payment dynamics has changed quite a bit. Increased e-commerce business,

affordable internet and flexible debit/credit card has encouraged more online

transactions/payment. This scenario has encouraged several payment gateways/facilitators to

operate in this market. Following are the key players in Bangladesh online gateway industry-

EasyPayWay: EasyPayWay Is a Bangladeshi Payment Gateway provider. We provide you with a fully

automated ecommerce solution that will allow your business to accept online credit card payments

securely in real time. Our secure connection to the global banking network ensures your funds are

safe and protected. The Payment Gateway is developed by The Codero Limited. EasyPayWay is

designed for merchants who attract their clients with alternative payment method. EasyPayWay is

secured by SSL and Payment Gateway is secured by Visa Verified and Master Secured.

SSL Wireless: Software Shop Limited (SSL Wireless) started its journey in 1999 as an associated

company of one of the biggest garments exporting groups in Bangladesh, Concorde Garments. With

its consistent efforts, SSL has been able to become the LARGEST Merchant Solution Provider serving

250+ merchants across the country through its Internet Payment Gateway Solution called

SSLCOMMERZ. Out of the total online transaction in Bangladesh, 40% of those are processed

through this gateway.

Walletmix: Walletmix is an online payment gateway expanded within Bangladeshi online market. It

provides expert e-commerce advice, simple integration, wide range of integrated shopping carts,

and FREE 24/7 support you can rely on.

Portwallet: Portwallet is a simple way to accept payments online in Bangladesh. Portwallet aims to

expand the infrastructure of internet commerce by making it easy to process transactions and

manage an online business. PortWallet was developed by Portonics Limited. Portonics is a

technology consultancy firm based in Dhaka, Bangladesh who specializes in web and software

development, mobile applications and digital marketing.

ShurjoPay: ShurjoPay is an Online Payment Gateway API of shurjoMukhi Limited. ShurjoPay got PSO

(Payment Service Operator) License in Bangladesh awarded by Bangladesh bank.



Payza: Payza is an online payment platform that lets you to send and receive money, shop, make

online payments or get paid from almost anywhere in the world. It also has operations in Bangladesh

market with diversified financial service where online payment gateway is critical.

AamarPay: AamarPay is an online payment gateway for Bangladesh. AamarPay is a joint venture

initiative of Soft Tech Innovation Ltd and UK based company.

DBBL Nexus Payment Gateway: DBBL is known to be a trend setter in Bangladesh financial market.

In 3rd June, 2010, Dutch Bangla Ltd. (DBBL) has introduced Internet Payment systems in Bangladesh.

Using their Internet Payment gateway people can purchases services online using their Visa,

Masters, DBBL Nexus and Maestro cards.

QCash Payment Gateway: ITCL introduced Q-cash Payment Gateway (Q-cash PG) to facilitate valued

cardholder’s of buying goods and services and transfer of funds through on-line electronic

payments. It performs authentication of electronic transactions in compliance with 3-D Secure Code

standards and allows customer identification from an issuer as well as acquirer´s side. This solution

has been designed to be apt for issuers and acquirers. All domestic Visa, Master, Pre-paid, Debit and

Credit cards are able to transact through this payment gateway.

BRAC Bank Payment Gateway: BRAC Bank limited has introduced an e-commerce program for all

VISA & MasterCard cardholders. Electronic Commerce is a convenient and affordable way to buy

and sell products or services online. This facilitates the individuals to maintain an online business

while performing transactions right from the Web.



9. Non-traditional Payment Platform: Beside the mainstream players, there are few other players exist in Bangladesh payment system as

well. However, their access to direct payment are somewhat limited due to the nature of business and

changing dimension of the main stream player’s service offering.

9.1 Micro-Finance Institute: Microfinance is a source of financial services for entrepreneurs and small businesses lacking access

to banking and related services. The two main mechanisms for the delivery of financial services to

such clients are: (1) relationship-based banking for individual entrepreneurs and small businesses;

and (2) group-based models, where several entrepreneurs come together to apply for loans and

other services as a group. In Bangladesh MFI was introduced mostly in rural regions to describe the

supply of financial services to low-income employees, which is closer to the retail finance model

prevalent in mainstream banking.

Current State of MFI in Bangladesh is below –

9.2 Payment/ Fund Transfer via Courier Services Payment or fund transfer services was introduced in Bangladesh where traditional bank services

was not available. It was mostly targeted small scale business owners who are in product/goods

delivery business nationwide and low-income group of people who has less access to formal

banking system. However both of these above non-traditional entities are losing markets due to

rapid mobile penetration among the population and diversified and low cost MFS services.



10. Future Trends of the Payment Industry of Bangladesh Payment industry globally has seen many dimension on regular interval. Bangladesh is not out of

these. Change of market, smartphone entry, diversified banking service and many other internal and

external factors are responsible for these changes. For an example for last couple of years Bangladesh

has seen a massive movement in MFS sectors and increased Plastic Card usage also was quite

noticeable among the banking customers. Some of the key indicators that will define the fate of

payment industry of Bangladesh in next decade are flowing -

Almost 60% banking penetration directs that we have room to grow in many aspects in the

payment domain.

About 20 percent of mobile phone users will start using smartphones by the end of this year,

which will boost data consumption, said a top regional official of Ericsson.

The ongoing efforts of the mobile operators in Bangladesh to improve network capacity and

quality will help boost smartphone penetration manifold in the next five years.

Lower Internet Cost will encourage people to engage more in to I-banking and e-commerce

payment.

Bangladesh became one of the top 10 countries in the world for the good subscriber (mobile)

growth.

Diverse transaction profile indicates that MFS will lead the domain of unbanked population

for next few years for sure. Their recent tie up with Master-Card & BKASH for foreign

remittance inward transfer will also play a vital role here.

Increased transactions in POS terminals shows that usage of Plastic Card is growing and getting

more acceptance than cash gradually in terms of payment.

Android becoming more popular among smartphone users allowing scope for local marketers

to work on new payment tech like virtual card/HCE in future.

53%

12.00%14.00%

4.50%2.70%

14%

0%

10%

20%

30%

40%

50%

60%

Symphony Walton Samsung Lava Maximums Others

Smartphone Market Share(%) in 2015 (chart-8)



Based on this information we can come to a prediction that Bangladesh has started to depend on

Plastic money and the concept of virtual money via MFS is becoming popular. However, increased no.

of android smartphone users are showing potential scope of working on technologies like HCE &

Tokenization. However, that is still heavily dependent on Central Bank’s regulatory changes in the

market and user acceptance will also be a critical consideration on this. Because we may make our

market hardware ready (POS, Phone etc.) but ensuring the user readiness will be the biggest challenge

in next few years for the policy makers, technology manufacturers and the payment players.

The City Bank DBBL Brac Bank

POS (No.) 9500 6500 3500

Transaction (Cr.) 1,450 700 760

Growth(%) Year to Year 34% 30% 32%

9500

6500

3500

1,450700 760

34%

30%

32%

28%

29%

30%

31%

32%

33%

34%

35%

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

POS Transactions in Bangladesh Growth-2015 (chart-9)

Android57%iOS

16%

Windows8%

Feature Phone19%

Smartphone Demand in Dhaka in terms of OS (%) (chart-10)



11. Legal & Regulatory Framework In order to give legal and regulatory support to growing methods for electronic transfer of funds,

Bangladesh Bank has governed a number legal and regulatory framework. Existing Legal and

Regulatory Framework of Payment and Settlement Systems of Bangladesh below

Bangladesh Automated Cheque Processing Systems (BACPS) Operating Rules and Procedures

has been published on 11 January 2010.

Bangladesh Electronic Funds Transfer Network (BEFTN) Operating Rules has been published

on 11 August 2010.

Guidelines on Mobile Financial Services for the Banks has been published on September, 2011.

Guidelines on Agent Banking for the Banks has been published on 09 December 2013.

Bangladesh Payment and Settlement Systems Regulations (BPSSR), 2014 published on 22 April

2014.

Regulations on Electronic Fund Transfer Network has been published on 22 April,2014



12. Sources of Information

Online Resources-

http://www.slideshare.net/SWIFTcommunity/01a-2014-0813-presentation-transformation-of-

payment-and-settlement-systems-in-bangladesh-and-the-subcontinent-v2

http://digitalmoney.shiftthought.co.uk/governance-and-audit-scope-of-mobile-banking-in-

bangladesh/

http://www.amtob.org.bd/resource/Mobile%20Financial%20Services%20in%20Bangladesh.pdf

http://www.thedailystar.net/news-detail-230051

http://www.ijmo.org/papers/376-A1015.pdf

http://www1.worldbank.org/finance/PUBS/LISTFLD/list201b.htm

http://www.cgap.org/sites/default/files/Brief_bKash_Bangladesh_July_2014.pdf

http://print.thefinancialexpress-bd.com/2014/08/19/51183/print

http://www.thedailystar.net/electronic-payment-system-in-bangladesh-pros-and-cons-26717

http://www.thedailystar.net/round-tables/payment-ecosystem-bangladesh-challenges-and-

opportunities-213811

http://www.assignmentpoint.com/business/banking/beginning-of-credit-card-in-

bangladesh.html

http://www.paymentscardsandmobile.com/brac-bank-start-accepting-jcb-cards-bangladesh/

http://www.thedailystar.net/local-banks-lead-e-payment-8232

http://www.thedailystar.net/business/mobile-cash-transfer-hits-14b-month-101008

http://www.bloomberg.com/news/articles/2015-07-24/who-needs-a-bank-bangladesh-pushes-

mobile-phones-to-move-money

Reports & Articles

MTB Biz Newsletter published

IFC Report on Bangladesh

LinkedIn articles on MFS

Report on Financial Market of Bangladesh

DBBL Card Division Presentation

GSMA Report 2015

http://www.slideshare.net/SWIFTcommunity/01a-2014-0813-presentation-transformation-of-payment-and-settlement-systems-in-bangladesh-and-the-subcontinent-v2

http://www.slideshare.net/SWIFTcommunity/01a-2014-0813-presentation-transformation-of-payment-and-settlement-systems-in-bangladesh-and-the-subcontinent-v2

http://digitalmoney.shiftthought.co.uk/governance-and-audit-scope-of-mobile-banking-in-bangladesh/

http://digitalmoney.shiftthought.co.uk/governance-and-audit-scope-of-mobile-banking-in-bangladesh/

http://www.amtob.org.bd/resource/Mobile%20Financial%20Services%20in%20Bangladesh.pdf

http://www.thedailystar.net/news-detail-230051

http://www.ijmo.org/papers/376-A1015.pdf

http://www1.worldbank.org/finance/PUBS/LISTFLD/list201b.htm

http://www.cgap.org/sites/default/files/Brief_bKash_Bangladesh_July_2014.pdf

http://print.thefinancialexpress-bd.com/2014/08/19/51183/print

http://www.thedailystar.net/electronic-payment-system-in-bangladesh-pros-and-cons-26717

http://www.thedailystar.net/round-tables/payment-ecosystem-bangladesh-challenges-and-opportunities-213811

http://www.thedailystar.net/round-tables/payment-ecosystem-bangladesh-challenges-and-opportunities-213811

http://www.assignmentpoint.com/business/banking/beginning-of-credit-card-in-bangladesh.html

http://www.assignmentpoint.com/business/banking/beginning-of-credit-card-in-bangladesh.html

http://www.paymentscardsandmobile.com/brac-bank-start-accepting-jcb-cards-bangladesh/

http://www.thedailystar.net/local-banks-lead-e-payment-8232

http://www.thedailystar.net/business/mobile-cash-transfer-hits-14b-month-101008

http://www.bloomberg.com/news/articles/2015-07-24/who-needs-a-bank-bangladesh-pushes-mobile-phones-to-move-money

http://www.bloomberg.com/news/articles/2015-07-24/who-needs-a-bank-bangladesh-pushes-mobile-phones-to-move-money



KONA SOFTWARE LAB LTD. Z Tower House # 04, Road # 132 Gulshan 1 Dhaka 1212, Bangladesh E- [email protected] W- www.konasl.com

KONA I CO., LTD. F K-Biz Building, 16-2 Yeouido-dong

Yeongdeungpo, 150-740, Seoul, Korea E- [email protected]

W- www.konai.com

KONA SOFTWARE LAB LIMITED Established in 2012, we are an R&D center and global solution business wing of South Korean smartcard industry pioneer, Kona I Co., Ltd. We manufacture smartcards, develop various payments and security solutions; and we provide those to the clients across markets. Kona is an E2E provider in the industry having significant market share in Korean local market. With a view to extending its business area, Kona is now more focused in overseas markets, and leveraging its year’s long expertise in EMV and smartcard domain. Smart, security & convenience—these are the essence of Kona solutions.