The fintech industry in Bangladesh has experienced significant growth over the last decade. This growth has transformed the financial landscape by improving accessibility and promoting financial inclusion. As digital platforms continue to evolve and new economic technologies emerge, fintech businesses have become more prominent, reshaping traditional banking and financial services. In this blog, we will explore the rise of fintech businesses in Bangladesh, discuss key players and applicable laws, and provide a balanced analysis of their positive and negative aspects.

Prominent Fintech Stakeholders in Bangladesh:

Bangladesh has witnessed a significant transformation in its financial landscape, largely driven by fintech companies that offer innovative solutions for digital transactions. Below are some of the key players that have been instrumental in this evolution:

 

1. 1. bKash: Launched in 2010, bKash has become the largest mobile financial service (MFS) provider in Bangladesh. It revolutionized the way people conduct money transfers, pay bills, and access microfinance services through mobile technology. With over 50 million registered users, bKash offers a range of services, including person-to-person money transfers, merchant payments, and savings accounts. Its user-friendly interface and extensive agent network have made it a go-to solution for both urban and rural populations, significantly enhancing financial inclusion.

1. 1. Nagad:Nagad operates under the Bangladesh Postal Department and has quickly emerged as a formidable competitor to bKash. Launched in 2019, Nagad focuses on providing fast, low-cost transactions, making it accessible to a wider audience. Its innovative features, such as cash withdrawal from ATMs without a card and an easy account opening process, have attracted millions of users. Nagad is also known for its commitment to transparency and security, which fosters trust among its customers.

1. 1. Upay: Upay is a mobile financial service launched by United Commercial Bank Limited (UCB). It aims to provide secure and efficient digital transactions, positioning itself as a reliable choice for users who prioritize safety in their financial dealings. Upay offers a suite of services, including mobile recharges, utility bill payments, and international remittances. By focusing on financial inclusion, Upay seeks to reach underserved populations, helping them integrate into the digital economy.

1. 1. Shadhin FinTech Solutions: Shadhin FinTech Solutions is a growing player in the fintech space, offering customized payment solutions and microfinance platforms tailored for both businesses and individuals. With a focus on innovation, Shadhin provides services that enhance the efficiency of financial transactions for small and medium enterprises (SMEs). Its platform enables businesses to manage payments seamlessly, driving growth and sustainability in the local economy.

1. 1. Pathao Pay: Pathao Pay is an extension of the popular ride-sharing and logistics platform, Pathao. Initially known for its transportation services, Pathao has diversified into the fintech sector with Pathao Pay, allowing users to make in-app payments for rides, deliveries, and other services. This integration of financial services within an existing app enhances user convenience and encourages a seamless transaction experience. Pathao Pay is part of a broader trend of companies leveraging their existing user base to offer financial services, thereby expanding their ecosystem.

Relevant Laws Governing Fintech Businesses:

Fintech operations in Bangladesh are regulated by various laws and regulations overseen by the Bangladesh Bank and other regulatory bodies. Some key legal instruments include:

1. Bangladesh Bank’s Guidelines on Mobile Financial Services (MFS), 2011:

The Bangladesh Bank issued the MFS guidelines to regulate the activities of mobile financial service providers. This framework outlines the operational guidelines for MFS providers, including compliance requirements for ensuring the safety and security of users’ funds. Key Provisions:

 

• • Customer due diligence (KYC) process is mandatory for all accounts.

• • Limits on transaction amounts and daily caps for MFS users to mitigate financial risks.

2. Payment Systems Act, 2022:

The Payment Systems Act aims to establish a robust regulatory framework for digital payment systems, enhancing the safety, efficiency, and reliability of electronic transactions. It covers regulations for fintech entities involved in digital payment processing. Key Sections:

 

• • Section 6: Establishment of payment systems under the authority of the Bangladesh Bank.

• • Section 9: Mandatory licensing of all digital payment service providers.

• • Section 12: Protection of consumer funds in case of bankruptcy of a payment service provider.

3. Data Protection Act (Draft), 2022:

Although still in draft form, the Data Protection Act is critical for fintech businesses that collect and process user data. This law seeks to regulate businesses’ collection, storage, and use of personal data, including fintech companies. Key Sections:

 

• • Section 5: Consent is required from individuals for collecting personal data.

• • Section 9: Data security protocols must be implemented to prevent unauthorized access.

4. Money Laundering Prevention Act, 2012 (Amended in 2015):

Fintech companies are subject to this Act to prevent money laundering activities and ensure compliance with anti-money laundering (AML) measures. Key Sections:

 

• • Section 7: Mandatory reporting of suspicious transactions to the Bangladesh Financial Intelligence Unit (BFIU).

• • Section 17: Imposition of penalties for entities that fail to comply with AML regulations.

5. Digital Security Act, 2018:

This law aims to prevent cybercrimes and ensure cybersecurity, which is crucial for fintech companies dealing with sensitive financial data and conducting online transactions. Key Sections:

 

• • Section 21: Prohibition of unauthorized access to any computer or digital system.

• • Section 27: Liability for data breaches that result in financial losses for users.

Positive Aspects of Fintech in Bangladesh:

 

1. 1. Financial Inclusion: Fintech businesses like bKash and Nagad have significantly expanded financial inclusion, particularly for rural and unbanked populations. These platforms offer easy access to banking services, enabling people to transfer money, pay bills, and save funds without visiting traditional banks.

1. 1. Convenience and Speed: Fintech platforms provide a seamless user experience with quick transactions, reducing the time and effort needed for financial operations. This convenience has been incredibly beneficial in e-commerce and mobile banking.

1. 1. Innovation and Job Creation: The fintech sector has fostered innovation, leading to the development of new technologies and solutions tailored to the needs of local businesses and consumers. Additionally, it has created employment opportunities in the technology, finance, and customer service sectors.

1. 1. Boost to the Economy: By increasing the velocity of money through fast, digital transactions, fintech businesses contribute to overall economic growth, promoting greater efficiency in the financial system.

Negative Aspects and Challenges:

 

1. 1. Regulatory Challenges: Bangladesh’s fintech industry faces regulatory ambiguity, especially in emerging areas like cryptocurrency, crowdfunding, and peer-to-peer lending. The existing legal framework may need to fully address the complexity of new financial technologies, creating legal uncertainty.

1. 1. Cybersecurity Risks: With the growth of digital transactions, fintech businesses are increasingly exposed to cyber-attacks, data breaches, and online fraud. Inadequate cybersecurity measures can lead to financial losses and erosion of customer trust.

1. 1. Lack of Digital Literacy: A significant portion of Bangladesh’s population remains unfamiliar with digital financial services, limiting the reach of fintech solutions. This is especially true in rural areas where digital literacy is still low.

1. 1. Regulatory Compliance Burdens: While regulations are necessary to maintain order and security, dealing with multiple laws and guidelines can be burdensome for fintech startups. The complex regulatory landscape sometimes hampers innovation and discourages new market entrants.

1. 1. High Costs of Fintech Services: The additional charges associated with fintech services can be prohibitive for many users, particularly those from low-income backgrounds. This cost barrier limits access to essential financial services, undermining the potential benefits of fintech for those who need it most. Addressing this issue is crucial for ensuring that fintech solutions are inclusive and beneficial for all segments of society.

Conclusion:

The fintech industry in Bangladesh is a rapidly growing sector that has the potential to revolutionize the country’s financial system. Despite challenges related to regulatory clarity, cybersecurity, and digital literacy, the benefits of financial inclusion, innovation, and economic growth are undeniable. As laws continue to evolve and adapt to emerging technologies, the fintech landscape in Bangladesh is poised for further expansion and modernization.

Russel and Partners offer comprehensive legal services to fintech companies, assisting with regulatory compliance, data protection, cybersecurity, and navigating the complex legal framework governing the fintech sector in Bangladesh.

For legal advice and consultations on fintech-related matters, please contact us at Russel and Partners.

 

Best Regards,

Jannatul Ferdaush

Associate

Lawyer

LL.B. (Hons), American International University of Bangladesh