The “Bangla QR” code, introduced to make it easier for people to pay for purchases, has now become a convenient means of withdrawing cash.
Many sellers of goods and services, known as merchants, are allowing customers to withdraw cash through QR codes without actually purchasing any goods or services.
This is threatening the agent network or transaction ecosystem that mobile financial service (MFS) providers have built over the years. There are around 2 million MFS agents across the country.
MFS providers have used these agents to reach people in marginalised communities. However, since the introduction of QR-based transactions, the businesses of these agents have come under threat because merchants are providing illegal cash-out services.
People concerned say the universal Bangla QR system, introduced to encourage digital transactions, is being misused.
They explain that customers normally have to pay a fixed charge or fee to withdraw cash, or cash out, through an MFS agent. Depending on the MFS provider, the charge ranges from a minimum of Tk 12.90 to Tk 18.50 per Tk 1,000.
If a customer withdraws or cashes out Tk 30,000 through an MFS provider, in line with the maximum limit set by Bangladesh Bank, they have to pay a minimum fee of Tk 387.
However, many customers are now withdrawing the money in cash from merchants selling goods or services without paying any fee or charge.
For example, a customer can transfer Tk 30,000 to a shopkeeper’s Bangla QR code without purchasing any goods or services and then collect the amount in cash from the shopkeeper.
Instead of paying a fixed fee, the customer can receive this service by paying only a nominal amount, depending on the shopkeeper’s demand.
As a result, customers withdrawing cash can save money on fees, while shopkeepers receive some money without selling any goods or services. Customers can also cash out large amounts beyond the limits set by Bangladesh Bank.
MFS providers have therefore sought Bangladesh Bank’s intervention to stop the misuse of Bangla QR codes for cash withdrawals.
They say the misuse is not only damaging the ecosystem of MFS providers but also creating opportunities for various forms of financial crime, including money laundering.
MFS providers face various restrictions and transaction limits imposed by Bangladesh Bank when customers withdraw cash through their services.
Bangla QR was made mandatory and charges were withdrawn hastily. As a result, merchants have started a cash-withdrawal business instead of selling goods or services.
However, Bangla QR transactions do not have similar restrictions or limits. As a result, customers can illegally withdraw cash at will from different merchants.
According to Bangladesh Bank sources, the use of Bangla QR codes for transactions became mandatory in July.
As a result, all banks and MFS providers in the country have been required to install Bangla QR codes with merchants selling goods and services instead of using their own QR codes.
Different banks and MFS providers have issued as many as four or five Bangla QR codes against a single bank or MFS account belonging to a merchant. This has allowed merchants spread across the country to become an alternative means of withdrawing cash.
The merchant network includes everyone from shopkeepers in rural areas to large providers of goods and services. As a result, the widespread presence of merchants has disrupted the agent ecosystem of MFS providers.
Why and how the problem has emerged
Bangladesh Bank has decided to make it free for merchants to receive payments through Bangla QR from October. As a result, merchants will not have to pay any charge to receive money from customers and return it to them in cash.
By contrast, customers will have to pay a fixed fee when cashing out through MFS agents such as bKash, Nagad and Rocket. MFS providers pay the government more than Tk 3 in revenue for every Tk 1,000 from the fees they collect for cash-out services.
However, withdrawing money through merchants involves no cost. Merchants will also not have to pay any revenue to the government.
Therefore, using QR codes to withdraw cash from merchants is financially beneficial for both customers and merchants. It has emerged as a major business obstacle for the government and MFS providers.
Meanwhile, the National Board of Revenue (NBR) has recently introduced significant tax relief for businesses and various types of companies in relation to their transactions.
Under the new provision, businesses and companies will not have to pay any turnover or transaction tax on annual transactions of up to Tk 20 million.
Because of this facility, merchants will also face no tax-related complications when they transfer money through QR codes and pay the amount back to customers in cash.
KAS Murshid, former director general of the Bangladesh Institute of Development Studies (BIDS) and former chairman of MFS provider Nagad, told Prothom Alo, “It is not possible to make an economy like Bangladesh, which relies heavily on cash, cashless overnight. To increase digital transactions, Bangla QR should first have been introduced on a pilot basis and then launched fully. Instead, Bangla QR was made mandatory and charges were withdrawn hastily. As a result, merchants have started a cash-withdrawal business instead of selling goods or services. This will cause the government to lose revenue and increase opportunities for illegal financial transactions.”
Bangladesh Bank spokesperson Arif Hossain Khan told Prothom Alo, “Bangla QR was introduced to make people’s lives easier and reduce cash transactions. However, if anyone misuses this facility, there is an opportunity to punish them under the law.”
What is happening through Bangla QR
Since the authorities made Bangla QR mandatory, various banks and MFS providers had installed QR codes at 3.5 million merchant outlets across the country by on Thursday. QR code transactions now average Tk 1.37 billion (137 crore) a day.
MFS providers say many people are choosing this method because merchants offer a low-cost way to withdraw cash. As a result, QR code-based transactions are increasing rapidly.
Recently, several banks and MFS providers detected unusual transactions by a number of customers through QR codes.
When the institutions subsequently examined the transactions, they found that the mobile phone numbers of these customers had been switched off.
For example, a 30-year-old bKash customer named Zakia Afrin from Netrakona carried out transactions totalling Tk 3,639,490 using the QR codes of two banks between 14 and 18 August. The transactions took place at several mobile phone shops in Brahmanbaria.
Similarly, an MFS customer named Sohag Mia from Brahmanbaria carried out transactions totalling Tk 4 million through Bangla QR codes at several shops in the district over two days, 16 and 17 August.
MFS providers have identified unusual transactions involving several other customers as well.
People concerned said most of the accounts used for these transactions were registered in other people’s names, despite the transactions being conducted using the national identity cards of the named customers.
In many cases, people withdrew remittance money and funds deposited into bank accounts in cash through merchants. The senders and trails of these funds also remain unknown.
Two Bangladesh Bank officials familiar with the matter told Prothom Alo on condition of anonymity that they had become aware of cash withdrawals through Bangla QR.
They said the authorities were examining whether they could impose transaction limits on merchants to prevent such activity.
Pubali Bank is one of the country’s technologically advanced banks. It has installed around 450,000 Bangla QR codes nationwide.
Regarding the misuse of Bangla QR, Pubali Bank Managing Director (MD) Mohammad Ali told Prothom Alo, “The cash-withdrawal service through merchants must be stopped. Otherwise, there is no way to trace who is sending the money and who is withdrawing it. If this facility is not stopped, the tendency to use hundi will increase.”
Who is paying for whom?
Several officials of the country’s two leading MFS providers, bKash and Nagad, said MFS providers incur costs when a customer deposits cash into an MFS account and converts it into digital money.
However, MFS providers make no profit when customers use their apps to make transactions through banks’ QR codes. Instead, they have to provide subsidies.
Suppose a customer deposits Tk 1,000 into an MFS account through an agent. MFS providers pay the agent who accepts the deposit, the agent’s distributor and the mobile network operator at least Tk 6.40 in commissions.
However, when a customer uses Bangla QR to make a transaction with a merchant through another bank’s QR code, the merchant is charged an MDR (Merchant Discount Rate) of one per cent.
As a result, the merchant retains Tk 10 from a Tk 1,000 transaction. The bank or MFS provider that installed the QR code receives this Tk 10.
The bank that installed the QR code pays Tk 6.10 as an IRF (Interchange Reimbursement Fee), excluding VAT, to the institution whose app the customer used to make the transaction.
As a result, for every Tk 1,000 transaction, the customer incurs no cost, while the merchant pays Tk 10. Of this amount, the government receives Tk 2.91 in VAT and AIT.
The agent, distributor and mobile operator receive Tk 6.40. After deducting the bank’s costs, its income stands at Tk 0.17, while the MFS provider incurs a loss of at least Tk 0.30.
Many banks are now waiving charges for merchants as part of their promotional efforts to popularise QR transactions. This is further increasing the misuse of QR codes.
Under Bangladesh Bank’s instructions, both IRF and MDR will become zero from October. This will further increase customers’ tendency to receive cash from various merchant points.
People familiar with the sector say the internationally recognised model requires merchants to bear the cost of digital transactions and cover that cost from their profits. However, as this has not happened, merchants have now become an alternative to MFS agents.
This has put MFS providers, which have been built through domestic and foreign investment, under further pressure. As cash-out transactions decline, many MFS agents are losing interest in the business.
On the matter, former Nagad Chairman KAS Murshid said, “Instead of following the internationally recognised models for increasing digital transactions exactly as they are, Bangladesh needs to develop a model suited to its own circumstances. The model that has been introduced has put established MFS companies at risk.”