Role of digital banking in furthering financial inclusion

Bangladesh has recently emerged as a curious case of digital innovation in this global spanning network of communication and trade. The country reached the lower middle income country status in 2015, and has showcased the potential of combating rural poverty through inclusive digital financial services.  We have seen such inclusive schemes at play in the operation and popularity of mobile money transaction services from private companies such as bKash and Dutch-Bangla Bank Mobile Banking in a context where the microfinance system is already prevailing.
This has proved to be an effective weapon to eliminate poverty and secure the sustainable development goals (SDGs) while the country advances towards Vision 2021 - lifting millions of Bangladeshis out of poverty. Innovation and digitization will surely set Bangladesh firmly on the path to becoming a middle-income country. Although ambitious, it is exactly what both the government and private sector are working towards.
However, despite the popularity of the non-traditional means of banking; the progress seems to the stalled up to a certain point of adoption. A preliminary assessment by the World Bank (WB) found out that overwhelming proportion of the population still remains unbanked, and records further show that poor farmers living in remote villages are the most deprived. Thus, the infusion of modern day e-banking and mobile banking platforms are catering to a niche market, despite  having a booming mobile banking sector, with almost 50 million clients and a Tk 100 billion turnover per month.
Leveraging digital technology for financial inclusion: Financial inclusion means that appropriate financial services and products - including savings, payments, credit, and insurance -are readily available to adults of all income groups, at a cost affordable to the customer and sustainable for the provider, and provided in a responsible manner. The benefits of financial inclusion are wide-ranging: it helps people better manage their lives, smooth their cash flows, overcome income shocks, and invest in their skills, health, or new businesses.
With the prospect of reaching billions of new customers, banks and nonbanks have begun to offer digital financial services for financially excluded and underserved populations, building on the approaches that have been used for years to improve access channels for those already served by banks and other financial institutions. The benefits of this development include economic growth and stability, both for the customers and for the economy as a whole.
However in order to disseminate appropriate digital banking framework; three categories of policy implications are necessary:
* Removing barriers to financial access and inclusion
* Designing policy incentives to enhance inclusion, e.g. tax incentives
* Mitigating risks, such as fraud and mis-selling of inappropriate products, data security, and technical vulnerabilities around data sharing.
On another scenario, in order to leverage digital banking for financial inclusion four developments are particularly relevant:
Disaggregation of the Value Chain: New players, including non-banks and non-MNOs (mobile network operators), increasingly offer financial products and services directly to customers or offer services such as data analytics, credit scoring, and payment mechanisms to financial service providers.
Opening of Platforms and Application Programming Interfaces (APIs): APIs enable new applications to be built on top of pre-existing products, thereby capitalizing on the product's existing customer base. Open platforms and open APIs, which are still relatively rare, hold the potential to facilitate access to a broad range of products and services, and thus enhance financial inclusion.
Use of Alternative Information: Digitally collected data, including e-commerce and mobile transaction histories, can complement or substitute traditional methods of client identification and credit risk assessment. Biometric data, such as fingerprints and iris scans, allows providers to meet due diligence requirements for customers with insufficient traditional forms of identification.
Customization: Better data collection and analytics inform more accurate customer segmentation and human-centered product design, such as clearer user interfaces or targeted alerts and notices to consumers.
These developments in technology has helped banks and non-banks to bring about new dimensions of digital banking interface in today's fast moving world.However, the use of digital financial services by formerly excluded customers brings not only benefits but also risks, due in part to the characteristics of a typical poor customer (inexperienced with formal financial services and unfamiliar with consumer rights). Some of the risks are new while others, although well known, may take on different dimensions in the financial inclusion context.
Ways to move forward:
Case for Bangladesh
In order to facilitating  financial inclusion to be an effective phenomenon, prevailing top-down mind set, as far as the banking service is concerned, needs to be overhauled and transformed into a bottom-up approach that appreciates the perception of the poor and their needs of financial services.
Concepts like savings, loans and insurance have little meaning to rural Bangladeshis. Instead what might matter to them are tools that safeguard their families from the economic and natural shocks through which they could 'pay & receive,' 'borrow & repay,' and 'store & retrieve' money.
Thus conventional concepts and products must be broken down to their basic functions that convey what they truly mean - safeguarding/storing/growing their money (savings & insurance) and spending/borrowing/investing money (loans) and so on.Therefore, moving away from the conventions and exploiting the full potential of digital technology is imperative for digital financial inclusion.
Experts have to work towards a simple and affordable financial tool which acts as a cushion during times of urgent need. This tool should keep the family from having to borrow heavily during crises. It should prevent their plunge into further debt and in the long run contribute towards lifting them out of poverty.
The branch-based banking system fails at inclusion since rural people deal mostly in cash. But the cost of these cash transactions will have to be passed on to the customers, meaning that they would end up having high service charges to cover the overhead of rural branches of banks. Difficult as it is, to bring the poor illiterate rural farmer into the fold of a formal financial system, a high service charge would make it next to impossible.
Digital tools towards the same goals are accepted to be far more effective for the rural populace. Towards that end, electronic cash cards, agent banking, mobile phones and other digital means are opening up the possibility to connect rural households with reliable financial services and tools.
However, as critical as it is to increase the availability of digital bank accounts, availability does not always equal adoption. For true success in financial inclusion, we need to establish an environment where, for example, it doesn't make sense for people to cash out their digital wages as soon as they are received. We need merchants and services that accept digital payments. Digital money has to be a convenient and commonly supported way of buying goods, paying school fees, sending money to family members, and performing the other transactions central to the lives of poor people. But it can be done, and we're excited to see Bangladesh joining this movement.
Nevertheless, all in all, from microfinance to mobile money, Bangladesh has proven time and again that the right services, tailored to the legion of poor and eager customers, can become part of a new way of life.
The writer is working as an Associate Manager in one of the leading local Banks of Bangladesh. She can be reached at
gultekin060992@hotmail.com.