Bangladesh’s government has presented a three-year strategy for the use of innovative technologies as it looks to transform the country’s payments ecosystem and achieve the Sustainable Development Goals (SDGs).
The roadmap was developed by the government’s ‘Aspire to Innovate’ (a2i) programme alongside the United Nation-housed Better Than Cash Alliance, which brings together governments, development organisations and private companies to promote a transition to electronic payments.
Designed to ‘accelerate collaboration’ between the public and private sector, Bangladesh’s ‘National Digital Payments Roadmap 2022-2025’ is published alongside a report evaluating the state of digital payments in the country titled ‘Measuring progress to scale: Responsible digital payments in Bangladesh’. According to this publication, digital transactions have grown from five per cent to 20 per cent during the past five years. Additionally, the country – which has a population of around 165 million citizens – has witnessed a significant improvement in financial inclusion with 79 per cent of adults now having an account at a financial institution or with a mobile money service provider.
The report estimates that digital payments could boost Bangladesh’s annual GDP by 1.7 per cent, adding $6.2 billion (about £4.89bn) annually to the economy. According to the paper’s calculations, 53 per cent of this increase would result from digitising 30 per cent of micro-merchant transactions in the retail sector, 45 per cent from digitising credit disbursements in the agricultural sector and the remaining from scaling digital wages in Bangladesh’s significant ready-made garments (RMG) sector.
Implementation in three stages
The 114-page roadmap identifies 22 solutions to build a digital payments ecosystem in Bangladesh – which joined the Better Than Cash Alliance in 2015 – over the next three years in priority sectors: RMG, retail, agriculture, health and education. The authors’ vision of the expansion and usage of digital financial services is stated as the ‘development of an open, inclusive and user-centric ecosystem’ while also ‘propelling the country into the next frontier of digitisation’.
However, the paper states that the recommendations are ‘intended as guidance’ and are flexible in terms of the ‘how’ and ‘who’ of implementation. The solutions are grouped according to ‘level of urgency’. Implementation is to take place in three phases and depend on ‘policy decisions, infrastructural readiness and alignment with other priorities’.
Among the proposals is a national digital payments dashboard that tracks and monitors growth of digital payments. It would be managed by the central bank or payments regulatory authority. The stated aim is to keep track of the expansion and adoption of core digital payments, including channels, access points, instruments and acceptance infrastructure, from both public and private entities.
The paper recommends digital IDs as ‘the best way to address the challenge posed by Bangladesh’s limited smartphone and internet penetration’. The authors also propose an ‘open banking application programming interfaces (API) platform’ allowing ‘financial institutions to collaborate and add third-party capabilities to their core business offerings, creating innovative business models and focused products’.
Additionally, the authors suggest conducting consumer perception surveys to highlight challenges the government can prioritise. Initiated by ‘either the regulator or any designated authority’, the roadmap sees them as a possibility to ‘clarify the digital payment awareness, adoption and usage behaviour’ of individuals and enterprises. Also, the introduction of a ‘National Financial Literacy Strategy’ could encourage people to save money. Governed and monitored by government institutions, ‘preferably’ the central bank, the roadmap envisages such a strategy as an ‘all-encompassing initiative that would provide specific guidance and measures to instil financial literacy among all priority groups, especially women’.
Regulatory sandbox: ‘logical next step’
The roadmap points out how Bangladesh lags in financial services innovation, ranking 78th among 83 countries in the second edition of a global fintech rankings report compiled by UK-based company Findexable last year.
The authors strongly favour introducing a regulatory sandbox describing it as a ‘huge opportunity to set up support systems to enhance fintech’s competitiveness and growth’.
Currently, the central bank of Bangladesh is testing a sandbox in a beta phase. Bangladesh Bank created a regulatory innovation office under its payments system department in 2019 after seeing the benefits to fintech firms from the beta, the report explains, adding: ‘The logical next step is to come up with a regulatory sandbox.’ The authors point out ‘similar solutions’ in other geographies, such as Thailand and India, and list some of the features of sandboxes in those countries.
The roadmap concludes that it ‘encompasses digital payment interventions and solutions that can help Bangladesh achieve the SDGs by inducing changes at the ground level’. For example, a proposed agricultural credit scoring solution would provide a framework for agricultural credit in an ‘automated and non-biased manner’ to farmers who lack a digital trail and formal financial history. This would tackle the second SDG: achieving ‘zero hunger’. Another proposed solution on digitally signed QR (‘Quick Response’) codes would help with the first SDG – ending poverty – by helping to identify social safety-net beneficiaries and allowing them to receive government benefits without the need to remember PINs for digital authentication. There are 17 SDGs in total, agreed in 2015.
The roadmap explains how its solutions will increase women’s financial inclusion. For instance, women are usually recipients of remittances through informal channels, the authors write, adding: ‘The money does not always go to the right person’. The introduction of a cross-border remittance platform would ‘rationalise and standardise’ the cost of receiving and sending international remittances and could have a ‘marked impact on the incomes of female household heads of migrant families that use informal remittance channels’.
The a2i programme is the government’s public service innovation unit and the flagship initiative of the country’s Digital Bangladesh vision.