Law on cards to rein in unlicensed payment gateways

The Bangladesh Bank is now working on enacting a new law to rein in unlicensed payment gateways, such as Foster that allegedly siphoned off online shoppers' advance money that they had kept to themselves as a third party.

The central bank has drafted a law titled "Payment and Settlement Systems Act 2021" to ban services by such errant payment gateways that witnessed huge money flows after escrow, a third-party payment gateway service, had been made compulsory in e-commerce shopping.

As per the draft law, any anomalies committed by payment gateways will be deemed as non-bailable criminal offences. If allegations are proved, the people responsible will have to pay at least Tk50 lakh in fines and suffer five years in jail.

Around Tk1,300 crore might have been siphoned off Bangladesh by Foster – a payment gateway for beleaguered e-shopping platforms such as Evaly, Eorange, Adyan Mart and Qcoom.

But with no law in place at present, the central bank now cannot take action against this errant payment gateway.

Foster, which came into operation in 2011, secured a no objection certificate from the Bangladesh Bank in 2015.

In the meantime, the home ministry has formed an inter-ministerial committee, headed by Additional Commerce Secretary AHM Safiquzzaman, to ensure that no new company can dupe customers.

The committee, comprising representatives from law enforcement and intelligence agencies as well, will also work on finding ways to refund customers their money now stuck either with e-commerce companies or in payment gateways.

Hafizur Rahman, head of the Central Digital Commerce Cell at the commerce ministry, told The Business Standard, "In this way, it will be easier to deal with fraud e-commerce companies."

He also said they have come to know that a large amount of money has remained stuck with Foster and the Bangladesh Bank is formulating necessary rules and regulations to protect the interests of e-commerce customers under the escrow service.

However, Bangladesh Bank officials say customers, who had paid fraud e-commerce companies in advance against products, are not going to get their money back. 

The central bank will direct payment gateways to return money to customers following a High Court directive on how to carry out the process, they add.

Moreover, the Bangladesh Bank has started work on formulating a policy to specify the process of transactions between payment gateways and e-commerce companies now in operation and how to refund buyers.

Khurshid Alam, executive director at the Bangladesh Bank, told TBS that a law will be enacted to reduce risk at the payment system and protect customers' interest through supervision and control.

 According to the draft law, the Bangladesh Bank will be able to take action against all payment gateways operating in the country for violating the law.

Continuation of payment services without having a licence or even after its licence is revoked will be considered an offence, it adds. 

The law also states that a defaulter cannot be a director of such institutions. And, the directors will not be allowed to transfer their shares without the prior approval of the Bangladesh Bank.

Several senior officials at the central bank said the draft law has been sent to the law ministry for vetting. Later after approval from the cabinet, it will be placed in parliament in the form of a bill.

According to the draft law, Bangladesh Bank officials will be able to inspect any office of all institutions involved in the payment system and will take disciplinary action if any irregularities are found.

The central bank can take one or more actions against a payment gateway and its director, chief executive and other officials concerned for violating any provision of the act. 

Refund from payment gateway likely to take time

Businesses of at least eight e-commerce firms such as Evaly, Eorange, Dhamaka, Qcoom and Nirapadbd Shop are apparently shuttered as law enforcers raided the platforms on money laundering, embezzlement and fraud charges.

The Bangladesh Bank will take the High Court's instructions on how the money stuck with the payment gateways could be returned to the buyers.

The money that the buyers have paid for the orders through the escrow service before the companies closed is also stuck in the payment gateways.

The e-commerce firms did not provide information to the payment gateways about how many of these orders were delivered and how many were not.

Therefore, there have been widespread concerns that refunds from the companies under the escrow service might be delayed.

Besides, the Bangladesh Bank has also started formulating a policy on how the buyer will be refunded in escrow service in case of order cancellation. Because, the escrow service circular did not explicitly mention several issues such as the period after order cancelation to qualify for the refund claim, or whether the order will be cancelled only at the request of the buyer.

Discipline has returned to the sector since last June, when the owners of various e-commerce companies, including Evaly, were arrested on charges of embezzlement and money laundering.

Commerce ministry, central bank and e-Commerce Association of Bangladesh officials said though raids on rogue e-commerce players have restored the order in the sector, they are now concerned over the refunds.

E-commerce growth slows down

E-commerce growth that has been booming thanks to Covid-led lockdowns has now slowed down, said entrepreneurs. They say the revealing frauds and other financial offenses have seriously damaged consumer confidence.

Abdul Wahed Tamal, general secretary of e-Cab, told TBS that the e-commerce sector is now running in a disciplined manner.

"Rogue e-commerce players are out of the market as the complaint firms are doing their usual business. The departure, however, affected the overall growth of the e-commerce sector," he noted.

He added that consumer confidence will not improve unless the refund process is made easier.

Hafizur said after the introduction of escrow service, the number of fraud allegations by buyers has decreased.

"There are still some complaints about refunds and getting money back from the gateways. If the issues can be solved immediately, the e-commerce sector will grow faster," he said.

Hafizur said companies that cheated the customers by emulating the Evaly business model have already closed down. With the closures, business scopes for companies that have been doing business with reputation have increased.

AHM Hasinul Quddus Rusho, chief corporate affairs officer of Daraz Bangladesh Limited, told The Business Standard the government measures to restore order in the e-commerce sector is appreciable.

"Even in the volatile market situation, customers did not lose confidence in Daraz. As a result, the adverse situation has not had any significant impact on the overall business of Daraz."

Rusho says the commerce ministry's standard operating procedure for the e-commerce firms and the central bank guidelines would help retrieve consumer confidence.     

"E-commerce is a promising sector. With close monitoring and supportive government measures, it could be one of the key partners of the future Bangladesh economy," he noted.