MAFS - Moduel-B - Payment System

Banking Professional Examination
Junior Associate of the Institute of Bankers, Bangladesh (JAIBB)
MAFS
Monetary and Financial System
Module-B: 07) Payment System Concept,
08) Different payment options,
Payment 09) Pros and Cons of different payment types (Cash, Cheques,
System Debit Card, Credit Card, Mobile payments, On-line payments,
Electronic fund transfers).
10) Evolution and Growth of Bangladesh Payment System.
Module-B: Payment System
A payment system is a way of transferring money between parties, such as buyers

and sellers, banks and customers, or governments and citizens.
• Payment is the transfer of money or goods and services in exchange for a

product or service.
• Payments are typically made after the terms have been agreed upon by all
parties involved.
• However, payment may be required before, during (installment payments) or
after goods or services have been provided.
• A payment can be made in the form of cash, check, wire transfer, credit card,
or debit card.
• More modern methods of payment types leverage the Internet and digital
platforms.
Payment system of Bangladesh has experienced a journey from manual clearing

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system to a semi-automated clearing system and finally to a fully automated system;
Payment systems modernization in respect to digitization has started with the live
operation of BACPS in October, 2010;
In the later phase the system added other payment platforms namely BEFTN, NPSB,
RTGS, MFS, etc. to widen the scope of payment solution in the market; As a result,
both the efficiency and safety of the system have significantly been improved over
time.
07) Payment System Concept
07.117A payment system is any system used to settle financial

transactions through the transfer of monetary value. This includes
the institutions, instruments, people, rules, procedures, standards,
and technologies that make its exchange possible.
• A common type of payment system, called an operational
network, links bank accounts and provides for monetary exchange
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Md.Monowar Hossain FCA, FCMA, FCS, CISA, CPA, CPFA(UK), MBA
Agrani Bank Ltd., Ex-Chief Financial Officer (CFO), Head of ICC.
Rupali Bank Ltd., Ex-Head of Internal Control & Compliance (ICC).
using bank deposits. Some payment systems also

include credit mechanisms, which are essentially a different aspect
of payment.
• Payment systems are used in lieu of tendering cash in domestic
and international transactions. This consists of a major service
provided by banks and other financial institutions.
• Traditional payment systems include negotiable instruments such
as drafts (e.g., cheques) and documentary credits such as letters of
credit.
• With the advent of computers and electronic communications,
many alternative electronic payment systems have emerged. The
term electronic payment refers to a payment made from one bank
account to another using electronic methods and forgoing the
direct intervention of bank employees. Narrowly defined electronic
payment refers to e-commerce—a payment for buying and selling
goods or services offered through the Internet, or broadly to any
type of electronic funds transfer.
• Modern payment systems use cash-substitutes as compared to
traditional payment systems. This includes debit cards, credit cards,
electronic funds transfers, direct credits, direct debits, internet
banking and e-commerce payment systems.
07.2 Payment System of a company
• The payment system of the company is a secure, reliable and efficient

system that allows customers to make payments quickly and easily.
• The system is designed to process a variety of payment methods, including

credit cards, debit cards, bank transfers, PayPal, and other online payment
methods.
• Customers can also set up recurring payments and view their payment
history. The system is also integrated with fraud protection services to help
protect customers' information and prevent unauthorized payments.
• The system is designed to be secure, reliable, and efficient, providing

customers with a simple and secure way to make payments.
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08) Different payment options

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Payment is the transfer of money, goods, or services in exchange for goods and
services in acceptable proportions that have been previously agreed upon by all
parties involved. A payment can be made in the form of services exchanged, cash,
check, wire transfer, credit card, debit card.
Payments are made using various methods. Throughout history, these types of
payments have changed and evolved, and new payment methods are likely to appear
in the future. Here are the most common types of payments used today.
09) Pros and Cons of different payment types (Cash, Cheques, Debit Card,
Credit Card, Mobile payments, On-line payments, Electronic fund transfers).
09.1 Cash payments
Cash payment refers to the act of paying for goods or services with physical currency,
such as bills and coins. This is in contrast to other forms of payment such as credit
card, debit card, bank transfer, or digital payments. Cash payments can be made in
person at a physical store, at a vendor or merchant's location, or through cash-on-
delivery services for online purchases. Cash payments are often preferred by
individuals who prefer to avoid using electronic payment methods or do not have
access to them. However, cash payments can also be inconvenient, as it requires
carrying physical money, and there is a risk of loss or theft.
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Cash is still used for many businesses, such as the retail industry.
• Coffee shops and convenience stores, for example, still accept cash payments.
• Considering the fees associated with debit and credit cards, many retails small
businesses prefer cash payments from their customers.
• Cash has its own disadvantages, as it can be lost, stolen, or destroyed.
• Businesses dealing in large transactions must often incur additional expenses
to pay for related security measures such as secured transit or fraud detection.
Here are some pros and cons of cash payment:
Pros of Cash Payment: Cons of Cash Payment:
(1) Convenience: Cash payments (3) Risk of theft: Carrying cash puts
are convenient because they do individuals at risk of being robbed or
not require any technical or losing their money, which can be a
digital devices to complete the significant disadvantage of using cash
transaction. One can simply payments.
count the money and hand it
over to the vendor or merchant. (4) Inconvenience: Cash payments can
be inconvenient as individuals need to
(2) Anonymity: Cash payments are have the exact amount of cash, and
private and do not leave a they need to carry the money with
paper trail like electronic them wherever they go.
transactions. This can be a pro
for people who value their (5) No Record Keeping: Cash payments
privacy and do not want their do not have a record-keeping system,
financial transactions to be which can be a disadvantage when
tracked. trying to track expenses or maintain
accurate financial records.
(3) Control: Cash payments help (6) Limited Availability: Some vendors
individuals to control their or merchants do not accept cash
spending habits as they are payments, particularly in the era of
limited to the amount of cash digital payments, which can be an
they have on hand. This can be issue for individuals who only have
helpful for people who struggle cash on hand.
with overspending or impulse
buying.
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(4) Instant Settlement: Cash (7) Susceptibility to Counterfeit: Cash

payments are settled instantly payments can be susceptible to
as the vendor or merchant counterfeit bills, which can result in
receives the money on the spot, financial loss.
making it easy for both parties.
09.2 Payments through Cheques
Cheques have fallen out of favor over the years due to advancements in technology,
allowing payments to be electronically submitted. However, there are instances when
cheques might be helpful, such as when the seller wants a guaranteed payment. A
bank cashier's cheque or a certified cheque are two types of cheques that banks offer
to help sellers receive the money owed from the buyer.
Cheques are linked to a payer's bank account. Each cheque contains your bank's
routing number as well as the account number. When a cheque is written, the payee
deposits the cheque, sending the transaction to a clearing unit. The clearing unit
makes the appropriate changes to each party's account.
Payments through cheques refer to the method of making a payment using a

written order that directs a bank or financial institution to pay a specific amount of
money to the person or entity named on the cheque. The person writing the cheque
is known as the payer, while the recipient of the cheque is called the payee.
Here are some pros and cons of using cheques as a method of payment:
Pros of Payments through Cheques:
(1) Security: Cheques are a secure method of payment because they require a
signature from the account holder to authorize the transaction.
(2) Record Keeping: Payments through cheques provide a record-keeping system
for both the payer and payee, which can be helpful in tracking expenses and
maintaining accurate financial records.
(3) Delayed Payment: Cheques can be post-dated, which means that the payment
will not be processed until the date specified on the cheque. This can be helpful
for people who need to delay payment for a specific reason.
(4) Convenience: Cheques can be used for various purposes, such as making
payments to individuals or organizations, or depositing money into a bank
account.
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Cons of Payments through Cheques:
(1) Delayed Processing: Cheques can take several days to clear, which means that
the recipient may have to wait before receiving the payment.
(2) Risk of Fraud: Cheques can be easily counterfeited or altered, which puts the
payer and payee at risk of financial fraud.
(3) Fees: Some banks may charge a fee for processing a cheque, which can add to
the cost of using this payment method.
(4) Not universally accepted: Not all merchants or vendors accept payments
through cheques, which can limit the usability of this payment method.
09.3 Payments through Debit Card
Payments through debit card refer to the method of making a payment using a
plastic card that is linked to a bank account. When the card is used for a purchase,
the amount is automatically deducted from the linked account.
Debit cards may look similar to credit cards, but their underlying mechanism is
entirely different. When a debit card is used, funds are immediately withdrawn from
an individual's account. Instead of having a line of credit that you can pull from in
excess of what you have saved, debit card transactions can be declined if you do not
have enough money in your account.
Debit cards share many advantages as credit cards, as the small piece of plastic is
easy to carry, widely accepted by many merchants, and has varying levels of fraud
protection. However, debit cards often have less promotional opportunities and may
result in processing fees if you accidently attempt to overdraw your account.
Here are some pros and cons of using debit cards as a method of payment:
Pros of Payments through Debit Card:
(1) Convenience: Debit cards are a convenient method of payment as they can
be used to make purchases in-store, online, and over the phone.
(2) Security: Debit cards provide a secure method of payment as they require a
PIN code to authorize the transaction. Additionally, most banks have fraud
protection policies in place to protect their customers.
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(3) Record Keeping: Debit card payments provide a record-keeping system for
both the buyer and seller, which can be helpful in tracking expenses and
maintaining accurate financial records.
(4) Accessibility: Debit cards are widely accepted by merchants and vendors,
which makes them an accessible payment method for most people.
(5) No Interest: Since debit card payments are deducted directly from the linked
bank account, there is no interest charged on purchases made through debit
cards.
Cons of Payments through Debit Card:
(1) Limited Fraud Protection: While banks have fraud protection policies in
place, there is still a risk of fraud and identity theft when using debit cards.
(2) Transaction Limits: Some debit cards have transaction limits, which can limit
the amount of money that can be spent in a single transaction.
(3) Overdraft Fees: If the linked bank account does not have enough funds to
cover a purchase, the transaction may still go through, resulting in an overdraft
fee charged by the bank.
(4) Network Issues: Debit card transactions can be affected by network issues,
such as a slow connection or technical difficulties, which can cause delays or
declined transactions.
09.4 Payments through Credit Card
Credit cards are a popular payment method that allows consumers to make purchases
on credit. When you use a credit card to make a payment, the card issuer pays the
merchant on your behalf, and you repay the card issuer at a later date, typically with
interest.
Here are the basic steps involved in making a payment through a credit card:
(1) Choose the item you want to purchase: Whether you're shopping online or in-
person, select the item or service you want to buy.
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(2) Provide your credit card information: When you're ready to make your
purchase, you'll be asked to enter your credit card information. This includes the
card number, expiration date, and security code on the back of the card.
(3) Verify your payment details: Once you've entered your credit card information,
you'll be prompted to review the payment details to ensure they're correct.
(4) Confirm the payment: After verifying the payment details, you'll be prompted to
confirm the payment. Once you do, the payment will be processed and your
purchase will be complete.
(Payment process in the credit card system)
It's important to remember that when you make a payment through a credit card,
you'll be charged interest on the balance if you don't pay it off in full by the due date.
It's also important to keep your credit card information secure and only use it on
reputable websites or at trusted merchants to protect against fraud.
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Pro and cons of Payments through Credit Card
Payments through credit card can have both advantages and disadvantages. Here
are some of the pros and cons to consider:
Pros:
(a) Convenience: Credit cards are widely accepted and can be used for both online
and in-person purchases. This makes them a convenient payment option.
(b) Rewards: Many credit cards offer rewards programs, such as cashback, points,
or miles, that allow you to earn rewards for using your credit card.
(c) Credit score improvement: Responsible use of credit cards can help build your
credit score over time.
(d) Fraud protection: Credit card companies offer fraud protection and dispute
resolution services, which can help protect you against unauthorized charges or
fraud.
Cons:
(a) Interest charges: Credit cards often come with high interest rates, which can
add up quickly if you carry a balance from month to month.
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(b) Debt: Credit cards make it easy to overspend and can lead to debt if not
used responsibly.
(c) Fees: Credit cards may come with annual fees, balance transfer fees, cash
advance fees, foreign transaction fees, and other charges that can add up.
(d) Security risks: Credit card information can be stolen or hacked, which can
lead to identity theft and other security risks.
(e) Temptation to spend more: The ease of using a credit card can make it
tempting to spend more than you can afford.
In summary, while credit cards offer convenience, rewards, and fraud protection,
they can also lead to debt, fees, and security risks if not used responsibly. It's
important to weigh the pros and cons and use credit cards responsibly to avoid
financial problems.
What's the difference?
When you use a

debit card, the funds
for the amount of
your purchase are
taken from your
checking account
almost instantly.
When you use a
credit card, the
amount will be
charged to your line
of credit, meaning
you will pay the bill
at a later date, which
also gives you more
time to pay.
When you use a debit card, the funds for the amount of your purchase are taken from
your checking account almost instantly. When you use a credit card, the amount will
be charged to your line of credit, meaning you will pay the bill at a later date, which
also gives you more time to pay.
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Process of payments
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It can often be complicated to decide when it is best to use each card. For everyday
purchases, consider using your debit card because you will see the money taken out
of your checking account right away. For bigger items, such as a rental car or hotel
room, you could use your credit card so that you can save up money by the time you
have to pay.
Debit card and a credit card comes with their own advantages and disadvantages.
It is advised to research based on your requirement on which to choose.
09.5 Mobile payments
A mobile payment is a money payment made for a product or service through a

portable electronic device such as a tablet or cell phone. Mobile payment
technology can also be used to send money to friends or family members, such as
with the applications bKash, Nagod, Rocket, PayPal, Venmo etc.
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Mobile payments refer to the use of a mobile device, such as a smartphone or tablet,
to make payments for goods or services. These payments can be made through
mobile payment apps, digital wallets, or mobile banking platforms.
Here are some pros and cons of mobile payments:
Pros:
(1) Convenience: Mobile payments allow you to make payments quickly and easily
using your mobile device, without the need to carry cash or cards.
(2) Security: Mobile payment systems often use advanced security features, such
as encryption and biometric authentication, to protect against fraud and
unauthorized access.
(3) Rewards: Many mobile payment apps and digital wallets offer rewards
programs that allow you to earn rewards for using their platform.
(4) Contactless: Mobile payments are often contactless, which reduces the risk of
transmitting viruses or other germs, especially during a pandemic.
Cons:
(1) Compatibility: Not all merchants accept mobile payments, which can limit
their usefulness.
(2) Technical issues: Mobile payment apps and digital wallets may experience
technical issues or downtime, which can disrupt payment processing.
(3) Dependence on technology: Mobile payments require a reliable internet

connection and a charged mobile device, which can be an issue in areas with
poor connectivity or during power outages.
(4) Security risks: While mobile payments offer enhanced security features, they
can also be vulnerable to hacking, phishing, and other security risks.
(5) Privacy concerns: Some users may be uncomfortable with the amount of
personal data that mobile payment apps collect and store.
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In summary, mobile payments offer convenience, security, and rewards, but they
may be limited by compatibility issues and technical problems. It's important to weigh
the pros and cons and use mobile payments responsibly to avoid financial problems
and security risks.
09.6 On-line payments
Online payments are the exchange of monetary funds between buyers and
sellers via the internet.
Online payments refer to the process of paying for goods or services over the
internet, typically through a website, app, or other digital platform.
Here are some pros and cons of online payments:
Pros:
(1) Convenience: Online payments are convenient because they can be

made from anywhere, at any time, as long as you have an internet
connection.
(2) Speed: Online payments are fast and often instantaneous, which can
be helpful when you need to make a payment quickly.
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(3) Security: Online payment systems use advanced security features,

such as encryption and two-factor authentication, to protect against
fraud and unauthorized access.
(4) Record-keeping: Online payments provide a digital record of your

transactions, which can be helpful for budgeting and tracking
expenses.
(5) Easy to use: Many online payment systems are user-friendly and easy
to navigate, which can be helpful for those who are not tech-savvy.
Cons:
(1) Security risks: While online payment systems are generally secure,
they can still be vulnerable to hacking, phishing, and other security
risks.
(2) Technical issues: Online payment systems may experience technical

issues or downtime, which can disrupt payment processing.
(3) Dependence on technology: Online payments require a reliable

internet connection and a charged device, which can be an issue in
areas with poor connectivity or during power outages.
(4) Fees: Some online payment systems charge fees for transactions,
which can add up over time.
(5) Privacy concerns: Some users may be uncomfortable with the

amount of personal data that online payment systems collect and
store.
In summary, online payments offer convenience, speed, and security, but they
may be limited by security risks, technical issues, and dependence on
technology.
It's important to weigh the pros and cons and use online payment systems
responsibly to avoid financial problems and security risks.
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09.7 Electronic fund transfers
An electronic funds
transfer (EFT), or direct
deposit, is a digital
movement of money from
one bank account to
another. These transfers take
place independently from
bank employees. As a digital
transaction, there is no need
for paper documents.
EFTs refer to the process of

transferring funds
electronically from one bank
account to another.
Here are some pros and cons of electronic fund transfers:
Pros:
(1) Speed: EFTs are generally faster than traditional paper-based methods of
transferring funds, such as checks, as they can be processed electronically and
often within minutes.
(2) Convenience: EFTs can be initiated from anywhere, at any time, as long as you
have access to the internet and your banking information.
(3) Security: EFTs use advanced security measures, such as encryption and multi-
factor authentication, to protect against fraud and unauthorized access.
(4) Cost-effective: EFTs are often less expensive than traditional payment
methods, as they eliminate the need for paper checks and postage.
(5) Accuracy: EFTs are more accurate than paper-based methods, as they
eliminate the risk of errors in handwriting or manual processing.
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Cons:
(1) Technical issues: EFTs may experience technical issues or downtime, which
can disrupt payment processing.
(2) Dependence on technology: EFTs require a reliable internet connection and

a charged device, which can be an issue in areas with poor connectivity or
during power outages.
(3) Fees: Some banks may charge fees for EFT transactions, which can add up over
time.
(4) Fraud risks: While EFTs are generally secure, they can still be vulnerable to
hacking, phishing, and other security risks.
(5) Limited access: EFTs may not be available to everyone, as some individuals
may not have access to the internet or may not be able to afford the fees
associated with EFTs.
In summary, EFTs offer speed, convenience, and security, but they may be limited by
technical issues, dependence on technology, and fees. It's important to weigh the
pros and cons and use EFTs responsibly to avoid financial problems and security risks.
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10) Evolution and Growth of Bangladesh Payment System
The payment system in Bangladesh has evolved significantly over the years, with
the development of new technologies and the expansion of financial services.
Here's a brief overview of the evolution and growth of Bangladesh's payment
system:
1980s - The introduction of paper-based payment instruments such

as checks and demand drafts by banks in Bangladesh.
1990s - The introduction of electronic fund transfer (EFT) system and

Automated Teller Machines (ATMs) by the banking sector.
2000s - The launch of Real-time Gross Settlement (RTGS) system,

which facilitated large-value electronic fund transfers in real-time.
2010s - The introduction of mobile banking services and the launch

of the National Payment Switch Bangladesh (NPSB), which enabled
interconnectivity between various payment channels.
2020s - The development and adoption of digital payment systems,

such as mobile wallets, internet banking, and card-based payments,
due to increased internet and smartphone penetration in the
country.
Additionally, the government of Bangladesh has taken various initiatives to

promote a cashless society and digital payments. In 2011, the Bangladesh Bank
launched the National Financial Inclusion Strategy with the aim of ensuring that
all individuals and businesses in Bangladesh have access to affordable and
convenient financial services. The government has also introduced policies and
regulations to promote digital payments, such as waiving VAT on mobile
banking services and imposing a cash transaction limit to encourage electronic
transactions.
Overall, the payment system in Bangladesh has come a long way in the past few
decades, and with the continued development of new technologies and policies,
it is expected to become more efficient, secure, and inclusive in the future.
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10.1 Payment and Settlement Systems of Bangladesh Bank
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Payment and settlement systems are the means by which funds are
transferred among financial institutions, businesses, and individuals and are
considered to be the critical factor for proper functioning of country's financial
system. With the mandate of Bangladesh Bank Order 1972, Payment Systems
Department (PSD) endeavors for promoting new payments, clearing and
settlement systems to ease financial transactions ensuring circulation of money
in the economy and also enforces new rules regulation to facilitate payment
systems innovation in the country.
Established in 2012, Payment Systems Department’s core objective includes

establishing modern and efficient interbank payments, clearing and settlement
system. In parallel, the department looks after the Law, regulation, licensing
and oversight of the payment systems.
PSD’s of Bangladesh Bank function may be divided into following three

broad categories:
1. Regulation, Policy and Licensing
a. Legal and Regulatory Function
b. Mobile Financial Services
c. Payment Service Provider (PSP) and Payment System Operator (PSO)
d. Regulatory FinTech Facilitation Office (RFFO)
2. Operation
a. Bangladesh Automated Clearing House (BACH)
i. Bangladesh Automated Cheque Processing Systems (BACPS)
ii. Bangladesh Electronic Funds Transfer Network (BEFTN)
b. National Payment Switch Bangladesh (NPSB)
c. Bangladesh Real Time Gross Settlement (BD-RTGS)
3. Payment Systems Oversight
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10.2 Operation of Payment System
(a) Bangladesh Automated Cheque Processing Systems (BACPS)
• Since inception in October, 2010 BACPS is the only state-of-the art

cheque clearing facility.
• It uses the Cheque Imaging and Truncation (CIT) technology for
electronic presentment and payment of paper-based instruments (i.e.,
cheque, pay order, dividend & refund warrants, etc.).
• BACPS operates in a batch processing mode. Transactions received
from the banks during the day are processed and settled at a pre-
fixed time.
• Under BACPS umbrella High Value (HV) Cheque Clearing (Cheque
amounting Tk. 5,00,000 or above) and Regular Value (RV) Cheque
clearing are operated.
• At present HV presentment cutoff time is at 12:00 and the return
cutoff is at 15:00 while for RV clearing presentment cut off time is at
12:30 and return cut off is at 17:00.
❖ Bangladesh Automated Cheque Processing System

(BACPS) V 2.0
❖ Transaction Trend
(b) Bangladesh Electronic Funds Transfer Network (BEFTN)
• Incepted in February 2011, BEFTN was country's first paperless

electronic inter-bank funds transfer system. It facilitates both credit
and debit transactions, as a lead over cheque clearing system.
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• This network can handle credit transfers such as payroll, foreign and
domestic remittances, social security payments, company dividends,
bill payments, corporate payments, government tax payments, social
security payments and person to person payments.
• At the same way it accommodates debit transactions like utility bill

payments, insurance premium payments, Club/Association payments,
EMI payment etc. Most of Govt. salary, social benefits, all social safety
net payments and other government payments are processed through
BEFTN.
- Bangladesh Electronic Funds Transfer Network (BEFTN)
Operating Rules V 2.0
- Transaction Trend
(c) National Payment Switch Bangladesh (NPSB)
• Operational since 2012, NPSB is meant for establishing

interoperability among participating banks for their account and
card-based transactions.
• Currently, it caters interbank Automated Teller Machines (ATM),
Point of Sales (POS) and Internet Banking Fund Transfer (IBFT)
transactions while the Mobile Financial Services interoperability is
under active consideration.
• 53 Banks are now interconnected through NPSB for their ATM
transactions.
• Currently, four types of interbank ATM transaction (i.e. cash

withdrawal, balance enquiry, fund transfer and mini statement)
could be done through NPSB.
• As of October 2021, 53 banks are interoperable for POS

transactions and 30 banks are interconnected for their IBFT
transactions.
• There are different limits for individual and institutional IBFT

transactions. For individual, the maximum value of each
transaction is 3,00,000 taka and the frequency is maximum 10
times a day and not more than 10,00,000 taka per day. For
corporate, limit has been set on each transaction as 5,00,000 taka
and maximum frequency as 20 times a day and 25,00,000 taka per
day.
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• It is mandatory for the participating banks to ensure Two Factor

Authentications (2FA) for any online/e-commerce/inter-
banking/card not present transactions.
• NPSB Dispute Management Procedures

• Transaction Trend
• Card Market Summary
• NPSB Certified Banks for ATM Transactions
• NPSB Certified Banks for POS Transactions
• NPSB Certified Banks for IBFT Transactions
(d) Real Time Gross Settlement System (RTGS)
To facilitate real time settlement of high value time critical payments BB

introduced Bangladesh Real Time Gross Settlement (BD-RTGS) system during
October 2015. It opened a new dimension for the banks and for the
corporate to settle their payments instantly, at the same time individual
customers are also availing this service for settling their large value
transactions.
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As of October 2021, more than 10,810 online branches of the schedules

banks are connected with BD-RTGS system and the number is increasing
gradually.
• RTGS Operating Rule

• Transaction Trend
10.3 Regulation, Policy and Licensing

a) Legal and Regulatory Function
• Proper legal and regulatory framework is important to ensure
smooth functioning of the payment and settlement system.
• The legal basis for Bangladesh bank to promote a safe secure

payment system lies in the Bangladesh Bank Order 1972. Side-by-
side Payment Systems Department issues regulation and publishes
systems rules, which among other defines roles and responsibilities
of the participants of specific payment systems.
• Currently, a draft regarding Payment and Settlement Systems Act

made by Bangladesh Bank is under process at Ministry of Finance.
❖ Bangladesh Payment And Settlement Systems

Regulations (BPSSR), 2014
❖ Regulations On Electronic Fund Transfer, 2014
b) Mobile Financial Services (MFS)
• Bangladesh Bank has introduced efficient off-branch Mobile

Financial Services (MFS) during 2011 in Bangladesh as the country
acquired an omnipresent mobile phone network experienced, large
number of mobile phone users and improved IT infrastructure.
• Within ten years, this exponentially growing Bank-Led model of

MFS has become the largest MFS market in the world.
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Bangladesh Bank permits Cash in, Cash out, Person to Person (P2P),
Person to Business (P2B), Business to Person (B2P), Person to
Government (P2G) and Government to Person (G2P) payment
services through MFS domestically.
• No cross-border money transfer is allowed under this service.

• However, local disbursement of inward foreign remittance comes
through banking channel is permitted.
• Any adult can open MFS account with any provider at an agent
point or bank branch with a photo and legal identification. In this
case, having more than one MFS account by one person with the
same provider is not permitted.
❖ Bangladesh Mobile Financial Services (MFS)

Regulations, 2022
❖ Transaction Trend
❖ List of MFS Providers
• Access To MFS For Women in Bangladesh

o Comprehensive Study on The Female MFS Market In Bangladesh
o Women Agent Acquisition Toolkit
o Women Agent Recruitment Manual
o Women Agent Selection Tool
o Women Agent Training Deck
o Women Agent Training Manual
c) Payment Service Provider (PSP) and Payment System Operator (PSO)
▪ According to "Bangladesh Payment and Settlement Systems

Regulation-2014 (BPSSR-2014)" Payment Systems Department
(PSD) issues license in two broad criteria- Payment Service
Provider (PSP) and Payment System Operator (PSO).
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It gives PSP license to the company who facilitates payment(s)

or payment processes directly to the customers and settling
their transactions through a scheduled bank or financial
institution; for example, E-wallet, Mobile Wallet etc. Besides,
PSD gives PSO license to the company who operates a
settlement system for payment activities between/among
participants of which the principal participant must be a
scheduled bank or financial institution; such as payment
gateway, payment aggregator etc.
• PSD reviews the market demand, business rational, regulatory

requirements, risk management systems, settlement systems,
eligibility criteria and others according to BPSSR-2014 for
considering the application of license of PSP or PSO.
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List of Authorized PSO and PSP:
1. IT Consultants Ltd (PSO)

2. Software Shop Limited (PSO)
3. ShurjoMukhi Ltd (PSO)
4. Portonics Limited (PSO)
5. Walletmix Limited (PSO)
6. Soft Tech Innovation Limited (PSO)
7. iPay Systems Ltd (PSP)
8. D Money Bangladesh Ltd (PSP)
9. Recursion FinTech Ltd (PSP)
10. Green & Red Technologies Ltd (PSP)
11. Progoti Systems Ltd. (PSP)
12. Optimum Solution & Services Limited (PSO)
13. Service Hub Limited (PSO)
d) Regulatory FinTech Facilitation Office (RFFO)
• With the phenomena of technological advancements affecting every

sphere of life, financial services have also been changed by
technological and digital innovations.
• The disruptive innovative technology is making extraordinary impacts

on Finance-in the way of doing business.
• Financial sectors are getting a new dimension with introduction of new

technological and financial solutions designed/offered by a number of
financial entities and technology firms.
• It has been proven that FinTech or digital innovations have become
transformative force in the financial markets.
• FinTech brings efficiency improvements, risk reduction and greater

financial inclusion.
• It becomes imperative to understand the granular aspects of FinTech
and its implications so as to review and reorient appropriately the
regulatory framework and respond to the dynamics of the rapidly
evolving FinTech scenario.
Page # 69
• Realizing these factors, a Regulatory FinTech Facilitation Office (RFFO)

is established in October, 2019.
• This may be considered as a significant primary step towards enabling

more financial sector innovators to enter the market in order to
promote financial services to mass people within affordable price
range. RFFO facilitates interested innovative FinTech ideas to apply for
Pilot project and provide related regulatory assistance to the
participants.
• Interested FinTech participants may contact to RFFO for any kind of

query or support through following email address:
rffo.psd@bb.org.bd
Documents Required to Provide for PILOT Under Regulatory FinTech

Facilitation Office (RFFO)
10.4 Payment Systems Oversight
Payment Systems Oversight is a specialized form of supervision of existing

and planned payment systems which is one of the key functions of all the
central banks around the globe. It promotes the objectives of safety,
efficiency and soundness of payment systems by effective monitoring and
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assessment of payment systems and thereafter, suggesting policy changes.
With the mandate of Bangladesh Bank Order 1972 Bangladesh Bank has
introduced a number of new and digitalized payment platforms and services
which became the vital part of the financial infrastructure of the country.
Effective oversight is the means for stabilizing financial infrastructure by
identifying and well managing payment systems associated risks. Therefore,
Payment Systems Oversight focuses on the following activities:
1. Collects onsite and off-site data from systems and participants

regarding day-to-day operation, financial flow and transaction
pattern, risk exposures, risk management procedures and
practices, back-up and business continuity plan, disruptions and
disputes etc. for monitoring.
2. Checks compliance of systems and participants with applicable

rules and regulations, identifies the gap and comes up with
recommendations with time to time follow up.
3. Analyzes the weakness of systems, participants or schemes and

identifies the areas that need improvements or intervention of
BB.
4. Does trend analysis of systems and participants data and

calculates the market share of each to prioritize the segment for
monitoring.
5. Does and facilitates 'Self-Assessment' of systems and

participants on the basis of regulatory requirements and
International Standard.
Q18. How come Payment System is different from Financial System and
Monetary System?
Ans. The payment system, financial system, and monetary system are distinct but
interconnected concepts in the world of economics and finance.
• The payment system refers to the infrastructure and processes that

enable the transfer of funds between individuals, businesses, and other
entities. Payment systems include methods like cash, checks, credit and
debit cards, wire transfers, and digital payment platforms. The payment
Page # 71
system is an essential part of the economy, allowing for the exchange of

goods and services and facilitating economic transactions.
• The financial system, on the other hand, encompasses a broader range

of institutions, markets, and intermediaries that facilitate the flow of funds
between savers and borrowers. This includes banks, stock exchanges,
insurance companies, mutual funds, and other financial institutions. The
financial system also plays a crucial role in the economy, providing
financing for businesses and individuals and enabling the efficient
allocation of capital.
• The monetary system refers to the set of policies and institutions that
govern the creation, distribution, and management of money in an
economy. This includes central banks, which are responsible for setting
interest rates and regulating the money supply, as well as the various
monetary policies that influence economic growth and stability.
While there is overlap between these three systems, they are distinct and serve
different purposes.
The payment system is primarily concerned with the transfer of funds, the
financial system with the allocation of capital, and the monetary system with the
regulation of the money supply and economic stability.
Q19. Describe the evolution of payment system in Bangladesh.
Ans. The payment system in Bangladesh has undergone significant evolution over
the years, driven by advances in technology and changes in the economic
landscape. Here's a brief overview of the key milestones in the evolution of the
payment system in Bangladesh:
1. Cash-based transactions (pre-1971): Prior to the independence of

Bangladesh in 1971, the payment system was largely cash-based, with
limited formal financial institutions and payment channels.
2. Establishment of formal financial institutions (1971-1980s):

Following independence, the government established several formal
financial institutions, including the Bangladesh Bank (central bank),
commercial banks, and specialized development banks. This led to the
expansion of the payment system, with the introduction of check
payments and other formal payment channels.
Page # 72
3. Introduction of electronic payments (1990s-2000s): In the 1990s,

electronic payment systems were introduced in Bangladesh, including
automated teller machines (ATMs), credit and debit cards, and online
banking. This enabled greater convenience and security in payment
transactions.
4. Launch of mobile financial services (2010s): In the 2010s, mobile

financial services were introduced in Bangladesh, with the launch of
services like bKash, Rocket, and Nagad. These services allow customers
to make payments, transfer funds, and perform other financial
transactions using their mobile phones, even in areas with limited
access to traditional financial services.
5. Development of real-time payment systems (2010s-2020s): In

recent years, Bangladesh has introduced real-time payment systems,
including the Bangladesh Automated Clearing House (BACH), which
enables electronic funds transfer between banks in real-time. The
government has also launched the National Payment Switch
Bangladesh (NPSB), a platform that connects all banks and payment
service providers in the country, allowing for interoperability and
seamless transactions across different payment systems.
Overall, the payment system in Bangladesh has evolved significantly over the years,
with the introduction of new technologies and financial institutions that have
enabled greater convenience, security, and accessibility in payment transactions.
Q20. As a Banker, describe different components of EFT payment.
Ans. As a banker, I can describe the different components of Electronic Funds

Transfer (EFT) payments. EFT is a type of electronic payment that enables the
transfer of funds from one bank account to another. The key components of an
EFT payment include:
1. Originator: The originator is the person or entity that initiates

the EFT payment. This could be a consumer, a business, or a
government agency.
2. Receiver: The receiver is the person or entity that receives the

EFT payment. This could be an individual, a business, or a
government agency.
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3. Financial institutions: EFT payments require the involvement

of financial institutions, including the sender's bank, the
receiver's bank, and any intermediary banks that may be
involved in the transaction.
4. Payment instruction: The payment instruction is the

information that specifies the details of the EFT payment,
including the amount, the account numbers of the sender and
receiver, and any additional information that may be required
to process the payment.
5. Electronic network: EFT payments are processed through an

electronic network, such as the Automated Clearing House
(ACH) network in the United States. The electronic network
facilitates the transmission of payment instructions between
financial institutions.
6. Security protocols: EFT payments require robust security

protocols to protect the integrity and confidentiality of the
transaction. This includes measures such as encryption,
authentication, and authorization to ensure that only
authorized parties are able to access and process the
payment.
7. Settlement process: Finally, the settlement process involves

the transfer of funds from the sender's account to the
receiver's account, through the various financial institutions
and the electronic network. Settlement may occur in real-time,
or it may take several business days, depending on the
specific EFT system being used.
Page # 74
So, we can say that, with direct deposit or electronic funds transfer (EFT), the
general public, government agencies, and business and institutions can pay and
collect money electronically, without having to use paper checks. Direct deposit
(EFT) is safe, secure, efficient, and less expensive than paper check payments and
collections.
Q21. Write Short Notes on: BACH, RTGS, NPS, POS
Ans:
BACH: Bangladesh Automated Clearing House (BACH) is an electronic
payment system in Bangladesh that enables the transfer of funds between
different banks in the country. It is a batch processing system that allows for
the clearing and settlement of high-volume, low-value payments, such as
salary disbursements, utility bill payments, and other recurring transactions.
RTGS: Real-time Gross Settlement (RTGS) is a payment system that

enables the real-time transfer of funds between banks. RTGS payments are
settled on a gross basis, which means that each transaction is processed
individually and immediately, without any netting or batching of payments.
RTGS is typically used for high-value transactions that require immediate
settlement, such as interbank transfers and large corporate payments.
NPS: National Payment Switch (NPS) is a platform that connects all banks
and payment service providers in Bangladesh, allowing for interoperability
and seamless transactions across different payment systems. NPS enables
real-time fund transfers, bill payments, and other financial transactions
between different banks and payment service providers in the country.
POS: Point of Sale (POS) refers to the physical location where a transaction
takes place between a merchant and a customer using a payment card, such
as a credit or debit card. POS terminals are electronic devices that are used
to process card payments at retail locations, restaurants, and other
businesses. POS transactions are typically authorized in real-time, and the
funds are transferred from the customer's account to the merchant's account
through the payment network.
Page # 75

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Banking Professional Examination

Junior Associate of the Institute of Bankers, Bangladesh (JAIBB)

A payment system is a way of transferring money between parties, such as buyers

• Payment is the transfer of money or goods and services in exchange for a

Payment system of Bangladesh has experienced a journey from manual clearing

system to a semi-automated clearing system and finally to a fully automated system;

07) Payment System Concept

07.117A payment system is any system used to settle financial

using bank deposits. Some payment systems also

07.2 Payment System of a company

• The payment system of the company is a secure, reliable and efficient

• The system is designed to process a variety of payment methods, including

• The system is designed to be secure, reliable, and efficient, providing

08) Different payment options

09.1 Cash payments

Here are some pros and cons of cash payment:

Pros of Cash Payment: Cons of Cash Payment:

(4) Instant Settlement: Cash (7) Susceptibility to Counterfeit: Cash

09.2 Payments through Cheques

Payments through cheques refer to the method of making a payment using a

Pros of Payments through Cheques:

Cons of Payments through Cheques:

09.3 Payments through Debit Card

Pros of Payments through Debit Card:

Cons of Payments through Debit Card:

09.4 Payments through Credit Card

(Payment process in the credit card system)

Pro and cons of Payments through Credit Card

What's the difference?

When you use a

09.5 Mobile payments

A mobile payment is a money payment made for a product or service through a

Here are some pros and cons of mobile payments:

(3) Dependence on technology: Mobile payments require a reliable internet

09.6 On-line payments

Here are some pros and cons of online payments:

(1) Convenience: Online payments are convenient because they can be

(3) Security: Online payment systems use advanced security features,

(4) Record-keeping: Online payments provide a digital record of your

(2) Technical issues: Online payment systems may experience technical

(3) Dependence on technology: Online payments require a reliable

(5) Privacy concerns: Some users may be uncomfortable with the

09.7 Electronic fund transfers

EFTs refer to the process of

Here are some pros and cons of electronic fund transfers:

(2) Dependence on technology: EFTs require a reliable internet connection and

10) Evolution and Growth of Bangladesh Payment System

Here's a brief overview of the evolution and growth of Bangladesh's payment

1980s - The introduction of paper-based payment instruments such

1990s - The introduction of electronic fund transfer (EFT) system and

2000s - The launch of Real-time Gross Settlement (RTGS) system,

2010s - The introduction of mobile banking services and the launch

2020s - The development and adoption of digital payment systems,

Additionally, the government of Bangladesh has taken various initiatives to

10.1 Payment and Settlement Systems of Bangladesh Bank

Established in 2012, Payment Systems Department’s core objective includes

PSD’s of Bangladesh Bank function may be divided into following three

10.2 Operation of Payment System

(a) Bangladesh Automated Cheque Processing Systems (BACPS)

• Since inception in October, 2010 BACPS is the only state-of-the art

❖ Bangladesh Automated Cheque Processing System

(b) Bangladesh Electronic Funds Transfer Network (BEFTN)