Bangladesh Bank has launched the "Bangla QR" (Quick Response) service to build a digital economy or a "Cashless Bangladesh". At the directive of the regulatory body, all banks and mobile financial service (MFS) providers in the country have replaced their proprietary QR codes with Bangla QR.
Banks and MFS providers have been deployed in the field with specific targets set by the central bank so that buyers and service providers can quickly start accepting payments via Bangla QR.
A fund of Tk1 billion has been fixed to reduce costs for payment receivers. Bangladesh Bank Governor Mostaqur Rahman has also participated in more than 10 promotional events for Bangla QR over the past three months.
Despite these initiatives, the service is not gaining the expected level of popularity. There has not been much discussion among bank and MFS customers regarding QR codes either. The majority of vendors still show an unwillingness to accept payments through digital mediums.
According to industry insiders, one of the main reasons for retail and small business owners' reluctance toward digital transactions is the fear of the tax system.
According to a Bangladesh Bank report, although internet banking, card, and MFS-based cashless shopping and transactions reach thousands of millions of takas daily, the daily transaction volume via Bangla QR remains below Tk1 billion.
However, transactions through QR codes and the number of active merchants are gradually increasing.
Why it is not gaining popularity
According to industry insiders, one of the main reasons for retail and small business owners' reluctance toward digital transactions is the fear of the tax system.
Due to the imposition of a minimum turnover tax based on total sales instead of income tax, many business owners are afraid of keeping digital records of transactions. A minimum tax is a system where this tax must be paid even if there is a loss. Therefore, digital transactions cause greater apprehension among small business owners, as they are still outside the tax net.
Insiders say that currently, there is a mandate to deduct a one per cent merchant fee on Bangla QR transactions. For small grocery shops and low-margin businesses, bearing this fee per transaction is burdensome.
Although Bangladesh Bank waived this fee starting in October, concerned bankers say that when funds are deposited into their own accounts, vendors can withdraw money from their accounts using ATM cards without incurring any charges.
The problem arises with withdrawing MFS funds. In that case, withdrawing cash incurs a fee of up to 1.85 per cent. Therefore, simply creating mandatory merchant accounts through banks will not make cashless services popular. There needs to be broader demand for such services,
An analysis of similar initiatives in neighbouring countries shows that initially, to widely propagate the service, policies included offering cashbacks for customers, keeping fees non-existent for vendors or arranging government subsidies.
To popularise QR codes in India, the country's government subsidised all concerned parties, ranging from customers to merchants, banks and MFS providers for several years.
At one point, thousands of customers were also given cash rewards every day based on their transaction activity. Similar incentives were offered to participating merchants, while transaction fees for merchants were waived.
Meanwhile, various efforts to popularise QR-based transactions in Bangladesh have not resolved the complexities of opening merchant accounts.
The process of opening personal retail accounts for small businesses is also not fully digital or paperless. As a result, bank and MFS officials often have to visit businesses to open accounts, leaving many interested sellers without access to the service.
In addition, the apps of many banks have yet to be fully integrated with Bangla QR.
The government has also not instructed agencies to use Bangla QR for collecting various service fees.
Insiders say that if the use of Bangla QR codes is made mandatory for receiving government services, it could create a massive demand for the service. At the same time, implementing such an initiative would reflect the government's goodwill, while also reducing corruption in government services.
What needs to be done
According to Mustafa K Mujeri, former chief economist of Bangladesh Bank, the use of Bangla QR must be increased to prevent corruption and expand digital transactions.
However, for this, it is crucial to follow the successful models of other countries. Small business owners cannot be harassed by depending on digital transactions. Additionally, priority must be given to using the code for transactions in various government and private services. All in all, demand must be created while supply must be prepared equally. Only then will this service become popular.
Bankers say that unless the tax system is modernised and a favourable environment is created for business owners, Bangla QR will remain merely a compulsory service and will fail to transform the mainstream economy into a cashless one.
To achieve this, a special waiver on turnover tax should be given to small entrepreneurs and a simplified tax structure must be coordinated with the NBR. Simultaneously, banks should be assigned the responsibility of creating region- or sector-specific merchant accounts, which will reduce the tendency of a single vendor approaching multiple banks and MFS providers, thereby bringing discipline to the sector.
Meanwhile, according to Bangladesh Bank data, transactions via Bangla QR amounted to Tk2.12 billion in January. In February, it increased to Tk2.18 billion and in March to Tk2.29 billion.
Transactions dropped to Tk1.99 billion in April, while in May the transaction amount stood at Tk4.79 billion. Following major promotional campaigns in June, transactions through QR codes surged to Tk8.44 billion. In July, it increased further to nearly Tk13 billion.
The initiative began with around 1.7 million Bangla QR codes after banks and MFS providers converted their existing QR codes to Bangla QR. In the first 15 days of the current month, banks and MFS providers introduced more than 300,000 additional Bangla QR codes.