The first credit card was issued in Bangladesh in the late 1990s. At the same time, the mobile phone began its journey towards mass penetration and technological revolution here.
Since the mobile phone got policy support, it is almost in everyone's hands here.
On the other hand, plastic cards, especially credit cards, are still at a primary stage in terms of penetrating the huge market of highly-populated Bangladesh.
Industry representatives who spoke at a pre-budget webinar titled "Plastic Money's Potential and Challenges in Bangladesh" on Monday blamed policy obstacles, the mindset to treat plastic cards as elites' products, a vicious cycle of poor infrastructure, and low card issuance for this situation.
At the programme organised by The Business Standard, they said at this stage of digital transformation, it is high time to eradicate the obstacles and catch up in terms of transforming payments for a transparent ecosystem that would help the government gain more revenue ultimately.
Against 11 crore bank accounts in Bangladesh, only 17.37 lakh credit cards have been issued while the number of cardholders is much lower as many use multiple cards.
The number of debit cards and prepaid cards, where customers use their own money through plastic cards, is still less than 2.4 crore, far behind the potential.
All the data reflects the poor state of digital payment penetration.
Pandemic, e-commerce boom, and digital payments
Syed Mohammad Kamal, country manager of leading global card network Mastercard, said before the pandemic, for every $7 payment, $1 was paid digitally. After the pandemic, it grew to $1 against every $5 paid.
In Bangladesh, monthly card payments in e-commerce grew to Tk853 crore last March from Tk200-225 crore before the pandemic as people prefer online orders now.
The e-commerce boom is mainly behind the recent jump in card payments, said Mashrur Arefin, managing director and chief executive officer of City Bank, which is leading the card business in Bangladesh.
Like many others, he is concerned about business practices in the e-commerce industry where some platforms are getting paid at crazy discounts against online orders being delivered several months later.
If e-commerce platforms like Evaly fail to deliver and collapse ultimately, card issuers have to pay back the amounts customers paid under the chargeback rules followed by global card networks like Visa and Mastercard.
The e-commerce industry needs to work for the sustainability of their business, said Khurshed Alam, head of retail financial services at LankaBangla Finance, the only non-bank financial institution that issues credit cards and stands second in the country's card industry.
The Bangladesh Bank's initiative to keep all the advanced payments in the e-commerce industry in escrow accounts should be implemented in the coming days so that banks' exposure to card payments in e-commerce remains risk-free, said Kamal.
"We are also happy that e-commerce payments through our cards have doubled," said Khurshed.
But that should not be the ideal source of digital payment growth, he said, adding the industry needs countrywide infrastructure for card payments.
Stigma, vicious cycle behind poor card penetration
In Bangladesh, credit cards are treated as elites' products and that is why cards are facing poor penetration among the population and are also barely usable beyond shops in big cities like Dhaka, Chattogram, and Sylhet or Khulna to some extent, said Mashrur.
To spread cards across the country, like the West, the East and even some African countries did, the industry needs infrastructure that includes giving POS machines to grassroots merchants so that cards are accepted in shops across the country.
Mashrur's bank alone invested to own over 40% of the POS machines in the market, which enable card payments in shops.
If the country means a true digital transformation of payments, it can invest in building the card infrastructure, which China did, said the City Bank managing director.
The investment may be done in partnership with the private sector, he suggested, as the necessary investment is not feasible enough for banks at the initial stage.
Citing banks' high cost of merchant acquisition, card issuance, promoting usage, and also high default rate in credit cards, Mashrur also called for rethinking the 20% cap on credit card interest rate to inspire banks to invest in card business.
Also, bankers need to come out of the perception that credit cards are only for urban elites, while mobile financial services (MFS) have shown the power of scaling up through their penetration among grassroots merchants and customers.
Singaporean banks are giving credit cards to house helps nowadays while in Bangladesh, only the upper middle class are availing those, he said, stressing the need to include the mass people in card usages.
MFS is rapidly growing in the business of digital payments and almost catching up despite the fact that they started much later than card issuers, Mashrur said.
Last March, the total card payment was around Tk2,500 crore while MFS payment was nearly Tk1,900 crore, according to the Bangladesh Bank.
Kamal said in Bangladesh, the taxpayer identification number (TIN) certificate is a must to avail a credit card, which is deterring potential card users.
Most countries do not ask for a tax certificate against credit cards, he added.
"Here, you can do anything without being taxed, but TIN is a must as soon as you go for a credit card," said Mashrur.
Kamal said importing plastic cards is subject to 73% taxes and duties and the government should rationalise those on card industry devices to help the industry grow.
The inconvenient travellers' quota that limits card spending during international travels to $12,000 annually and the $300 limit for a single international credit card transaction are also deterring the growth of card usage by Bangladeshis, he added.
Khurshed said issuing dual currency cards should be allowed as his customers demand that and the existing regulations do not allow non-bank financial institutions to issue such cards.
Echoing other discussants, he said the government can collect much more revenue ultimately if it facilitates the digital payment transformation as this is transparent, accountable, and traceable.
Syed Almas Kabir, president of Bangladesh Association of Software and Information Services, said the government should waive value added taxes on all sorts of digital payments so that people are inspired to opt for such payments.
A three-five-year waiver can boost digital payments and transform the economy, he said.
India incentivised digital payments in recent years as part of its demonetisation drive and that supported the boost of digital payments across its economy, said Kamal, adding that now very small merchants are also accepting digital payments at the grassroots level there.
Bangladesh can give a 5% incentive on digital payments where customers would avail 3% and the merchant would enjoy 2% so that merchants would happily accept digital payments and customers would also find it profitable, he suggested.
Cards do not necessarily mean plastic cards anymore, said discussants, adding virtual wallets can be a device for credit among consumers and merchants.
City Bank is piloting nano lending in collaboration with bKash, the top MFS platform in the country.
Almas is waiting for the emergence of direct bank-bank payment solutions through apps.
Mastercard's Kamal also wants the facilitation of debit card and prepaid card payments as these cards have outnumbered credit cards significantly.
For the desired take-off in digital payments, there needs to be collaborative efforts among card networks, issuers, and third-party entities, such as telecom operators and utility services providers, that have a huge database of customers and their behaviour.
Before everything, policymakers must realise the need for digital transformation of payments and decide on incentivising, said discussants.