Published :
Updated :
For all latest news, follow The Financial Express Google News channel.
Few months back when I was visiting Bangladesh, I met one of my former colleagues who is Manager in charge of a commercial bank. While I was discussing with him various issues related to banking, one customer came and enquired about his expected electronic fund transfer (ETF). Within few minutes, fund transfer message came, and the customer instantly withdrew the entire amount. Witnessing such an excellent service, I asked the branch manager if any fraudulent transaction is being reported, and if yes, is he in a position to recover this money. In response, he replied that bankers have nothing to do in withdrawal against electronic fund transfer because this facility has been introduced with the objective of satisfying customer's immediate need. Stating his helplessness, he further added that paying banks have no idea about the source of fund they are receiving and paying to the beneficiary against receipt of electronic fund transfer message. After discussion, I realised that this type of banking service is not even available in the developed world. I work in a bank where I have been maintaining my account with very satisfactory track record, yet I would not be able to withdraw any money instantly after deposit or receipt through wire transfer because bank will put on hold for three to five business days. In this context, ETF service in our country's banking industry is excellent, but sometimes too good is not good at all, especially when associated risk factors are compromised.
EFTN AND RTGS: In Bangladesh, banks provide fund transfer service through two forms of electronic methods of which one is EFTN (Electronic Fund Transfer Network), and the other is RTGS (Real Time Gross Settlement). EFTN facility can be used for transferring any amount. However, same day transfer is provided if transaction is submitted within first session of the day that expires at 2 p.m. Any fund transfer request if submitted after that, will be executed on the following day. RTGS facility can be used for transferring money anytime within the business hour of the day; however there is benchmark amount below which, RTGS cannot be used for transferring money and this benchmark amount is BDT one lac. So, any amount below BDT one lac cannot be transferred using RTGS. However, there is one exception that RTGS can be used to transfer any amount if the fund is related to paying customs duty. This electronic fund transfer system has close similarity with ABA (American Bankers Association) routing number used for carrying inter-bank money transfer transactions among American and Canadian banks which have been provided with the ABA routing codes by Federal Reserve in USA. ABA Routing number is used to transfer only US dollar fund and for other currency, SWIFT (Society for Worldwide Interbank Financial Telecommunication) is used.
POTENTIAL RISK: Instant payment against ETF irrespective of customers' standing exposes high risk of financial losses. If fund is fraudulently transferred through ETF service, there is no protection for either the paying bank or the remitting bank. Even if money is mistakenly transferred to wrong account maintained by poorly rated customer and if this money is withdrawn from the bank, there is no protection for the bank which is remitting and even paying the money. As for example, Mr. Alpha attempts a fraudulent transaction and transfers ten million taka from Beta's account with XYZ Bank to Green's account of same bank who is closely known to Alpha and transfers BDT ten million to the account maintained with ABC bank in Bogra from where fund is withdrawn immediately. In this situation, Beta will primarily sustain financial losses, burden of which will finally shift to the bank if that victim customer can compel the bank to reimburse this money. When I discussed with some bankers in Bangladesh about these potential risk factors associated with ETF service, they could not satisfactorily clarify my concern. In reply to my query with regards of potential fraud risk, they said it does not happen. They also told me that when customer account is debited, text message is sent to the customer's cell phone from where he/she can know. Very good measure, but this cannot act as preventive control against any fraudulent transfer because it is not realistic and it is very unlikely that all customers will instantly check the message. Moreover, message will not come to any help if money is already withdrawn. Few years back, there were ATM frauds which were detected from mobile phone messages, but good amount of money was fraudulently taken out prior to detection. The same situation will arise if fund is mistakenly transferred either through EFTN or RTGS to the poorly rated account from where account holder withdraws that money and spends. Few years ago, one bank mistakenly credited a good amount of money to one of its customers living in Dhaka's most posh area and subsequently reversed the wrong entry before withdrawal by the customer. However, this credit and corresponding debit entries were reflected in the customer account statement based on which that customer demanded the money claiming her own money. What would happen if that customer could withdraw the mistakenly credited amount prior to bank's reversal.
MITIGATING RISK OF ELECTRONIC FUND TRANSFER: Risk associated with any banking service must be well mitigated and appropriate control must be in place towards preventing any fraudulent act or mistakenly conducted transaction. ETF by means of both EFTN and TRGS is not exception at all and therefore, adequate control must be in place so that any fraudulent transaction can be prevented. First and primary control is to put hold on transferred amount for two or three business days depending upon the nature and value of transaction and by this holding period, banks must be compelled to complete their reconciliation. If any fraudulent or mistaken fund transfer occurs, it will be detected during reconciliation process and thus transacting bank can take preventive measure either by calling back or returning the fund. Question may arise that the service introduced for providing expeditious customer service will be adversely impacted if "put on hold" is exercised. It will not, if appropriate control measures are in place. Flatly placing hold on transferred amount should not be applied. Any amount transferred and credited to the customer's loan account will not be required to be on hold. Since money will be credited to the customer's account the same day with restriction only on cash withdrawal for two or three days as required, customer will not lose any interest paid on the amount. Putting on hold is not required if ETF is credited to a highly rated customer who enjoys good standing and is believed to return the money if and when bank calls back. Therefore, bank will have to rate its customers first and this rating will determine whose transaction will be put on hold and whose transaction will be allowed to be done. As for example, if customers are rated at 100 scale and based on bank's risk parameters, if rating 80 and above is considered a very good score with the perception that customer will not accept any transaction which does not belong to him or her, such transaction is not required to be put on hold. Similarly, customers with score below 80 may be considered poorly rated, their transactions may be put on hold. Besides, there is the mandatory requirement for each bank of obtaining TAP (Transaction Activity Profile) from the customer and periodically updating thereof, so any transaction inconsistent with TAP must be put on hold. After discussing with some bakers, I came to know that now banks collect this TAP just for the sake of fulfilling the requirement, so they do not effectively use this TAP. These risk parameters and control mechanism cannot be applied manually, instead these parameters must be placed in the electronic fund transfer application where control parameters will automatically verify and trigger hold option where necessary.
We are now in digital Bangladesh, so it is obvious that our banking service will transform to digital platform and ETF by means of EFTN and RTGS is a good headway towards implementation of complete digital banking system. However, risk factors associated with digital banking must be well assessed. Needless to say, digital banking exposes higher risks than that of conventional banking. Electronic banking is very good if its risks are properly assessed and mitigated, otherwise, it can be dangerous if appropriate control is not in place. We believe Bangladesh Bank should revisit this sophisticated service and will instruct all banks to ensure adequate control in using EFTN and RTGS.
Nironjan Roy is a banker, based in Toronto, Canada