Digital identity, cashless economy and the dream of digital Bangladesh
A study showed that if card usage increased by 1%, GDP growth in developing countries would increase by 0.02% and in developed countries by 0.04%
Are we really moving towards a digital Bangladesh? Is our economy really moving towards a cashless one?
The answer lies in looking at the country's digital financial services activities.
The first Bangladesh Fintech Award was held in November, 2021. Twenty-six innovations were awarded in 11 categories.
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The innovations are: cashless remittance, digital ecosystem, agent recruitment solution, payment digitisation and gateway, bill service, multiple wallets in one account, digital lending, monthly savings through MFS platform etc.
These innovations are playing a leading role in the rapid digitisation of financial services in Bangladesh and will continue to do so in the future.
Identification is required to get government services and different types of private services, including financial or non-financial services, and to participate in the social and political system. We use different types of credentials, such as passports, ID cards, driving licence and birth certificates, etc. which are not part of our digital identity.
Digital identity not only enriches existing services but also opens the door to new innovations. These identities have led to the development of the digital financial services sector and people are gradually reducing their use of cash as the country's economy gradually moves towards a cashless economy.
Digital identity has thus become a vital factor in rapidly digitising our country's digital financial services sector. The national digital identity system is now popular in several countries. It has different names such as Australia's MyGov/MyGovID, China's Resident Identity Card, Estonia's Identity Card, India's Aadhaar, Italy's SPID, Singapore's SingPass and CorpPass, UK's GOV.UK Verification, USA's Social Security numbers (SSN).
In Germany, online ID cards are available now and Ukraine recently launched online ID cards. On June 3, 2021, the European Commission proposed a framework for a European digital identity for all Europeans. This digital identity will be available to citizens, residents, and businesses within the EU and they will get all private and public services.
As digital identity ensures security, privacy, and convenience, it is increasingly creating opportunities for people and businesses to participate in the digital economy. Digital identity not only helps in accessing digital services but also ensures that the customer's financial transactions and funds are not linked to criminal or terrorist activities.
In early 2020, the Financial Action Task Force (FATF) developed a guide on digital identity that will help government institutions, financial institutions and other regulated entities determine whether a digital identity (ID) is appropriate for use for customer due diligence (CDD).
Digital ID assurance frameworks and standards provide a risk-mitigation framework. These frameworks and standards will help the private sector and governments to determine the level of confidence (or assurance) a digital ID system provides.
An estimated 60% of global GDP will be digitised by 2022. So according to the Financial Action Task Force, in this digital age, there is a huge demand from the public and private sectors to be able to identify people with confidence.
According to the 2017 Global Findex Survey, there are 1.7 billion unbanked adults worldwide and 26% of unbanked individuals citing lack of official identity documentation as the primary barrier to obtaining financial services. So developing countries need a digital ID for financial inclusion.
Cash dependence will decrease when people start getting all kinds of services using digital identity.
In 2019, Bangladesh Bank calculated the annual cost of cash dependencies based on a survey by McKinsey & Company, a US-based management consulting firm, published a report entitled "Reducing the Cash Transactions". The report states that as a result of this cash dependence, the country has to spend Tk9,000 crore annually and the maintenance cost of printed money is about 0.50% of the country's GDP. According to the report, shops and banks have to bear 33% of the cost to use cash, followed by corporations at 13%, government at 10% and individuals at 6%.
The report further states that only 6% of the total transactions are handled electronically. The US credit rating agency Moody's Investors Service conducted an analysis of card usage in 70 countries, showing that if card usage increased by 1%, GDP growth in developing countries would increase by 0.02% and in developed countries by 0.04%.
So let us see the amount of cashless transactions in our country. Mobile Financial Services has the highest number of account holders. In November last year, the number of registered MFS users reached 109.65 million, a number which has grown more than 162% since 2019.
The number of monthly MFS transactions was 323.75 million in November. The number of card users has also increased this year. As of last November, the number of debit cards is 25 million and the number of credit cards is now more than 1.84 million.
Transactions on debit and credit cards also increased to Tk23,179 crore and Tk2,092 crore respectively. As per last November's data, transactions in ATMs, CRMs, POS and e-commerce were Tk19,963 crore, Tk2,978 crore, Tk1,956 crore and Tk800 crore respectively.
In addition to receiving various services through digital identity, it can play a special role in generating tax revenue. A study by The Centre for Studies in Economics and Finance (CSEF), a research institute in Italy, found that tax evasion has a negative relationship with cashless transactions.
In other words, cashless transactions help reduce tax evasion. So if cash transactions could be reduced to zero, it might be possible to meet our tax revenue collection targets. Now let us gather some idea about the amount of tax evasion in Bangladesh.
Last November, the Tax Justice Network (the international forum against tax evasion) published a report on global tax justice entitled "The State of Tax Justice-2021". In the report, the estimation of Bangladesh shows that taxpayers of various multinational companies and individuals are evading taxes of Tk1,235 crore annually from Bangladesh by transferring profits and assets.
With this money, it would have been possible to provide 5.30% of the people of the country with two doses of vaccine effortlessly. The country's corporations are responsible for 82% of the tax evasion and the remaining 18% are being evaded by wealthy individuals who invest in various offshore companies. Last year's estimates showed that the tax evasion amounted to the annual salary of 3,92,398 nurses.
The Swedes have proven that all types of transactions are possible without cash. Sweden, the first European country to accept banknotes in 1681, has announced that it will transform itself into the world's first cashless economy by March 2023. At present, 56% of payments are made by card while only 6% is in cash.
Being cashless will not only reduce tax evasion but also other financial crimes like money laundering. As well as being a business risk, the amount of time and expense involved in saving and using cash will be reduced. And all these services and facilities can be found through digital identity.
Above all, the government will be able to better track the movement of money through records of financial transactions and will be able to detect illegal transactions.
ASM Ahsan Habib is Principal Officer of Uttara Bank Ltd. Email: [email protected]
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
