In most of the developed countries, plastic money has replaced the paper currency on a large scale and is now being adopted in developing countries gradually. Plastic money basically consists of different cards, both debit and credit, used as a means of transaction through electronic gateways. Bangladesh is a developing country where about 56 scheduled commercial banks are presently working in the competitive market.
The Bangladesh Bank (BB) is emphasising on financial inclusion. Due to stiff competition in financial market as well as modernisation of technology, all the commercial banks are offering updated products and services to their beneficiaries to grab the market share. Almost all the banks have ATM network to facilitate 24-hour money withdrawal service through plastic card. The Dutch-Bangla Bank Ltd (DBBL) has brought about a revolution in taking the ATM facility to the doorsteps of marginal users throughout the country.
Due to massive electronic device development, plastic money is becoming popular gradually. People now-a-days do not want to carry paper currency with them due to security threat, discomfort and potential chance of cash money being lost.
State-owned commercial banks (SoCBs), along with some private ones, introduced Q-Cash concept a decade ago where he account-holders of all the participating banks could withdraw money from the same ATM booth. Later on, the DBBL came with the same facility in their own ATM network to facilitate money withdrawal option for their ATM- sharing banks for a nominal fee. It has remained a good source of fee income for the DBBL for a long time. But sometimes, other bank account holders face some sorts of network failure problem for which they cannot reap the same benefits as the account holder of the DBBL get.
During the last couple of years, it has become a vital strategy of all the commercial banks to establish their own ATM booths throughout the country for their own customers with 24/7 uninterrupted service availability.
On an average, a single-machine ATM booth requires 60 sft area. To maintain an ATM booth situated at any rented premise, a bank has to incur some costs, including rent for premises, salary of two security guards, electricity bill etc as well as cost of maintaining an air-conditioner. To maintain an ATM booth at any prime location of Dhaka city, a bank has to incur a cost of at least Taka 70,000 per month.
It was long felt that if large-scale ATM booths having minimum 10 machines were set up at different prime locations, then maintenance cost could be reduced. The DBBL individually has introduced its fast-track services where a large number of machines have been placed and maintained with lower operational costs. If any single bank is nominated as operator, then partiality to its own customers will hamper services to the customers of other banks. Therefore, to look after ATMs ensuring network services and availability of required money in the machines, a third-party service provider may be appointed under direct supervision of the Bangladesh Bank. With minimum common charges, all banks may be able to provide the same service to their respective client base without any discrimination. Fund management would be easier. Thus cost might be minimised and land use may be maximised.
NATIONAL PAYMENT SWITCH (NPS): Interestingly, the Bangladesh Bank has started implementing the National Payment Switch (NPS) since March, 2012. The NPS means the whole of the services that are associated in sending, receiving and processing orders of payment or transfers of money in domestic or foreign currencies, issuance and management of payment instruments, payment, clearing and settlement systems. The NPS basically acts as a mother switch and connects all the switches owned or shared by banks and non-banks in Bangladesh. Each child switch has a single interface with the NPS through which it sends inter-bank transactions originating from their alternate delivery channels, namely ATM, POS, KIOSKS, E-Commerce, internet banking, mobile banking, etc.
The NPS supports transactions made through cards or account numbers, clear and settle these electronic transactions through the settlement accounts of all the scheduled banks maintained with the Bangladesh Bank. It has interfaces with all the major international payment schemes i.e. VISA, MasterCard, AMEX.
DIFFERENT BRANDS: VISA and Master Cards are famous international brands marketed in Bangladesh since long. Afterwards, the City Bank introduced American Express (Amex) Brand. AMEX (established in 1850), VISA (1958) and Master (1966) are basically US-origin brands. Recently, the Prime Bank Ltd has launched JCB Brand which is basically a Japanese Brand, namely Japan Credit Bureau, established in 1961 and they are offering 10 per cent cash back offer to shops at the super shop Agora. The DBBL has started acquiring UnionPay card at its ATM and POS terminals which is basically a Chinese Brand established in 2002. VISA is the market leader in Bangladesh and the DBBL is the largest debit card issuing bank.
STAKEHOLDERS' BENEFITS: Banks are now offering debit and credit cards. Debit card is for the account holders who can withdraw their own money from their accounts. It helps the account holders use their money without physically carrying it. On the other hand, credit cards are issued in favour of the financially eligible users who can use this card for purchasing any permissible items, booking hotels etc.
No charges, except annual service charges, are deducted for any debit card transaction at present. But in case of withdrawal of money of any bank through debit card from other banks' ATM booths, the card issuing bank has to pay some charges. Lots of banks have network-sharing agreement with the DBBL as it has the largest network with 2,600 units of ATMs installed by it throughout the country. The DBBL earns a huge income from sharing their network with other enlisted banks. For example, one of the leading private commercial banks had an agreement with the DBBL until September, 2014 for sharing their 1,100 ATM booths at the cost of Tk. 3,000 per booth per month. Till March, 2014, under Q-Cash ATM network and Omnibus ATM network, inter-bank charges for each transaction were Tk.11.50 and Tk.17.25 (including VAT) respectively. In case of using other banks' network without any specific agreement by VISA/Master logo-bearing debit card, the cardholder has to pay up to Tk. 150 per transaction.
Now, after becoming the member of the National Payment Switch (PNS), each bank will have to pay transaction-wise charges to other banks for using their network. As per the Bangladesh Bank's instruction (PSD Circular No. 01 dated 18.03.2014) no bank shall impose any charge on individual transaction made from ATM booths of the card-issuing banks. However, if the transaction is made from any ATM booth other than card-issuing bank, then Tk. 20 will be charged for each transaction out of which the cardholder will pay Tk. 10 and card- issuing bank will subsidise Tk. 10 and in case of printing any balance inquiry or mini statement from other banks ATMs, cardholder will have to pay Tk. 5.00.
In case of credit card transaction, except electronics and gold items, no additional charge is deducted from the cardholder. There is an agreement between banks and merchants over a specified commission rate. For example, in case of purchasing goods from super shops, if the credit card and POS of that shop are of the same bank, then 1.6 per cent to 2.0 per cent commission is deducted from the merchants' bill by the bank. Being the brand issuer, VISA & Master Card will get around 0.005 per cent from the gain and remaining amount will be the ultimate gain of the card-issuing bank. If the card-issuing bank and POS bank are different, then commission will be divided among the brand, issuing bank and POS bank. Maximum charge is deducted for electronics and gold items and fully deducted from the cardholders' account.
From the point of view of a cardholder, the main benefit is convenience. The cardholder does not require to carry cash money. Another benefit is payment on a later date. Generally, a credit cardholder gets maximum 45 days' interest-free time span to repay the amount. If anybody fails to repay within 45 days, then interest is charged from the date of purchase at a pre-agreed rate.
In most cases, card-issuing banks offer special benefits like cash back offer, discount at different scales with products of different companies, bonus point system which can be converted into Taka or equivalent benefit, corporate package with different bodies specially with medical service providers, airlines, amusement/theme parks etc to entertain their cardholders throughout the year.
A credit card transaction is more secure than other forms of payment like accepting cheques, because a cheque may be refused for insufficient fund but in case of credit card transaction, the issuing bank is committed to pay the merchant the moment the transaction is authorised, regardless of whether the consumer defaults on the credit card payment.
In most cases, cards are even more secure than cash, because there is no possibility of theft by the cashiers of the merchants. Credit cards reduce the administrative expense of processing cheque/cash and transporting them to the bank. Due to credit cards, sales of the merchants increase because in some cases people buy something using cards which they might not buy in cash.
DIFFICULTIES FOR EXPANSION: The following are difficulties:
1) Individual ATM booths are situated at different types of location from crowded commercial areas to remote, sleepy areas. To maintain security of these booths is a big challenge. Very often it is reported that miscreants loot money after killing the security guard. Large-scale ATM corner having several machines may be maintained with adequate manpower that will ensure safety and reduce operational cost.
2) In most cases, credit cards are issued as an unsecured loan. Therefore, it has become a common phenomenon that a cardholder does not show willingness to pay bank's dues in time. A large amount of money of credit cards lying outstanding with all the banks has turned into classified and most of the customers have become traceless! It is due to lack of monitoring and lapse of due diligence while issuing cards. In some instances, bank's card divisions employ third-party concerns or temporary sales representatives for card marketing. These people are paid a nominal fixed salary and they can earn extra money by selling cards or fulfilling fixed targets. As such they are always concerned about target fulfilling and issuance of more cards. In some cases, banks appoint third-party verifier namely 'Contact Point Verifier' (CPV) who verifies the addresses of the applicants. Reliability of these CPVs is also in question because in case of any default, no action can be taken against him.
3) As per NPS transaction guideline, if a cardholder withdraws money from other banks' ATM, then Tk. 10 is charged from the card and the issuing bank will have to compensate another Tk.10. This amount is actually not lucrative for the marginal users. So, there should have a ceiling on withdrawal of amount where no charges will be deducted from the cardholders' account.
4) One of the major problems of using credit card is that it is freely transferable to others. It is assumed that merchandisers will verify the signature and photo embossed in the card with card-presenter. But in maximum cases, they never see the signature and seldom match the photo. Therefore, any other person can purchase with others' credit card which is stolen or willingly transferred unless it is reported to the issuing banks in due course of time. In such cases, banks are not liable for using stolen cards. Banks can make it mandatory that signature in the bill and in the card should match while charging cards and it is merchandisers' responsibility. Otherwise, banks shall not pay the bill. Thus fraudulent use of cards may be reduced.
5) Bank's card divisions issue cards to the applicants and provide limit. A secret PIN is provided to the cardholder later on to activate the card. It is alleged that some bank officials issue fake credit cards. The same officials provide limit and they themselves generate PIN numbers to activate the cards. Thus, they snatch away a huge amount against credit cards in cases where cardholders do not exist in reality.
The writer is Senior Executive Officer, Prime Bank Limited, Credit Risk Management Division, Head Office, Dhaka.