Technology Driven Financial Products

April 23, 2020
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Technology Driven Financial Products in Bangladesh and the Associated Challenges

(Published in the Financial Express in January 2019)

Dr. Shah Md Ahsan Habib[1]

Technology driven payment services have brought notable benefits in the form of offering smooth, speedy, and cost effective services; and promoting the government’s  key policy goal of financial and economic inclusion in Bangladesh. It has completely changed the remittance transfer mechanism and role of banks as a key stakeholder in the process. As in most economies of the Globe, development of new payment services bought in concerns of money-laundering and terrorist financing for the policy makers of the country.  Though as a whole the sets of anti-money laundering (AML) rules followed in Bangladesh are in line with globally accepted standards, a lot are still evolving in the context of even developed countries. Regarding mobile money services, the country unveiled some instances of illegal or criminal activities or alleged money laundering efforts using digital platforms during 2016-2017 that was duly responded by the Central Bank. In line with the potential vulnerabilities, it is time to adopt forward looking and proactive approach to handling upcoming money laundering and financial crime potentials associated with the new payment system. Banks, technology service providers and other stakeholders’ need to be more serious regarding legal compliance and identifying vulnerabilities to safeguard the system and optimize benefits.  Compliance is already a serious concern for the banks, and they should be ready for the cost implications of such developments. These developments point to the need to safeguard and restore public trust in preventing the abuse of payment platforms for fraudulent activities and money laundering in the country. 

 ‘Digital Bangladesh’ is one of the country’s dreams, and so special emphasis is given on the application of digital technologies to realize Vision 2021. It came up as a development strategy to leverage ICTs for financial and economic inclusion of the common people of the country. In line with the policy vision, Bangladesh is moving closer to being a cashless society by introducing a number of new payment systems.  The uses of Internet and mobile phone have been maintaining an upward growth in last five years. The total number of internet and mobile subscribers has increased remarkably and this digital integration has already brought proven changes and development in the economic and social lives of the country.

Government of Bangladesh has laid the foundation of an enabling environment for the new payment services with an actionable ICT Policy 2009, Right to Information Act 2009 and ICT Act 2009. Bangladesh Bank is the licensing authority of technology driven NPSs or services that has allowed a number of market players to offer certain new payment services. Established in 2012, Payment Systems Department of BB works to establish modern and efficient interbank payments, clearing and settlement system. It looks after the enforcements of relevant laws, regulations and oversight of the payment systems. On the way to promote technology driven payment and fund transfer, certain remarkable initiatives include Bangladesh Automated Cheque Processing Systems (BACPS), Bangladesh Electronic Funds Transfer Network (BEFTN), National Payment Switch Bangladesh (NPSB) and Real Time Gross Settlement System (RTGS).

Bangladesh Bank allowed Mobile Financial Services (MFS) during 2011 in Bangladesh with an environment of a large number of mobile phone users and improved IT infrastructure. Mobile banking has now become the most popular medium for monetary transactions in Bangladesh because of its ease and speed. This concept of mobile financial services (MFS) has brought under its fold a huge unbanked segment of the population, especially in rural Bangladesh, within a span of seven years after its launching in 2011. Plastic money is another product under electronic banking for facilitating the new payment service in Bangladesh. Use of plastic cards increased over time. Some banks have already came up with their own internet banking app to provide  services like  paying bills, cell phone top ups, or even transferring funds. Over the last five years, some Bangladeshi banks have recognized the importance of service standard and working towards that. Agent banking is a relatively new but remarkable venture. Within just two years of its inception, agent banking has been able to attract a huge number of clients, forcing most commercial banks to take up this alternative form of financial service in addition to branch-based banking.

Alongside remarkable benefits in the form of smooth and efficient payment services, cost effective remittance services, and financial inclusion, the expansion of MFS results certain instances of abuse of the MFS platforms. It became particularly visible during certain incidences of the abuse of MFS during 2016-17 in connection with remittance transfer. In some cases, people were even not aware whether these are legal or illegal, and several agents were found engaged in informal money transfer activities. Bangladesh Bank has undertaken several steps to address the problem. Some card frauds were unearthed and some suspicious cases money laundering were identified by the BFIU or reported to BFIU as suspicious transactions. Investigating several criminal cases in 2017, BFIU found that criminals mostly abused mobile accounts registered with fake identity. In certain cases, agents simple ignore minimum CDD as per the regulatory and service provider’s requirements during the time of opening accounts.

In the global context, certain initiatives have been undertaken to address several challenges associated with technology driven payment methods including money laundering and terrorist financing. As a broad framework, risk-based approach has been advocated by AML governing bodies and authorities worldwide which mean that countries, competent authorities, and banks identify, assess, and understand the money laundering and terrorist financing risk associated with these payment systems to which they are exposed, and take the appropriate mitigation measures in accordance with the level of risk. It is also recognized that a significant risks lie in the unknown as newer technology is evolving continuously and criminals are repeatedly modifying their techniques to stay ahead of law enforcing agencies. Undertaking periodic reviews and studies effectively serve for supporting right approach and policy initiatives to be undertaken by the policy makers. Regarding the issue of addressing money laundering risks associated with technology driven payment and services, several global bodies have already engaged themselves for undertaking relevant research and review studies. However, country perspectives are crucial for the effectiveness of policy interventions. In this connection, the study and initiatives undertaken by the BFIU on mobile money is praiseworthy that came up with several prescriptions in line with FATF recommendations. In addressing key challenges, the issue of ‘agent’ is one of the most critical and difficult aspect of the regulation of mobile and agent banking. Selecting and monitoring right agents are critical for effectiveness and for ensuring protection against abuse of the platforms. Awareness development and reduction of knowledge gap have no alternative.

The ever-expanding digital journey is unveiling new avenues for common people, businesses and also for criminals. However just as technology is favoring offenders in some fronts, it is also the solution to the problem. Technology is contributing in hiding transactions by the tax evaders, and it is again the technology itself that may monitor transactions to identify the culprits. While regulating and supporting technology driven payment systems and services in the context of Bangladesh, the benefit aspects must always be kept in mind. For the country, it is about optimizing benefits of technology driven payment system by identifying and handling efforts for misusing the platforms.


[1] Professor and Director (Training), BIBM.

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