Electronic Payment System: Digital Cash, Plastic Card, PSO and PSP.

Md. Shihab Uddin Khan

Associate Professor and
Director (Training and Certification Program), BIBM

E-mail: [email protected]
[email protected]
Phone: 01556354558, 01710991890

Introduction

What is Payment System?

 A payment system consists of a set of instruments, banking procedures and, typically,
inter-bank funds transfer systems that ensure the circulation of money.
 Payment systems responsible for smooth transfer of money. Financial institutions accept,
collect, and process a variety of payment instruments, and participate in clearing and
settlement processes.
 In some cases, financial institutions perform all of these tasks, but increasingly,
independent third parties play an important role in payment systems operation.

Types of Payment System:

 Manual / Paper base Payment System:
 Cash
 Cheque

 Electronic Payment System (EPS):

 E-cash/Digital cash
 Credit Card
 Stored Value (Pre-paid card)
 Debit Card

Another Classification of EPS (As per BB Guideline):

 High Value Payment Systems (>= Taka 1 Lac)
 Real Time Gross Settlement (RTGS) Systems

 Normal Value/Retail Payment Systems

 Cheque Clearing System
 Electronic Funds transfer
 ATM/POS Transaction
 Internet Payments
 Mobile payments

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Definition of EPS:
Electronic Payment is a financial exchange that takes place online between buyers and sellers.
The content of this exchange is usually some form of digital financial instrument (such as
encrypted credit card numbers, electronic cheques or digital cash) that is backed by a bank or an
intermediary, or by a legal tender.

The various factors that have leaded the financial institutions to make use of electronic
payments are:
 Decreasing technology cost: The technology used in the networks is decreasing day by day,
which is evident from the fact that computers are now dirt-cheap and Internet is becoming
free almost everywhere in the world.
 Reduced operational and processing cost: Due to reduced technology cost the processing
cost of various commerce activities becomes very less. A very simple reason to prove this is
the fact that in electronic transactions we save both paper and time.
 Increasing online commerce:
The above two factors have led many institutions to go online and many others are following
them. We began E-Commerce with EDI, this was primarily for large business houses not for the
common man. Many new technologies, innovations have led to use of E-Commerce for the
common man also.

We will now briefly enumerate these innovations based on whom they affected:
 Affecting the consumers: Credit cards, Debit Cards, ATMs (Automated Teller Machines),
Stored value cards, E-Banking.
 Enabling online commerce: Digital Cash, E-Cash, Smart cards (or Electronic Purse) and
encrypted Credit cards.
 Affecting Companies: The payment mechanisms that a bank provides to a company have
changed drastically. The Company can now directly deposit money into its employee’s bank
account. These transfers are done through Automated Transfer Houses.

There are also many problems with the traditional payment systems that are leading to its fade
out. Some of them are enumerated below:
 Lack of Convenience: Traditional payment systems require the consumer to either send
paper cheques by snail-mail or require him/her to physically come over and sign papers
before performing a transaction. This may lead to annoying circumstances sometimes.
 Lack of Security: This is because the consumer has to send all confidential data on a paper,
which is not encrypted, that too by post where it may be read by anyone.
 Lack of Coverage: When we talk in terms of current businesses, they span many countries or
states. These business houses need faster transactions everywhere. This is not possible
without the bank having branch near all of the company’s offices. This statement is self-
explanatory.
 Lack of Eligibility: Not all potential buyers may have a bank account.

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 Lack of support for micro-transactions: Many transactions done on the Internet are of very
low cost though they involve data flow between two entities in two countries. The same if
done on paper may not be feasible at all.

What is Digital Cash?

Digital cash (also known as e-currency, e-money, electronic cash, electronic currency, digital
money, digital currency, cyber currency) refers to money or script which is only exchanged
electronically. Typically, this involves the use of computer networks, the internet and digital
stored value systems. Electronic Funds Transfer (EFT), direct deposit, digital gold currency and
virtual currency are all examples of electronic money. Also, it is a collective term for financial
cryptography and technologies enabling it.
A system that allows a person to pay for goods or services by transmitting a number from one
computer to another. Like the serial numbers on real dollar bills, the digital cash numbers are
unique. Each one is issued by a bank and represents a specified sum of real money. One of the
key features of digital cash is that, like real cash, it is anonymous and reusable. That is, when a
digital cash amount is sent from a buyer to a vendor, there is no way to obtain information about
the buyer. This is one of the key differences between digital cash and credit card systems.
Another key difference is that a digital cash certificate can be reused.

Digital cash transactions are becoming commonplace now. However, there a number of
competing protocols and it is unclear which ones will become dominant. Most digital cash
systems start with a participating bank that issues cash numbers or other unique identifiers that
carry a given value, such as five dollars. To obtain such a certificate, you must have an account
at the bank; when you purchase digital cash certificates, the money is withdrawn from your
account. You transfer the certificate to the vendor to pay for a product or service, and the vendor
deposits the cash number in any participating bank or retransmits it to another vendor. For large
purchases, the vendor can check the validity of a cash number by contacting the issuing bank.

Issues (Benefits and Challenges)

Although electronic money can provide many benefits—such as convenience and privacy,
increased efficiency of transactions, lower transaction fees, and new business opportunities with
the expansion of economic activities on the Internet—there are many potential issues with the
use of e-money. The transfer of digital currencies raises local issues such as how to levy taxes or
the possible ease of money laundering. There are also potential macro-economic effects such as

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exchange rate instabilities and shortage of money supplies (total amount of electronic money
versus the total amount of real money available, basically the possibility that digital cash could
exceed the real cash available).
Another issue is related to computer crime, in which computer criminals may actually alter
computer databases to steal electronic money or by reducing an account's amount of electronic
money. One way to resolve these issues is by implementing cyberspace regulations or laws that
regulate the transactions and watch for signs of fraud or deceit.

Figure-6: Digicash - How

First Generation Digital
Cash Worked?

What is Plastic Money?

 Plastic money is the alternative to the cash or the standard ‘Money'.
 Plastic money consists of plastic cards on which information (about one's bank account, card
holder’s name, expiry date) is encoded, allowing you to make transactions online from
ATMs/e-terminals instead of using cash or cheques.
 Plastic money is the generic term for all types of bank cards, credit cards, debit cards, smart
cards, etc.

Benefits of Plastic Money:

Customers Perspective: Carrying less cash is safer for the customers. In case of Debit Card,
a Personal Identification Number (PIN) ensures secure access to their checking accounts.
The customers won't be limited to cash on hand with the use of the Plastic cards. And they
won't need to remember to carry cheques / cash. Customers speed through checkout lines
faster with their Plastic cards. There is less change to be made and no cheques to write and
approve.
Merchants Perspective: Whether there is a new business or an established enterprise, card
acceptance will likely have a big impact on the bottom line. Here are some of the benefits
of card acceptance by the Merchants:
Increased Sales: Consumers spend more when they're not constrained by cash on hand. Also,
customers may visit the merchants store more often.

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Customer Satisfaction: The customers will appreciate the fact that the merchants allow them
the flexibility to pay the way they want to pay- including by credit or debit card. Happier
customers are more loyal customers.
Speed of Checkout: Checkout with rapid electronic payment will bring speed to the
customers. No more counting change or waiting is required while customers write cheques.
Improved Efficiency: Card transactions today are conducted electronically. These paperless
payments can save time and money by minimizing cash handling and payment reconciliation,
giving more time to do more important things- like managing and growing business.
Safety: With lower volumes of cash, Merchants are less vulnerable to theft and pilfering.
Currency Conversion: Electronic payments through most of the branded Plastic money
are settled in the currency in which the merchant sells his goods and services, regardless
of where the cardholder is from.
Safer than Cash or Checks: Because transactions are 100% online, debit card reduces risk of
bounced cheques and disputes.
Reduced processing & collection cost: When customers use their Debit/Credit cards in
ATM instead of using at POS terminals or presentment of cheques, the Merchant's
bill/cheque processing and collection costs are reduced.

Benefits of Issuer / Acquirer:

• Interest Income (60%)
• Annual Card Fee (14%)
• Late Payment Charges (1%)
• Foreign Exchange Income (1%)
• Cash Withdrawal Fee (2%)
• Interchange Fee/Income (17%)
[Paid by Acquirer/Merchant’s bank to Issuer/Card holder’s bank]
• Others Income (Merchant’s service charge paid to Acquirer etc.)- (5%)

** In POS terminal services, merchant pays 1.5% to 3% charges per transaction (payment for
each shopping/purchase) to the card issuer.
** An issuer (Bank) of debit cards get the benefits of significant increases in money deposit
(Increase number of depositors).

Types of Plastic Money:

There are many varieties of plastic money, as listed below:
 According to Payment Service /Amount Limit- Credit Card, Debit Card, Pre-Paid/Store
Value card, Charge Card, ATM card etc.
 According to ownership – Branded card (VISA, AMEX, etc.) and Proprietary Card
(DBBL Nexus etc).
 Plastic Money can also be classified by payment systems or card associations.

The most famous payment systems are VISA, MasterCard and American Express (AMEX). One
card can be supported and serviced by only one payment system. Others are Euro Card, Diners
Club (DC), Novus, Mondex Smart Card, JCB (Dominate in Japan), UnionPay (Dominate in
China) etc.

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Some payment systems can emit only cards of some types. For example, American Express and
Diners Club emit credit cards only, and others may emit only debit cards. World famous leaders
such as VISA and MasterCard emit and support both types of cards.
It should be pointed out that credit cards of different systems are divided into classes. VISA has two
main classes: Classic and Gold. MasterCard has Standard and Gold classes and American Express
has Mass and Gold cards.

 Card Types based on Technology: Magnetic Strip Card and Chip/Microprocessor

Card/Smart Card
Technology related to Plastic Card:
Plastic card is a plate with standard dimensions (85.6 mm. x 53.9 mm. x 0.76 mm.) produced
from special, mechanic- and thermo-resistant type of plastic used to store information.
Magnetic Strip and Micro Chip: As electronic data media, the cards are divided into
magnetic strip cards and integrated chip (microprocessor) cards. The first ones are called
magnetic cards, the other ones are smart cards, or chip cards.
Benefits of Chip Card:
 Higher Memory / Storage Capacity (100 times higher than magnetic-strip card)
 More Secured (Support Encryption/PKI)

 More Reliable and Durability

 Biometric Security Information can be stored

 Less vulnerable to fraud

 PIN is not required

Global Card Market Status:

 As of December 31, 2017, there were 20.48 billion credit, debit, and prepaid cards in
circulation worldwide including global general-purpose cards—Visa, UnionPay,
Mastercard, Maestro, JCB, Discover/Diners Club, and American Express—and more
than 60 domestic-only general-purpose brands in over 60 countries.
 Purchase Transactions on Global Cards in 2017: The global brand general purpose cards
—Visa, UnionPay, Mastercard, JCB, Diners Club/Discover, and American Express—
generated 295.65 billion purchase transactions for goods and services in 2017, up 18.0%.

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 Published Date: Statista, J
12, 2022

Purchase Transactions on Global Cards: [Source: http://www.nilsonreport.com]

Payment Card Volume Topped $40 Trillion Worldwide in 2022

May 24, 2023 [Source: The Nilson Report]
SANTA BARBARA, Calif., May 24, 2023 (GLOBE NEWSWIRE) -- New data from the Nilson
Report shows that purchases of goods and services tied to credit, debit and prepaid cards
combined with credit card cash advances and debit card withdrawals reached $40.645 trillion in
2022. This was a 4.4% increase over 2021. For the first time in the history of the global payment
card industry total volume exceeded $40 trillion.
Total volume was generated by cards carrying the brands of Visa, UnionPay, Mastercard,
American Express, JCB and Diners Club/Discover. These are the networks with global merchant

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and ATM acceptance locations. Collectively, global network cards generated 624.86 billion
transactions worldwide to purchase goods and services in 2022, up 7.5% over 2021.
“Transactions on global card networks grew in 2022 and opportunities exist for continued
growth in all world regions over the next five years," said David Robertson, Publisher of the
Nilson Report.

Present Status of Card Services in Bangladesh:

 Both Magnetic card and Chip base cards are being used in Bangladesh
 Credit, Debit and Pre-Paid cards are being used.

 VISA, Master, AMEX, UnionPay, Diners Club, and JCB are providing card services.
 As of November 2022, banks have issued 3.49 crore cards, including 2.94 crore
debit cards and 20.87 lakh credit cards. Card users transacted over Tk 39,000 crore
in November, according to Bangladesh Bank data.

ATM, POS and e-Card Market Status in BD

https://www.bb.org.bd/fnansys/paymentsys/natpayswitch.php

VISA Credit Card Types used in POS & ATM -

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 - Normal Classic (Use local currency, BDT & Lower limit)
- Normal Gold (Use local currency, BDT & Higher limit)
- Dual Currency Classic (Use BDT & US Dollar, Lower Limit)
- Dual Currency Gold (Use BDT & US Dollar, Higher Limit)

 VISA Prepaid (Prepaid Card – Local)

 VISA Prepaid (Prepaid Card – International)

 VISA Prepaid (Prepaid Card – Dual)

 Souvenir Card (Gift Card – Local)

 VISA Debit Card (Classic, Silver and Gold)

 VISA Credit Card – (Classic, Silver, Gold)

 VISA Credit Card – (Local, International)

 VISA Credit Card – Local Currency

 VISA Credit Card – Dual Currency

 Debit Card with Credit Facility

 Credit card service type-
- Online (Currently Used)
- Offline (Currently not used)
 Credit facility in Debit cards -
- Gold (Credit limit is Tk. 20 lacs)
- Silver (Credit limit is Tk. 50 thousands)
- Classic (No credit limit)
Example of Some Pre-Paid Card Service in Bangladesh:
 NBL Power Card (VISA Card)
 EBL LifeStyle Card (For Students)
 EBL Travel Card (VISA Single Currency Card)
 EBL Hajj Card/ Smart Remit Card
 EBL Corporate Express/Payroll Card
 IFIC Travel Card (VISA Dual Currency Card)

Standard features of a plastic card

Figure-1: A diagram showing the front side of a typical credit/debit card:

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Following are the different parts:
(1) is the bank logo.
(2) is the EMV chip (commonly referred to as 'Chip And Pin')
(3) is the Hologram
(4) is the 16 digit card number
(5) is the logo of the card type
(6) is the expiry date
(7) is the name of the cardholder
* EMV – Euro pay, MasterCard and VISA

Figure-2: A diagram showing the reverse side of a typical credit/debit card:

Following are the different parts:

(1) is the magnetic stripe.
(2) is the signature strip
(3) is the CVC2/CSC/CVV code

Standards of Card Numbering:

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Operational Diagrams of EPSs:

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Credit Card Payment Cycle for B2C commerce:

Figure: Process of Online

Payment by Credit Cards

PSP ~ OPGSP:
A payment service provider (PSP) offers shops online services for accepting electronic
payments by a variety of payment methods including credit card, bank-based payments such as
direct debit, bank transfer, and real-time bank transfer based on online banking. Typically, they
use a software as a service model and form a single payment gateway for their clients
(merchants) to multiple payment methods.
Typically, a PSP can connect to multiple acquiring banks, card, and payment networks. In many
cases, the PSP will fully manage these technical connections, relationships with the external
network, and bank accounts. This makes the merchant less dependent on financial institutions
and free from the task of establishing these connections directly, especially when operating
internationally. Furthermore, by negotiating bulk deals they can often offer cheaper fees.
Furthermore, a full-service PSP can offer risk management services for card and bank-based
payments, transaction payment matching, reporting, fund remittance and fraud protection in
addition to multi-currency functionality and services. Some PSPs provide services to process
other next generation methods (payment systems) including cash payments, wallets, prepaid
cards or vouchers, and even paper or e-check processing.
A PSP is thus a much broader term than a payment gateway which is how the payment card
industry refers to them.
PSP fees are typically levied in one of two ways: as a percentage of each transaction or a fixed
cost per transaction.
Source: https://en.wikipedia.org/wiki/Payment_service_provider

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Current Status of some PSO/PSP/OPGSPs in Bangladesh:
Name of Company Name Agreement with
Payment Instruments Support
OPGSP and Web Address e-merchants/Services
shurjoPay Cards: Visa, MasterCard, DBBL Shujomukhi Ltd. WASA, Samsung, Symphony, Teletalk,
Nexus, Q-cash. I-banking: IBBL, GP, Airtel, BD Army, Robi,
Brac, DBBL shurjopay.com.bd/ BanglaLink, Biman BD (Balaka),
M-banking: IBBL Mcash, , bKash paypoint.shurjorajjo.co Qubee load, Kaspersky Lic Renewal
Mobile Wallet, DBBL Mobile m.bd fee, etc.
Wallet
sslcommerz Cards: Visa, MasterCard, DBBL Software Shop Ltd. Diamond World, Mina bazar, bdjobs,
Nexus, fastcash, Q-cash. I- sslcommerz.com.bd ekhoni.com, ajkerdeal.com, haatbazaar,
banking: IBBL, Brac, Bank Asia, Utshobbd.com, Priyoshop.com,
MTB, City touch. M-banking: aponzone.com, Square Hospital,
IBBL Mcash, , bKash Mobile Dhakamela.com, etc.
Wallet, DBBL Mobile Wallet,
Mycash
Payza Payza payment solution/tool Bank Asia Ltd. having Bikroy.com, ekhoni.com, clickbd,
agreement with rokomary.com, Bangladesh brand,
AlertPay Fortuna BD etc.
payza.com/bangladesh/
DBBL MasterCard, Visa and DBBL Dutch-Bangla Bank Currently there are 193 merchants or
Nexus Nexus card Ltd. MSP (Merchant Service Provider)
Payment dutchbanglabank.com registered with DBBL Nexus Payment
Gateway Gateway and this is increasing day by
day.
EasyPay Cards: Visa, MasterCard, DBBL The Codero Limited aponshop.com, biponee.com, esho.com,
Way Nexus, Amex card, Discover, easypayway.com Hotel Pacific Dhaka, Codero Travel,
JCB, Q-cash. I-banking: IBBL. Hotel The Cox Today,
M-banking: IBBL Mcash, , bKash HotelsBDonline.com, etc.
Mobile Wallet
PaymentBD MasterCard, Visa Card and Paypal PaymentBD.com Online payment for e-shopping
bKash Mobile Wallet
paypalbd.com/
bKash bKash mobile account Brac Bank Ltd. Cash In, Cash Out, Fund transfer,
mobile Mobile Airtime Charges
wallet www.bkash.com/

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PSP vs. PSO in Bangladesh

(Ref. BB Website: https://www.bb.org.bd/en/index.php/financialactivity/paysystems)

3.0 Payment System Operator (PSO) and Payment Service Provider (PSP)

[Ref. Circular of BB]

1.0 Introduction

The Board of Directors of Bangladesh Bank has issued Bangladesh Payment and Settlement
Systems Regulations-2014 (BPSSR 2014) with a view to promoting, regulating and ensuring
secured and efficient payment systems in Bangladesh. In accordance with the paragraph 2 and 3
of section 5.3 of Bangladesh Payment and Settlement Systems Regulations-2014, this ‘Approval
Procedure of Payment System Operator (PSO)/Payment Service Provider (PSP)’ has been
issued.

3.1 Payment System Operator (PSO):

According to BPSSR 2014, ‘Payment System Operator (PSO) refers to an entity licensed by the
Bangladesh Bank for operating a settlement system for payment activities between/among

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participants of which the principal participant must be a scheduled bank maintaining accounts
with the Bangladesh Bank for meeting Cash Reserve Requirements.’

In line with the definition, a PSO shall have the following characteristics:

a) PSO shall be licensed by Bangladesh Bank;

b) PSO shall provide the payment services as approved in its license;
c) PSO shall not issue e-money or payment instrument in any form.
d) Settlement of transactions shall be done through scheduled commercial bank.

3.2 Payment Service Provider (PSP): According to BPSSR 2014, ‘Payment Service

Provider (PSP) refers to an entity licensed and approved by the Bangladesh Bank that provides
payment service(s) to its participants or to a payment system for the purpose of facilitating
payment(s) or payment processes and settling their transactions through a scheduled bank
maintaining accounts with the Bangladesh Bank for meeting Cash Reserve Requirements.’

In line with the definition, a PSP shall have the following characteristics:

a) PSP shall be licensed by Bangladesh Bank;

b) PSP shall provide the payment services as approved in its license;
c) PSP may issue e-money or payment instrument under terms and conditions of its license and
subsequent rules and regulation of Bangladesh Bank;
d) PSP shall maintain ‘Trust Cum Settlement Account’ with scheduled commercial bank.

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).

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.

List of Authorized PSO and PSP:

1. IT Consultants Ltd (PSO)

2. Software Shop Limited (PSO)
3. ShurjoMukhi Ltd (PSO)
4. Portonics Limited (PSO)

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5. Walletmix Limited (PSO)
6. Soft Tech Innovation Limited (PSO)
7. Optimum Solution & Services Limited (PSO)
8. Service Hub Limited (PSO)
9. Fingerprint Information Technology Limited (PSO)
10. DGepay Services Limited (PSO)

11. ABG Technologies Limited (PSP)

12. Digital payments Limited (PSP)
13. Sheba Fintech Limited (PSP)
14. iPay Systems Ltd (PSP)
15. D Money Bangladesh Ltd (PSP)
16. Recursion FinTech Ltd (PSP)
17. Green & Red Technologies Ltd (PSP)
18. Progoti Systems Ltd. (PSP)

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