Between June and September this year, daily Bangla QR payments rose from about one lakh to 3.5 lakh, while their value increased from Tk28 crore to Tk143.54 crore, according to Bangladesh Bank’s own figures. Some 39 lakh merchant points now carry the code. For a standard mandated only in April, that is a significant achievement, and the central bank deserves credit for it.

It should be said plainly: this article is written in support of the project, not against it. Making the interchange fee zero from 1 October and scrapping the 1% minimum merchant fee that had applied since July were reasonable steps towards breaking the habit of cash. My argument concerns what comes next. The same instinct that built the network can now give it an income.

What investors ask of a payments business

I have sat in several hundred meetings where international investors questioned the management of payments platforms and banks ahead of a listing.

When Network International, a Middle Eastern payments processor, listed in London in 2019 and raised about $1.4 billion, I was present for many of those conversations. Almost none of them focused on how many merchants the company had signed up.

Nearly all concerned yield: how much the company earned on each transaction, who paid it and whether a regulator could take it away. A payments company is valued like a toll road. Traffic matters, but the toll is what gets priced.

That listing is worth dwelling on for another reason.

A company from a market most of those investors had never visited became a profitable, sustainable success story that attracted substantial foreign capital. The regulators in its home market were part of the reason.

In banking and payments, more than in any other sector I have worked in, the rules determine the economics. Investors do not back a bank because its branches are busy; they back it because the rules allow it to earn a return they can underwrite. Bangladesh’s digital banks and payment providers could become companies the country celebrates abroad if the rules being written now give them something to earn.

That question is about to arrive in Dhaka. On 24 September, Bangladesh Bank issued letters of intent to five digital banks, each with a capitalisation of Tk300 crore. Under the central bank’s digital bank guidelines, each must launch an initial public offering within five years of receiving its licence.

The central bank’s own figures suggest that the average Bangla QR payment is now around Tk4,100 — roughly twice the subsidy ceiling. The money intended to support the small-ticket economy is, on average, being asked to support a mid-ticket one. A second-order effect deserves the central bank’s attention because it threatens the reliability of the data against which the new banks will lend.

These banks cannot finance foreign trade or provide long-term loans to large industries. Their business will centre on payments, the deposits those payments generate and lending based on payment data. When their bankers sit down with foreign investors in 2030 or 2031, the first spreadsheet they open will show revenue per transaction on the national QR rail. If the answer is zero, the meeting will be short.

Where the cost goes when the fee is zero

Setting a fee at zero does not eliminate the cost of a payment; it shifts that cost elsewhere. In a QR transaction, the issuer — the bank or wallet from which the customer makes the payment — bears the cost of bringing cash into the system and verifying the customer.

The interchange fee compensated the issuer for that work, with the payment coming from the acquirer servicing the merchant. Before October, it ranged from 0.35% to 0.70%. Now it is nothing. One operator told the Financial Express that it spends Tk5 to Tk8 for every Tk1,000 its customers pay to a merchant served by another provider, making each such transaction a loss.

Bangladesh Bank has recognised part of the problem. Its incentive scheme pays issuers 0.20% and acquirers 0.10% on QR payments routed through the national switch, up to Tk2,000.

Based on the operator’s stated costs, this covers between a quarter and 40% of what a small payment costs the issuer, while offering nothing for transactions above Tk2,000. The central bank’s own figures suggest that the average Bangla QR payment is now around Tk4,100 — roughly twice the subsidy ceiling. The money intended to support the small-ticket economy is, on average, being asked to support a mid-ticket one.

A second-order effect deserves the central bank’s attention because it threatens the reliability of the data against which the new banks will lend.

The Business Standard reported in September that a customer can pay Tk10,000 into a shopkeeper’s QR account and walk away with about Tk9,815 in cash. The shopkeeper retains what an agent would have charged, while the payment bypasses the daily and monthly limits that apply to a conventional cash-out.

It is recorded as commerce, but is effectively a withdrawal. Multiply this across a few lakh merchants and the turnover figures a digital bank would use to assess a loan become unreliable.

The strongest argument for keeping everything free is adoption, and it is a valid one.

Small merchants are price-sensitive, and India’s experience is often cited in support of this approach. But that experience deserves to be considered in full. After six years of zero fees funded by the budget, India’s finance ministry this year introduced a 0.4% merchant fee on Unified Payments Interface (UPI) payments above Rs2,000, while keeping transactions below that threshold free.

Indonesia, a closer peer, has operated its Quick Response Code Indonesian Standard (QRIS)  on the same principle from the outset: zero fees for small transactions, followed by fees of 0.3% to 0.7% for larger transactions. Volumes have continued to grow by more than 90% a year. Neither market chose between adoption and income. Both drew a line and introduced charges above it.

A price schedule that keeps small transactions free

Four steps would turn the current arrangement into one that investors and the new banks could plan around. Bangladesh Bank is well placed to implement them through the committee it already chairs.

First, keep both the merchant fee and the interchange fee at zero for transactions of up to Tk2,000, with the costs funded as they are now. This protects tea stalls and rickshaw-pullers — the very segments where the case for financial inclusion is strongest.

Second, for transactions above Tk2,000, publish a cost-based interchange schedule based on audited figures showing what issuers actually spend when their customers make payments across the network. This should be accompanied by a ceiling on the amount merchants can be charged. A floor on the issuer’s share and a cap on the merchant fee are not contradictory; together, they are how most QR systems with transaction charges operate.

Third, introduce receipt limits for merchant accounts that cannot demonstrate turnover through trade licences, mirroring the cash-out limits that already exist. Also, allow only one QR code per settlement account. This would eliminate the arbitrage without affecting honest shopkeepers.

Fourth, publish monthly Bangla QR statistics, including the average transaction value and the proportion of payments made between different providers.

Person-to-person QR transfers go live today, adding another stream of transactions to a payment rail that currently earns nothing.

The next few months are the time to decide on the pricing schedule, before transaction volumes become too large to reprice. The adoption race has been won. The next test is to build an economic model that makes the achievement sustainable.

Fahim Chowdhury is an investment banker. He worked on the IPOs of Network International and MegaFon, and the capital markets journey of Adyen. He is currently the Managing Director at RetailBook. 

Source: https://www.tbsnews.net/features/panorama/tk10000-tk9815-out-question-foreign-investors-will-ask-about-bangla-qr-1596666