Credit card restrictions lead to crippling effect

Following the sudden restrictions imposed by the Bangladesh Bank on using international credit cards, commercial banks and IT companies are going to meet the central bank on Monday to find a way out of this situation.

The newly introduced restrictions have complicated digital transactions and purchases, leading to massive concern among card users.

On November 14, the Bangladesh Bank issued a circular introducing Online Transaction Authorisation Form (OTAF) for customers, which affects every foreign payment made through international cards. 

International credit cardholders will have to submit the form to their banks mentioning their name, card number, beneficiary name, amount of foreign currency and details of products and services to be purchased, according to the circular. 

The banks will then activate the card after due diligence and the foreign payment option will be deactivated immediately after the transaction is completed.

Banks will have to verify executed online transactions by checking them against the declaration in the OTAF and satisfy themselves regarding payment of applicable VAT, tax and duty for online purchase of goods and services from abroad using international cards.

The move came after the discovery of some cardholders using their international credit cards to purchase shares abroad. Such capital transfer is illegal under the existing regulations.

Sources said some people also were also using cards for online gambling as well.

However, instead of taking proper technological measures, such as restricting the misuse of cards through introduction of purpose specific codes, the central bank directed that all international online transactions must be first permitted through the OTAF. 

Earlier on Monday, a representative team from different private banks met with senior central bank officials, requesting them to reconsider the restriction on using credit cards for foreign transactions. 

Representatives from the Bangladesh Association of Software and Information Services (BASIS) also met the Bangladesh Bank Deputy Governor Ahmed Jamal on Wednesday, requesting him to resolve the issue. 

The central bank will meet with 11 banks on November 25 at its headquarters to discuss the matter. 

Banks have not implemented the new circular as yet.

"It will create extra obstacles for card users to make online payments," said BASIS President Syed Almas Kabir, adding that the move is detrimental to the growth of e-commerce.

He said there is no need to introduce an extra step like the OTAF to prevent use of cards on gambling or stock market sites. This can be done quite easily by putting some codes and blocking those gateways. 

"We have proposed the introduction of a separate credit line for digital marketing. It will encourage users to make payments using the proper channel," Almas added.

He hoped the issue would be resolved at the meeting next Monday. 

"The Bangladesh Bank move will obstruct digital transactions. The system that the central bank has suggested is complex and unrealistic. It will completely disrupt digital transactions and make online digital transactions untraceable," said Syed Mohammad Kamal, country manager for Bangladesh at Mastercard.

The head of credit cards at a local bank termed the proposition "absurd," adding, "Nowhere in the world are such strange conditions applied. It shows the central bank is not keeping up with the times."

Although the central bank imposed the restriction to curb illegitimate transactions, it will cause suffering for customers by slowing the payment process, said a senior executive of a private bank. 

The restriction will encourage hundi transaction, he said, adding that people who use YouTube or other e-commerce sites to boost their business are already using foreign cards.  

The bank official said customers will have to submit the form even for a one-dollar transaction. If a customer needs 10 transactions in a day, he or she will have to submit OTAFs for every transaction. 

Currently, a client needs a few minutes to pay for foreign transactions. They just make a call to the respective bank for activating the foreign transaction option before the payment. 

But, if OTAF is implemented, it can take several hours to complete the process. 

Moreover, it is not possible for banks to provide the service in every case. If a customer needs to book a hotel or purchase a book at midnight, it will not be possible to reach a bank at that hour, he added. 

He pointed out that banks were asked to monitor every OTAF, which is difficult as huge numbers of transactions take place every month. 

Referring to his own bank, he said the number of foreign transactions per month is about 1.5 lakhs.

Banks are also pro-actively restricting illegitimate transactions upon noticing such incidents.

For instance, recently, some banks restricted using credit cards for Uber services as the ride sharing company was found settling local transactions using foreign currencies. 

Currently, there are 1.5 million international cardholders in Bangladesh. The value of e-commerce foreign transactions is around Tk700 crore to Tk1,000 crore annually, according to bankers. 

In 2009, the central bank began permitting online transactions. In 2013, it permitted the purchase and sale of goods and services online using international credit cards. 

Later in 2015, the Bangladesh Bank raised the foreign exchange quota for global private travellers to $12,000 a year for an adult, from the previous limit of $5,000.