The Financial Express

Cross-border transactions thru' digital wallets

| Updated: June 22, 2020 21:15:13

-Reuters file photo -Reuters file photo

It is frequently said that Bangladesh earns a lot through IT-enabled freelancing services provided to nonresident customers abroad. But the platform for repatriation of payment is not so smooth since traditional banking platform does not work in this context. To find out a regulatory framework, the website of rhe central bank has been visited and it shows that banks in Bangladesh can make arrangements with online payment gateway service providers (commonly known as digital wallets) to repatriate small value export proceeds. Freelancers can maintain notional accounts with digital wallets abroad. Credit to notional accounts against income of freelancers needs to be swept and pooled into nostro collection accounts of banks. It is not clear which banks have such agreements with overseas digital wallets. It is known from trade bodies that a private bank has such arrangement with an overseas digital wallet.

On review of the rules of the central bank, it is revealed that freelancers can easily repatriate their earning through their notional accounts maintained with digital wallets abroad having arrangement with the particular bank. The regulatory framework appears to be similar to the neighboring country. Freelancers need not maintain accounts with that particular bank since payment backbone of the country allows easy interbank transfer for credit to the beneficiary's account. The rules also show that a part of inward remittances can be retained in foreign currency accounts commonly known as exporters' retention quota (ERQ) accounts. The balances of these accounts can be used for payment against legitimate purchases other than investment.

The above information shows that payment platform is in well shape. Then the question comes why freelancers are in problems to repatriate payment from abroad. Information from different sources indicates that virtual workplaces are linked to some digital wallets. One of the leading digital wallets is PayPal who is not working in Bangladesh. This may be a problem, indeed. If we look at local digital wallet market in Bangladesh, we will find all banks have such wallet services rendered by themselves or through their subsidiaries. They are in our country known as mobile financial service providers (MFSPs). Overseas digital wallets provide such services as our MFSPs do. The difference is that overseas digital wallets can provide cross border payment services, which are not permitted to our MFSPs.

A bank in Bangladesh is operating with only one overseas digital wallet. PayPal does not appear to be a problem here for repatriation of income earned by freelancers. Problem is that banks seem to be not interested to execute such numerous transactions having small value. Such reluctant attitude results in one operator in Bangladesh.We need numerous arrangements with overseas digital wallets. However, operating with one wallet is better than no wallets. Thanks to the private bank helping to repatriate income through their counterpart overseas digital wallet.

If we look at the core banking products, we can see that banks provide deposit-taking services from individual customers but their lending activities focus on corporates. There can rarely be found any focus on credits to individuals. This is their business philosophy based on  profit motive, nothing can preclude them. Customer service to  the individual is found extending through outsourcing. So small ticket transactions in favor of freelancers will never support them to be active, considering their operating costs.

The costs incurred through transactions by MFSPs seem to be reasonable to mass people. As such this service is becoming popular in the country. Retail transactional banking services are going to MFSPs. They can provide low cost services due to their effective business model. So MFSPs can be the best way to provide services for repatriation of small ticket remittances made by freelancers. The question one mat then ask is: Where is the problem to accommodate MFSPs in the cross-border transaction net? It is learnt that license from the central bank is required to deal in foreign exchange. Banks dealing in foreign exchange are called authorized dealers. So MFSPs cannot work to deal in foreign exchange. True?

It is true that authorized dealers conduct foreign exchange transactions through their accounts maintained with banks abroad. Inward remittances on accounts like export, wage remittances, investment are credited to their overseas accounts. Payment for import, services is settled by debit to these accounts. Transaction accounts are basically maintained abroad by authorized dealers. MFSPs is not allowed to maintain such accounts. But they can facilitate mass transactions under arrangements with counterpart digital wallets abroad. Under the arrangement, fund deposited as earnings in notional accounts of freelancers maintained with overseas digital wallets may be transferred to accounts, with beneficiary details of the fund, of authorized dealers designated by MFSPs. Banks, on receipt of funds from digital wallets abroad, will make Taka available to MFSPs who in turn pay to local wallets maintained by beneficiaries. The arrangement may not require authorized dealership license from central bank. But they need to have consent from central bank for making arrangement with overseas digital wallets. This wallet to wallet transaction may be an alternative solution to implement the rules to repatriate small value remittances earned by freelancers.

Freelancers are entitled to retain a part of their earnings in ERQ accounts. Such facilities are not available at the end of MFSPs. In that case, they need again help from authorized dealers. Same problems will arise. Without ERQ support, they will go for undisclosed alternatives for cros-border transactions. Such should not be allowed, rather solution needs to be devised. There may be an arrangement between banks and local wallets provider MFSPs under which a part of the foreign currency receipts may be retained in subsidiary ledger of banks as settlement accounts in the name of MFSPs. Based on the balance, MFSPs will allocate the same as settlement fund in digital wallets of beneficiaries. As such, the local wallets will contain two compartments containing local currency and foreign currency.

Central bank's rules permit banks to repatriate remittance through overseas digital wallets, with retention quota facility. Outward payment by way of digital wallets abroad is also permitted for legitimate purposes through fund held with ERQ accounts. This rule is found framed very recently by the central bank for banks. The digital wallet with compartment of foreign currency as stated above can be allowed for outward remittances. In this case, wallet holders,when needed, will give online advice to MFSPs for making fund available in their notional accounts maintained with digital wallets abroad, from where payments will be used for legitimate purchases. The advice so received will automatically be transferred to digital wallets abroad including designated banks of MFSPs and settle payment for legitimate purchases. On receipt of claim, parent banks will arrange payment to overseas digital wallets by debit from the balance held in settlement accounts maintained in the names of MFSPs. Banks afterwards would comply with foreign exchange regulations, including tax issues on receipt of information from digital wallets abroad. This may facilitate local digital wallets to execute cross-border transactions. Since small value transactions are not attractive to banks, accommodation of MFSPs for small value transactions through arrangements with overseas digital wallets may be a better alternative for freelancers.Authority concerned needs to think about this alternative.


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