Bangladesh Payment System in Detail: Structure and Modus Operandi

Bangladesh's payment system is dominated by the central bank (Bangladesh Bank) and combines the traditional banking system with emerging digital payment platforms to form a multi-layered and diversified financial infrastructure. The following is a detailed analysis of the four aspects of the system: structure, major players, mode of operation and direction of innovation:

I. Payment system hierarchy

1. Large Payment System (RTGS)

   • name (of a thing): Bangladesh Real Time Gross Settlement (BD-RTGS)
   • functionality: Processes high-value transactions (minimum of Tk. 500,000 per transaction) with real-time full settlement, mainly for inter-bank fund transfers and government bond clearing.
   • operator: Direct supervision by Bangladesh Bank.

2. Retail payment systems

   • Cheque Clearing System (BACH):: Includes Electronic Cheque Clearing (ECC) and Local Crossing Service (LCS) to process corporate and personal cheque transactions.
   • Automated Clearing House (BACS): Support for bulk micro transfers, such as payroll and utility bill payments.

3. banking card network

   • Local debit card brand Q-Cash (interbank interchange) coexists with international card organisations (Visa/Mastercard).ATM and POS terminals cover major cities.

4. Mobile & eWallet

   • Licensed service providers such as bKash (with a market share of over 80%), Nagad, Rocket and others offer P2P transfers, bill payments and microfinance.

5. Cross-border payments

   • Foreign trade settlements are completed through the SWIFT network; remittances rely on international channels such as Western Union and co-operative channels with local banks.

II. Key players

• regulatory body: Bangladesh Bank formulates policies and issues PSP (Payment Service Provider) licences.
• commercial bank:: Basic account services are provided by the likes of Sonali Bank, BRAC Bank, etc.
• non-banking organisation: bKash (Norwegian Telenor JV), Nagad (state-owned postal co-operation) dominate the mobile payments market.

III. Examples of typical operational processes

(1) P2P transfer scenario

User A transfers Tk. 1000 to user B through bKash:

1. A enters B's mobile phone number and amount in the app;
2. The bKash backend verifies the validity of both accounts;
3. Funds are deducted from A's e-wallet and credited to B's account balance;
4. Transaction records are synchronised to the central bank's regulatory platform to comply with anti-money laundering requirements.
   classifier for sums of money:: bKash requires a tied mobile phone number and has a daily limit of Tk 25,000 (about $230).

(2) Merchant Collection Process

Clothing shops use QR codes to collect payments:

1. The customer scans the merchant Nagad QR code to enter the amount;
2. Nagad deducts money from the customer's wallet and transfers it instantly to the merchant's virtual account;
   3.T+1 settlement to the merchant's bound bank account (handling fee 0)

IV. Payment system innovations and challenges

(1) Innovation driven by digital transformation

Bangladesh has seen rapid growth in the financial technology (FinTech) sector in recent years, particularly in mobile payments and financial inclusion:

• Agent Banking::
  Due to the limited coverage of traditional bank outlets, commercial banks have partnered with non-banking organisations to set up agent points (e.g. post offices, small shops) to provide basic services such as cash access and transfers. By 2023, there are more than 20,000 agency points across the country, significantly increasing the penetration of rural financial services.

• Increased interoperability::
  The RBI has made it mandatory for e-wallets to be interconnected. For example, bKash users can transfer money directly to Nagad or bank accounts, breaking the previously closed ecosystem.

• Government-led digitisation projects::

  • Nagad's "Digital Birth Certificate Account Opening": Citizens can remotely open an e-wallet with a birth certificate, without the need for traditional KYC documents.
  • MFS API Open Platform: Allow third-party developers to develop payment applications based on a unified interface (e.g., e-commerce integration with bKash payments).

(2) Attempts to improve cross-border payments

To reduce the cost of remittances from the diaspora (Bangladeshi overseas workers remit more than $20 billion annually), the central bank has introduced:

• Foreign exchange settlement through train (Fast Track) : Expatriates can send money directly to local e-wallets by tying up their foreign bank accounts through designated apps (e.g. Upay).
• Blockchain pilot:: Test cross-border CBDC (Central Bank Digital Currency) settlements in cooperation with international organisations.

V. Challenges faced

Despite the significant progress, the system still suffers from the following problems.

1. Infrastructure bottlenecks

   • Inadequate network coverage in rural areas leads to delays in 30% transactions; and
   • The number of ATM/POS machines per capita is only 1/5th of India's.

2. regulatory lag

   • Emerging areas such as cryptocurrencies/NFTs are not covered by the current Payment Systems Bill 2014; and
   • Unharmonised anti-fraud technology standards (e.g. some platforms still use SMS OTP verification).

3. Market fragmentation
   More than 15 licensed MFS operators lead to resource fragmentation, bKash/Nagad two occupy 90% share, small and medium-sized vendors are difficult to survive.

4. User habit resistance
   The proportion of cash transactions is still as high as 65%, and the phenomenon of small and micro enterprises refusing to accept electronic payments is common.

VI. Future directions

According to the Central Bank's Payment System Strategy 2025, the focus is on.

summaries

At the heart of the Bangladeshi model are.Mobile wallet as a springboard to leapfrog the card era:: Direct entry into a cardless society. Their experience has shown that.
✅ Low-threshold account design (bKash minimum balance of Tk 10 ≈ $0.09) is the key to financial inclusion.
⚠️ But need to be wary of the systemic risk of over-reliance on a handful of private platforms - bKash server downtime in 2022 paralysed 80% e-trading across the country for six hours. How the country balances innovation and stability in the future will be a determining factor in whether it can become a "benchmark for digital finance in South Asia".