Digital banking: revolutionising financial landscape

Bangladesh stands at the precipice of a digital revolution, with the financial sector poised for significant transformation through the rise of digital banking. Driven by a burgeoning tech-savvy population, widespread mobile phone and internet penetration, and supportive regulatory initiatives, the prospect of digital banking is immense, offering a multitude of benefits for both individuals and the economy. With a population of over 170 million, Bangladesh boasts a vibrant cellular telecommunication market, with mobile connectivity penetration exceeding 90 per cent and smartphone penetration reaching close to 50 per cent. This widespread access to technology creates a fertile ground for the adoption of digital banking services. Additionally, the government’s commitment to digitalisation, evident in initiatives like the “Digital Bangladesh” vision and more recent “Smart Bangladesh”, has fostered an enabling environment for the growth of this sector.
Why digital banking is crucial for Bangladesh: The advantages of digital banking are varied. For individuals, it offers convenience and accessibility, enabling them to manage their finances on the go, 24/7. This is particularly beneficial for those residing in rural areas, who often face difficulties with accessing traditional banking services. This reduces the transaction-related costs significantly for the customers as they do not have to spend precious time and money travelling to get a simple banking service. Moreover, digital banking fosters financial inclusion, bringing financial services to the unbanked and under-banked segments of the population.
Currently, the Bangladeshi financial system cannot offer a full-fledged digital user experience to customers.  A conventional bank is burdened with its legacy of old-school mindset, huge cost-structure connected to physical infrastructure, and a culture of bureaucracy. So, even though conventional banks have launched their own digital banking channels, and many of these are quite popular among customers like City Bank’s Citytouch or BRAC Bank’s Astha, they still fall short of offering end-to-end digital experience to customers. For example, banks still require customers to visit their branch for certain account maintenance purposes and ask for physical signatures and hard copy documents for loans and similar services. On the other hand, mobile financial service (MFS) operators cannot offer the full suite of banking services as they have limitations in their licence. For example, an MFS operator cannot directly offer a lending product or long-term deposit product to customers. Now, the newly-proposed digital banks will have the mandate to offer full-fledged banking services while being totally digital.
Digital banking can also act as a catalyst for economic growth. By streamlining financial transactions, it reduces transaction costs and improves efficiency, leading to increased investment and economic activity. Additionally, it promotes financial literacy and encourages savings, contributing to capital formation and long-term economic development of the country. The MFS industry in Bangladesh, led by bKash, Nagad, and Rocket, has already shown the huge social and economic benefits of bringing the unbanked population under a financial umbrella. Digital banking will simply take that initiative one notch ahead with full-fledged banking solutions.
Collaboration is the key to making digital banking successful: The success of digital banking hinges on collaboration between stakeholders. There needs to be a three-way cooperation and collaboration between banks, Fintech companies, and regulatory bodies to make the vision of Smart Bangladesh a reality.
The digital banking landscape in Bangladesh is witnessing a surge in innovation. Fintech startups are emerging with cutting-edge solutions, offering a variety of personalised financial products and services. This trend is further accentuated by the adoption of artificial intelligence (AI) and machine learning (ML) technologies, leading to smarter and more secure banking experiences. Banks need to embrace this innovation and invest more in technology infrastructure to be able to adapt to this cutting-edge technological environment. They need to be more open towards partnership with non-bank financial entities like MFS operators, payment service providers (PSP), payment service operators (PSO), and other Fintech ventures.
Regulatory frameworks also need to be updated to accommodate the evolving digital landscape. There needs to be a clear and consumer-friendly guideline related to data privacy, similar to GDPR in the EU. The Central Bank and ICT ministry also need to be on a common ground regarding use of cloud services and AI-based technology for the financial industry. On top of this, Bangladesh needs to embrace the Open banking concept that has been surging through the global financial industry. Open banking allows banks to share customers’ data (with their consent) with third-party Fintech companies to create customised product offerings. This is a crying need for Bangladesh now as banks and Fintech operating in individual silos cannot bring the desired result.
MFS companies and mobile network operators can also play a crucial role in offering seamless and secure financial services. Bangladesh already has a robust network of MFS and telecom agents all across the country. MFS operators, regulators, and digital banks have to work together to identify a suitable model to utilise this vast network of financially-literate entrepreneurs for offering the most convenience to customers.
Challenges remain: Despite the optimism surrounding digital banking, certain challenges still loom large. Cybersecurity is the most concerning among these challenges. Cybersecurity has two aspects: cyber-attack on technology infrastructure and vishing fraud on customers. Constant cyber-attacks on the banking ecosystem both from within and especially outside the borders is a major headache of security experts. Every financial institution needs to invest heavily on acquiring the latest preventive technologies and also on recruiting and developing skilled human resources to safeguard against cybersecurity threats. Besides this, a good number of unsuspecting customers fall prey to the schemes of digital fraudsters every single day. These vishing fraud incidents take place due to the lack of security awareness and basic financial literacy among the customers. Massive awareness campaigns need to be conducted by the financial service providers as well as the government to put an end to these vishing fraud incidents.
Another major challenge is the digital divide, highlighting the need for bridging the gap in access to technology and internet connectivity. Even though internet and smartphone penetration is increasing, more than half of the population is still out of this digital umbrella. Main reason behind this is the high price of smartphones and mobile internet. Both telecom companies and the government have a role to play in bringing down the price of mobile internet in Bangladesh. Without this, digital banks will not be able to reach the impoverished half of the nation and true financial inclusion will remain a distant dream rather than a reality.
A digital future beckons: The future of digital banking in Bangladesh is brimming with possibilities. With concerted efforts from all stakeholders, Bangladesh can leverage the power of digital technologies to create a more inclusive and prosperous financial future for all its citizens. This journey towards a digital financial ecosystem will not only transform the banking sector but also contribute significantly to the overall socio-economic development of the nation. Simply put, it is not practical to think that the huge population of Bangladesh will come under financial coverage with the traditional brick-and-mortar model of banking. So, the future of finance in Bangladesh is undoubtedly digital, and the time to embrace it is now. With its tech-savvy population, supportive government policies, and a growing ecosystem of innovative Fintech players, Bangladesh is well-positioned to reap the numerous benefits that digital banking has to offer.

Syed Ibrahim Saajid is a techno-commercial professional who leads the digital banking wing of a leading private commercial bank.
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