Digital banks: Good news but what about the concerns ?

Several big names have applied for setting up digital banks in Bangladesh, the first of its kind in the country. These names include four state owned banks -Sonali, Agrani, Janata, and Rupali . Apart from them, e-commerce outfits such as Daraz is an applicant and Bkash and Banglalink are knocking on the door. A surge in digital banking is inevitable.
This is all very exciting but a few industry insiders have raised some questions about the entry of established commercial banks into the sector as well as the security and capacity of the authorities including the Bangladesh Bank to regulate and manage a new sector. The banking sector is not exactly a showcase of quality management.
THE DIGITAL BANK PLAN
Digital banks will operate solely in the virtual realm. This will allow its customers higher access to services using digital devices. This will mean lesser number of people, investment in floor space etc and hence cheaper payment for services hence lower overhead and running cost.
New services would be virtual debit cards facilities and instant personal loans that can be sanctioned almost immediately. A host of other digital services are being promised.
LICENSE REQUIREMENTS
Setting up a digital bank will be less costly than a standard one. As per Bangladesh Bank guidelines, the minimum capital requirement has been set at Tk 1.25 billion while a commercial bank has to fetch Tk 5.0 billion to get the papers done. The minimum shareholding of each sponsor will be Tk 5.0 million (maximum 10% or Tk 125 million).
These digital banks will be run as per the Banking Company Act, says the BB. Guidelines will be finalized soon.
Media reports that applicants have all stated their commitment to the objective of a cashless society as envisioned by the Government. It will also take services to the less or unserved groups particularly in the non-metropolitan areas.
APPLICANTS
The central bank reportedly has received 52 applications from banks and other entities for setting up digital banks. The deadline ended last week. While some are independent applicants, consortiums are also noted. City Bank, Mutual Trust, Eastern, Dutch-Bangla, Trust, Prime, Pubali, NCC, and Midland have joined hands for investing. Bank Asia and Dhaka bank are also active.
Meanwhile bKash and Nagad, are planning to set up digital banks individually. bKash has applied for name clearance in partnership with Brac Bank already. Banglalink had considered joining the cluster but later decided to go alone.
CONCERNS ABOUT ENTRY OF EXISTING COMMERCIAL BANKS
A lot of hype has been built around digital banking but some insiders have also expressed concerns including from within some applicants. They argue that allowing existing commercial banks is not fair and perhaps not ethical. The main arguments are:
• What is stopping traditional commercial banks from giving their clients digital service?
• If they are given permission then " it will be very unfair competition for the newly licensed digital banks since the existing commercial banks are sitting over a huge clientele base with necessary 'KYC' (Know Your Client) data available to them.
• They will not be making substantial value addition to the proposed banking landscape for the 'unbanked' that the Government is trying to create.
The issue is being seen as an unfair advantage for already established banks bringing with them all their problems as well.. These banks are also known for being good performing banks either, they say.
SECURITY, CAPACITY AND CORRUPTION RELATED CONCERNS
The other concern is about digital security. While Bangladesh discusses digital security as a top priority and brands itself accordingly, the many lapses including the latest hacking episode cast serious doubt about security capacity. Nothing has been said by the BB about this relating to the digital banks.
The e-commerce sector has also seen a very high level of scams. While exploding with many players it also has a large dubious bunch of scammers, regularly reported by the media. Given the level of e-supervisory capacity, what new risk areas clients are being pushed into is not stated. Potential higher interest rates will draw many rural clients too.
Finally, the authorities including the Bangladesh Bank have shown little capacity to compensate the victim- clients of financial institutions. The Bangladesh Bank is a non-accountable body which either allows or is unable to regulate financial institutions which defraud their clients.
A good example is People's Leasing and the best example is International Leasing of Haldar. So the protection measures need more elaboration.
It's for these reasons that some concerns are being raised on the new initiative, good as it may sound on paper.

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