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2 December, 2018 11:37:38 PM / LAST MODIFIED: 3 December, 2018 05:56:46 PM


Money draining thru’ foreign networks

Lack of nat’l payment scheme causes revenue loss of over Tk 13cr a year
Money draining thru’ foreign networks

Even after setting up the National Payment Switch of Bangladesh (NPSB), the country is losing a large  sum of  money to international payment networks including  Visa, Mastercard and American Express. An expert related to the financial sector said: “A ‘defined’ national payment scheme for debit and credit cards and relevant international certifications could have stopped the draining of money to foreign payment networks.”

The Bangladesh Bank does not keep category-wise data of how much money these payment networks are taking but a ballpark estimation by the regulator—based on the quarterly data of all transactions made with cards — revealed that around Tk.

13 crore is being taken away annually by them. These charges are not taken from the card users directly. Rather, they are paid by merchants who use point of sale (POS) machines to receive payments from customers.

According to the central bank (as of March 2018), about 13 million plastic cards have been issued and the number of debit, credit and pre-paid cards were about 12 million, 1 million and 0.15 million respectively. Debit card takes the major slice of the pie, about 91%, leaving 7% and 1% for credit cards and pre-paid cards respectively.

Talking to the The Independent, Omar Farooq Khandakar, chief information technology officer of Sonali Bank, said Bangladesh needs an electronic payment service of its own to ‘stop the outward movement of a huge amount of revenue from the country.’ “Introducing a national payment scheme — similar to RuPay of India, SAMA of Saudi Arabia and Elo of Brazil — can help reduce the outward flow of revenue to a great extent,” he added.

International payment services charge 0.3% of the purchase amount for each credit transaction on POS machines and 0.1% for each debit transaction. For online transactions via e-commerce platforms, the charges are even higher -- 0.7% for credit cards and 0.3% for debit cards.

“Besides counting charges for each financial transaction, payments have to be made to get VISA, MasterCard and Amex certifications, as well as their annual renewal charges,” said Omar Farooq.

A Reuters report published on November 1 said Indian Prime Minister Narendra Modi has, in recent years, backed India’s homegrown payments network ‘RuPay’, whose rise has broken the dominance of US payment giants such as Mastercard and Visa (VN). More than half of India’s one billion debit and credit cards now go through the RuPay payment system.

Modi has publicly endorsed the indigenous card payment network, saying that using RuPay was like serving the country as its transaction fee stays within India and could help build roads, schools and


How the payment clearing happens with cards?

Minawar Hossain Tanzil, MD of KBSL based at the  the Bangladesh office of the Korea-based smartcard manufacturing company, said, “To understand how these payment networks are taking away the money, a person first needs to understand how a payment procedure is completed with a card. These are technical issues and to grasp the gist of it, one has to know what an acquiring bank or an issuing bank is and how they use a settlement channel.” He added that the acquiring bank (also merchant bank or acquirer) is the financial institution that maintains the merchant’s bank account.

“The contract with the acquirer enables merchants to process credit and debit card trans

actions. The acquiring bank passes the merchant’s transactions along to the applicable issuing banks to receive payments,” said Minawar.

The acquirer assigns a Merchant Identification Number (MID). This unique code is similar to a bank account number. It is used to identify the merchant while processing transactions.

Meanwhile, said Minawar, the issuing bank is the financial institution that issues credit cards to consumers on behalf of the card networks. The issuer acts as the middle man for the consumer and the card network by contracting with the cardholders for the terms of the repayment of transactions.

“For example, you have a credit card issued by Brac Bank and with that card you do some transaction in a POS machine of Dutch Bangla Bank Limited. Here, Brac Bank is the issuing bank and the DBBL is the acquiring bank. Now, when you do the transaction, the DBBL will look for a settlement house to validate your transaction,”

Minawar said payment networks like Visa, Mastercard and American Express work as the ‘settlement house’ as they take the responsibility of validating the payment between an acquiring bank and the issuing bank.

NPSB can validate local transactions

Omar Farooq said the NPSB developed by the Bangladesh Bank can work as a ‘settlement house’ for all the local transactions that take place inside the country. There are 53 banks doing card business in the country. Among 53 banks, 51 are interoperable for ATM transactions through NPSB. “It means, a cardholder of any bank from these 51 NPSB member banks can use ATM of all other banks throughout the country. Also, 48 banks are presently interoperable for POS transactions through NPSB. Cardholders from those banks can use POS of all NPSB member banks at different merchant outlets for their retail purchases.”

He said there is ‘basically no need’ for payment networks like Visa, Mastercard and American Express now for validating the local transactions. “For the usage of cards in foreign lands or on foreign e-commerce platforms where transactions happen in US dollars, there is still the need for those international payment networks as they maintain a standardized security protocol across the world,” he added.

The international security standard maintained by Visa, Mastercard or American Express is called PCIDSS (Payment Card Industry Data Security Standard). The PCI council is formed by Visa, Mastercard, American Express, JCB and Discovery. These five institutions formed the council to protect the payment card industry from cyber security threats.

The responsibility of the council is to set the different standards and certify card issuers and those who deploy POS that are following the standards. If anyone follows the PCIDSS standard, then there is no chance of a security breach.

“If our NPSB gets this standardization, then the cards using NPSB could be used for dollar transactions. All we need is a well-defined national payment scheme,” Omar Farooq said.

Mohammad Ekhlas Uddin, joint director (payment system) of Bangladesh Bank, told The Independent that the central bank is working on getting the PCIDSS certification. “Our NPSB is now good enough for inter-bank transactions inside the country. In 2017, Bangladesh Bank had issued a circular to use NPSB for local card transactions.”

When The Independent contacted Syed Mohammad Kamal, country manager of Mastercard Bangladesh, he said he would not comment on this sensitive issue.






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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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