Why digital transactions without good governance cannot transform the economy

Bangladesh's digital transaction ecosystem now reflects more than technological progress; it signals changing economic behaviour and expanding financial access. Over the past decade, millions have entered mobile banking, QR payments, agent banking, e-commerce and online public services. 

What was once limited to bank branches now operates across village markets and small businesses nationwide. The scale of expansion is significant. Mobile Financial Service (MFS) accounts have approached 239 million, merchant accounts exceed 1.5 million and more than 1.8 million agents operate across the country. 

Platforms such as bKash, Nagad, Rocket and QR payments have expanded financial inclusion by bringing millions of previously unbanked citizens into formal financial channels. This progress carries strategic importance, particularly in rural and low-income communities where many developing nations still struggle to expand digital financial access.

Bangladesh's digital expansion and persistent informal economy

Despite rapid digital growth, Bangladesh remains largely cash-driven. Transport, construction, wholesale trade, land transactions and much of the informal economy still rely heavily on cash, often limiting financial scrutiny and regulatory visibility.

Bangladesh Bank data show that digital payments declined from 51% to 47% of total transactions between 2023 and 2024. This exposes a key contradiction: while digital banking and payments are expanding, much economic activity remains outside transparent administrative systems.

Citizens may use mobile banking for bills while conducting business informally in cash. Merchants may accept digital payments without maintaining proper records, while government offices may collect fees online but still rely on manual approvals. In such conditions, corruption does not disappear; it adapts. Technology without institutional integration risks modernising transactions without modernising governance.

Revenue visibility and governance challenges

Bangladesh's tax-to-GDP ratio remains around 7–9%, one of the lowest in Asia. In comparison, India collects roughly 18%, Thailand around 16–17%, Vietnam nearly 19%, Malaysia about 12–15% and South Korea over 25% of GDP in tax revenue. Singapore, despite lower direct tax rates, maintains strong revenue efficiency through highly formalised and digitally traceable economic systems. 

These examples demonstrate how stronger institutional integration, digital traceability and formal economic documentation can substantially improve revenue collection and governance capacity. Integrated digital transactions could substantially improve revenue visibility and administrative accountability. Electronic invoicing, interoperable payment systems, QR-based merchant payments and coordinated tax databases could strengthen VAT collection, reduce leakages and gradually formalise sections of the informal economy. In governance terms, digital transactions generate traceable data and traceable data strengthens institutional accountability.

Regional lessons from Asia's digital payment leaders

Several Asian economies have progressed significantly further in integrating digital payments with governance systems. India's Unified Payments Interface (UPI) has become one of the world's largest real-time digital payment systems and is deeply embedded within the country's financial ecosystem. 

China has built an extensive QR-based transaction environment through Alipay and WeChat Pay, connecting digital payments with commerce, services and consumer behaviour on a massive scale. Singapore, South Korea and Thailand have also reduced cash dependency through interoperable payment frameworks, automated compliance systems and digitally traceable governance structures. 

Compared with these countries, Bangladesh has achieved notable success in financial inclusion but still faces difficulties in linking digital transactions fully with taxation, transparency and institutional accountability.

The missing link: Integrated governance architecture

Bangladesh's primary limitation is not technological capability. The country already possesses expanding fintech operators, widespread mobile connectivity and growing public familiarity with digital finance. The real weakness lies within fragmented governance systems. Banking services, taxation authorities, customs operations, procurement systems, land administration and regulatory institutions often continue operating in disconnected administrative silos. 

As a result, many economic activities remain digitally fragmented and only partially visible to governance structures. Digital transactions alone cannot ensure accountability unless they become integrated with broader governance systems capable of improving transparency, reducing discretionary processes and strengthening institutional coordination.

Policy priorities for Bangladesh

Bangladesh now requires several strategic reforms to ensure a smoother and more accountable digital transition.

First, the country should establish a fully interoperable national payment framework linking banks, MFS operators, taxation systems, utilities and government payment platforms.

Second, digital payment systems should gradually integrate with VAT collection, e-tax systems and electronic invoicing to reduce underreporting and strengthen revenue transparency.

Third, large commercial transactions, public procurement systems and land-related payments should progressively move towards traceable digital platforms.

Fourth, regulatory approvals, licensing, customs clearance and procurement procedures should become increasingly automated and digitally traceable to reduce discretionary administrative practices.

Finally, Bangladesh must continue strengthening cybersecurity protection, fraud monitoring systems and nationwide digital financial literacy to sustain public confidence in digital finance.

From digital convenience to institutional accountability

Digital payments alone cannot eliminate corruption, but they can reduce financial opacity and strengthen transparency and accountability. Bangladesh has already expanded digital financial access; the greater challenge now is integrating digital transactions with governance and revenue systems. If achieved, Bangladesh could emerge as an important example of accountable digital transformation in the developing world.

Md Nazrul Islam is a former executive chairman of BEPZA, a retired major general of the Bangladesh Army, and a PhD researcher on technology, workforce transformation, and industrial competitiveness.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.