The State of Digital Payment: Card-based Retail Transaction Remains Extremely low

Despite all the conversation around digital payment, retail and business transactions through cards, both debit and credit cards, remain extremely low in the country. The majority of card-based transactions recorded are ATM withdrawals and are predominantly debit card transactions, reports the Financial Express citing the latest central bank data. Both credit card issuance and usage remain slow. According to industry insiders, there is a chicken-egg situation to this problem.

Ashish Chakraborty of SSL Wireless, one of important payment players in the card industry, said to FS in an interview: “the situation at present is somewhat like a chicken-and-egg problem. As a matter of fact, we don’t see that many POS machines outside of big cities like Dhaka and Chittagong. This’s why when we ask banks to roll out more cards, they say that there are not enough POS machines; and, when we tell sellers to adopt POS machines, they reply that there is a huge lack of cards. There need to be a couple of changes in order to increase the usage of the card. Firstly, we need to ease up the tight formalities associated with card issues. Secondly, the cost of issuing a card needs to be brought down. Lastly, banks need to pay more concentration on rolling out more cards. They need to make it widespread.”

On a similar note, Syed Mohammad Kamal, Country Manager of MasterCard, told FS that “there are 40 million unique bank accounts in Bangladesh but there are only 8.5 million cards. Think about it, 8.5 million cards against 40 million accounts, this means existing bank account holders are not having cards. My suggestion would be that Government or the regulator can explore for a mandate that all the account holders should also have cards. If there is an account, there should be a card.”

The data points (source: Bangladesh Bank)

• Around 172 million card-based transactions, of Tk. 1.25 trillion, were recorded in 2016
• Debit card ruled the card transactions with almost 92% or around Tk. 1.15 trillion transactions took place through debit cards. That said, bulk of the debit card transactions, around 94.5% or around Tk. 1.09 trillion, were in the form of ATM withdrawals
• Only 6% or around Tk. 75.71 billion transactions, of total card-based transactions, were carried out through credit cards.
• Total Tk. 1.107 trillion ATM transactions took place in the country in 2016
• The total value of POS (Point of Sales) based card transactions was merely around Tk. 120.41 billion.

Growth in numbers

• There were around 9.3 million cards in use at the end of 2016 and card industry saw 17% growth in the number of transactions through card.
• A total of Tk. 15.58 billion was spent overseas through local credit cards, up from around Tk. 12.56 billion in 2015. The bulk of such credit card spending abroad came in the form of POS transactions.
• A growing number of people are using card for ecommerce transaction. The value of local e-commerce transactions through card reached Tk. 3.38 billion in 2016 up from Tk. 1.67 billion a year earlier. Additionally,
• Tk. 3 billion worth of card transactions recorded on foreign e-commerce in 2016 grew from around Tk. 1.87 billion in 2015.

Why this matters: Card is one of the key components of digital payment ecosystem. If you want to grow digital payment, it is imperative to grow card-based transactions. While the number of card users is growing for both debit and credit cards in Bangladesh, retail transactions through the card is not growing. The lack of POS machines, unwillingness from operators at shop to handling cards, a limited number of credit cards and machines in the market and overall lack of trust in the market are among the few reasons behind the slow growth of card usage in the country. That said, a significant growth in retail transactions through cards will materially change the face of digital payment in the country.