BB targets July launch of inclusive instant payment system

Bangladesh Bank plans to launch an Inclusive Instant Payment System (IIPS) in July next year, aiming to bring all banks, mobile financial service providers and other financial institutions under a single digital platform to facilitate seamless and instant transactions across the financial sector.

Under the proposed system, customers will be able to transfer money and conduct transactions seamlessly using their bank accounts or mobile wallets, regardless of which bank or financial institution holds them. This will eliminate the need to rely on separate networks for transferring funds between different institutions.

The initiative is expected to expand access to financial services, reduce reliance on cash and make transactions faster and more convenient. It will also create opportunities for people outside the conventional banking system to access digital financial services.

The platform will be developed with technical support from the Gates Foundation, using open-source software developed under its Mojaloop initiative. The software is designed to facilitate interoperable digital transactions among different financial institutions.

Bangladesh Bank Executive Director Md Sirajul Islam said the primary objective was to bring all financial institutions under a common system. This would gradually reduce the need for cash withdrawals and transfers between institutions.

He said customers would no longer be restricted to the networks of their respective banks or financial service providers once the system became operational. Instead, they would be able to transact directly with any participating institution.

The IIPS will support a wide range of transactions, including person-to-person transfers, business payments, payments at shops and commercial establishments, and government disbursements. With the necessary operational, settlement and security arrangements in place, the system will enable instant fund transfers among participating institutions.

The new platform will be built on the country's existing digital payment infrastructure. Since 2012, the National Payment Switch Bangladesh (NPSB) has facilitated interbank transactions through automated teller machines (ATMs), point-of-sale (POS) terminals and internet banking among participating banks.

However, the existing system has not been able to bring all types of financial institutions under a single network. In particular, limitations remain in integrating mobile financial service providers and non-bank institutions into the same framework.

Earlier, the central bank had directed banks, mobile financial service providers and payment service providers to introduce transactions through interconnections among them. Under that arrangement, the maximum transaction fees, including VAT, were set at 0.15% for banks, 0.20% for mobile financial service providers and 0.85% for payment service providers. The central bank also instructed that no fee be charged to recipients.

However, the initiative failed to achieve its expected success as several major mobile financial service providers did not join the system.

Sirajul Islam said the existing arrangement had not worked as expected, making it necessary to develop a more integrated technological framework to bring all institutions in the financial sector on board.

The new IIPS is expected to overcome these limitations by establishing broader connectivity among different financial institutions.

Beyond domestic transactions, the system could also play a positive role in the distribution of international remittances.

In July, the Policy Research Institute of Bangladesh (PRI), with support from the Gates Foundation, launched a research initiative titled "Inclusive Instant Payment System (IIPS) in Bangladesh: Analysis and Use Cases for Cross-border Remittances".

Policymakers, central bank officials, financial sector representatives and researchers took part in the initiative. They discussed the potential of IIPS to expand financial inclusion, reduce remittance transfer costs and increase the flow of money through formal financial channels.

PRI Chairman Dr Zaidi Sattar highlighted the importance of remittances to Bangladesh's economy, saying they account for around 6% of the country's gross domestic product (GDP). He stressed the importance of bringing remittances into the country through formal financial institutions and channelling the funds into productive investment.

Researchers say direct transaction facilities among different financial institutions could make domestic remittance distribution faster and easier. Connectivity with authorised international remittance networks would allow money sent by expatriate Bangladeshis to reach beneficiaries' bank accounts or mobile wallets more quickly and at relatively lower costs.

However, introducing such cross-border transactions will require international partnerships, compliance with foreign exchange regulations, appropriate settlement arrangements and connectivity with authorised foreign networks.

The benefits of the proposed system are expected to extend beyond individual customers to businesses and government operations. Sirajul Islam said greater use of digital transactions would reduce government expenditure on printing, transporting, storing and managing paper currency.

Businesses, meanwhile, would benefit from lower cash management costs, greater transparency in record-keeping and faster transactions. The government would also be able to distribute salaries, allowances, subsidies and social safety net payments to beneficiaries more easily through digital channels.

In recent years, Bangladesh's digital payment ecosystem has expanded with the growth of mobile financial services, internet banking, electronic fund transfers and QR code-based transactions. However, the lack of an integrated network connecting different institutions continues to create barriers to seamless transactions.

Bangladesh Bank believes a unified platform could address these limitations and help build a more accessible, integrated and inclusive financial system.

The successful implementation of IIPS, however, will depend on the participation of major financial institutions, the reliability and security of the technology, affordable transaction fees and public confidence in digital financial services.

If effectively implemented, IIPS could bring significant changes to the country's payment landscape. It could make money transfers easier, faster and less expensive, while improving transparency in the financial sector and bringing more people within the reach of formal financial services.

The targeted launch in July next year is being viewed as an important step towards the development of Bangladesh's digital financial sector.