In the context of most developing countries, financial access and inclusion is a critical area to address. According to the World Bank's recent report, globally 50 per cent adult population (about 2.5 billion) does not have any transaction with formal sector such as banks or financial institutions (FIs)
There is wide dispersion of financial inclusion in the world, like in Turkmenistan with only 1.0 per cent of the adult population having financial access as against 99 per cent in Denmark. In developed countries, 89 per cent adults have formal accounts in banks whereas 24 per cent in developing countries maintain accounts. There are clear evidences that mere availability cannot ensure responses of the demand-side and greater access and inclusion. For example, in Bulgaria there are 84 bank branches per 100 thousand adult population, but only 53 per cent has access to the formal sector -- banks/FIs. In Czech Republic, although there are far fewer branches (22 to be precise) per 100 thousand adult population, 81 per cent transacts with the formal sector banks/FIs. In the same way only higher ATM intensity cannot ensure higher access.
We all are aware that technology has brought notable changes or might bring remarkable changes in some several key areas that are mainly connected with the access to financial services: one, it may help reducing transactions costs; two, it may handle the distance issue or ensure proximity of banking services; three, it may tremendously improve speed or pace of services by ensuring real time transactions. Obviously, the success on these issues depends on the market size, infrastructure, technology penetration, awareness or literacy etc. And success of virtual banking heavily depends on 'whether the technology adoption has brought these positive changes or not'. Yes, all these may not be attained immediately or in the short run. In many instances, banking and financial systems are successful in attaining these goals or targets especially in developed countries.
Several reasons have been identified in different studies why people do not have transactions with formal banks and financial institutions. According to the recent WB data, 23 per cent adult population in the world feel that maintaining bank account is too 'expensive'; and around 20 per cent identified 'distance' as the key problem. A notable percentage of remittance receivers identified 'delay' as a major difficulty. Technology and technological innovations can directly contribute to handle these obstacles of access to finance which is particularly true for developing countries.
Globally, regulators, bank or financial service providers and consumers are working, supporting and responding to the development of technology-based banking considering the existing and potential merits of virtual banking. Technology has brought positive changes in efficiency in different business fronts of banks. By collecting, storing and processing large volume of data easily, technology has improved the quality of financial decision making. Technology has become a central driver of business priorities like revenue growth; risk and compliance; operational effectiveness.
Non-cash form of payment and retail banking received tremendous boost with the increasing use of cards. Users are finding technology as a source of comfort and ease. However, in regard to the success and development, difference between low- and high-income countries is very obvious. Because, developed and developing economies vary in terms of technology penetration, financial literacy, infrastructure and supportive policy and regulations. Practically, still the scopes of improvements are huge in developing countries. Especially, mobile payment shows much promise and deserves much attention because of the fast-growing use of mobile phones in developing economies.
In connection with the regulatory environment in Bangladesh, Bangladesh Bank has been playing a notable role in maintaining smooth and secured e-banking operations. On-line access to Credit Information Bureau (CIB) has been successfully started by the initiative of the central bank. Installation of Bangladesh Automated Clearing House (BACH), Bangladesh Electronic Fund Transfer Network (BEFTN) and National Payment Switch (NPS) are remarkable milestones in the history of our financial sector. Technology has brought efficiency in the supervisory arrangement of Bangladesh Bank (BB). Considering the paramount importance of information systems security in banks, BB has issued ICT Security Guidelines for banking and financial institutions. BB issued guidelines on Mobile Financial Services in 2011 that rightly prescribed bank-led model. This is the first mobile financial services guideline in the region.
Because of the initiatives on promoting mobile banking services in the country and for undertaking remarkable steps for financial inclusion, BB received 'Alliance for Financial Inclusion Award' in 2014. Bangladesh has been ranked seventh in a recently published list of top developing countries in mobile banking services by the London-based Economist.
With respect to the service providers, available data shows significant response of the banks in adopting ATM and online banking during the last fifteen years. Both government and private banks have invested a good amount of resources to make the system automated and updated. Till date, a total of 28 banks have got permission from BB for mobile financial services; 20 banks have already launched the services. Because of the quick adoption of technology, private commercial banks are now dominating the remittance market. Though state-owned banks have a huge network of branches, use of technology and linkages with other entities made it possible for private banks to expand their remittance services to rural Bangladesh.
However, challenges to on-line or virtual banking should be considered seriously to ensure future progress. Lack of customer awareness, increasing ATM frauds, high setup and maintenance cost, lack of up-to-date technology, round-the-clock monitoring are some of the challenges. Card-based payment systems are sometimes problematic for common and low-income people for non-transparent fees. Sometimes use of credit cards in shopping is discouraging for the users that involve tax or service charges. In mobile banking and payments, all licensed banks are not active and a few banks are dominating market. Daily transaction through mobile banking has increased tremendously; however, KYC (Know Your Customer) of mobile account remains a challenge. Some banks are sceptical about profits from mobile banking services in Bangladesh in near future. Lack or financial literacy and awareness are major barriers to online banking in the context of the country.
This scribe would like to see virtual banking as a driver of inclusive banking in the country. This is in line with the policy objective of the central bank. Thus, in near future, transaction cost has to be reduced to make the services affordable to all. For expansion of mobile banking, greater emphasis should be given on financial literacy and awareness building. It would be crucial to promote consumer protection and financial education on digitally delivered financial products and services. Our ATM booths are restricted to city areas only. We have to go beyond that. We have to reach remote areas with affordable banking facilities.
Online banking is also the very first step towards green banking. To tag online banking with green banking, it is important that the use of technology should result in efficient use of scarce economic resources. Service providers should not expect profit from mobile banking and payment services immediately. Adequate supply of the mobile banking products and awareness development programmes would help banks gain profits in the long run.
The writer is professor and director [training], Bangladesh Institute of Bank
Management (BIBM).
ahsan@bibm.org.bd
Virtual banking to promote financial inclusion
Shah Md Ahsan Habib | Published: November 07, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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