Not too long ago a mere attempt of making payments using any mobile wallet application used to be looked upon as a luxury of the “lazy generation”. We came a long way since then. Things have changed. In fact, the COVID-19 turned a large part of the population become the so-called “lazy generation” for better or worse.
If we look back a little, Bangladesh saw significant rise in key human development indices in recent years. Along came rapid technological advancement, thanks to an impressive Internet penetration rate of 60.7%. This favored a lot of opportunities for businesses and services to thrive. The payment sector went through a paradigm shift too. However, at the peak of financial inclusion, things almost came to a halt when the coronavirus pandemic crippled the global trade and business. Our local economy felt the heat too. The unprecedented, unexpected, and unthinkable invaded our personal, social, and not to mention financial affairs. Despite all those, however dire the situation was, digital financial services remarkably made way through all the peril.
Cash to Contactless
The initial days of the pandemic were full of fear and unknown risks. Many even refrained themselves from visiting the ATM. Cash usage drastically declined due to the risk of contamination. These all contributed to a slow yet inevitable transition toward cashless, contactless payment environment. The mobile financial services, digital financial services, online payments—different forms of the contactless payment gained huge traction. This necessitated the seamless interconnectivity between these services and the financial institutions; however, the infrastructure was not fully ready to serve that yet. So, in the end, it fell a little short.
If we directly echo the Bangladesh Bank report, it says, “Monthly data indicates that on average about BDT 621.93 billion transactions were made monthly during the year 2020 through digital payments platform dominated by MFS. Data shows that more than 70 percent of transactions are done by MFS. Despite the increasing use of digital payments, a large section of rural households and poor households in urban areas preferred cash to digital payment mode.” (source: Bangladesh Bank Quarterly, October-December, 2020, Volume XVIII, No. 2)
In general, the COVID-19 pandemic forced us to step out of our comfort zone and change our payment habit. Though a segment of the population still preferred cash over the digital payment to buy perishables and medical supplies, the fundamental of our money management and payment behavior just took a giant leap for financial inclusion.
Over the time, against all odds and through relentless battles, COVID-19 has become a new normal to many of us. It has made profound impact on our way of living and how we cope with it. We have seen significant drive for innovations in the payment sector. Various initiatives have been taken. However, there are still areas that need our focus and attention to reach our desired level of financial inclusion of all segments of the population.
Increase Digital Payment Literacy: We have an exceptionally good Internet penetration. But that mostly covers the fortunate metropolitan areas. As a result, the digital financial services and mobile wallet applications are prominent only in such areas too. The digital payment literacy among the people of suburban and rural areas is still below par. To address that, as part of a long-term vision of countrywide financial inclusion, the government should target specific groups, design activities, create education campaigns, and grow awareness among them through various media channels.
Build True Interoperability: Since the digital payment is on the rise, consumers expect and demand more and more interoperability among the payment applications and the service providers within the payment ecosystem, as this not only gives them ease and comfort in using the applications, but also grows a discernible interest among them. Much to our benefit, the basic building block is already there in our ecosystem. Now it is the high time we catered to such consumers to make the most of it.
Tokenized Payments: We have seen a massive growth in e-commerce payment for small and moderate amounts. Such payments are far simpler on ‘one-touch’ wallet applications, as compared to the traditional online payment steps. To eliminate such long and cumbersome manual process of traditional online payments, tokenization can play a pivotal role. This is one of the basic foundations of the digital payment. Tokenization replaces the existing primary account number of a customer and replaces it with a surrogate value. The primary account number does not travel through the network in plain text. Hence, it ensures heightened sense of security.
Introduce New FinTech Services in the Market: Till now majority of the digital financial services is not available to us and we have access to limited ones only. This situation needs to be improved. We need more FinTech services, inclusive of the micro-merchants, households, and consumers. As found in a UNCDF survey, there are approximately 1.4 million micro-merchants in our country and among them 98% already got mobile connectivity. Taking these large groups into account, we should design new FinTech services so that this benefits all segments of the customers. We should also enable different government services to be availed remotely, at the comfort of staying anywhere, by making the service fee digitally.
Security: As we are advancing in digital payments more, it is also imperative to understand the practical challenges that come along with it—Security. It is the foundation and the basic underlying aspect of any digital payment system. Unless and until the consumers get a real sense of security to avail a digital financial service, the ultimate target of financial inclusion will not be achieved. To provide the consumers with a secure payment experience, the service providers must never settle and continue introducing the latest available technologies, such as Artificial Intelligence (AI) and Machine Learning (ML) to automate risk detection and real-time fraud monitoring. They also need to build secure infrastructure compliant to international standards and specifications, for example, EMV, PCI-DSS, ISO, and so forth. The ICT Security Guideline by the Bangladesh Bank also needs to be considered by the banks and financial institutions to strengthen their infrastructure.
It goes without saying that one of the most prominent uprising trends in Bangladesh now is the digital payments. With this on the go as the backdrop, recent activities have spurred a digital ecosystem. This subsequently has contributed significant value to the overall economy of the country, defying the dark challenges by the COVID-19 pandemic. Keeping that momentum up, along with the right policies in place and timely action taken, Bangladesh will most definitely accelerate its recovery from the pandemic and continue to stride.