Bangladesh has been making waves in the world of finance with its rapid embrace of digital banking. Undoubtedly, it’s no surprise that the digital transformation in the banking sector is evolving at a breathtaking pace. Simply imagine a place where banking is as easy as sending a text message, where you can access your savings, make payments, and even invest, all with a few taps on your smartphone.
Bangladesh wants at least 75% of local transactions to be conducted digitally by 2027, as part of the government’s goal for a “Smart Bangladesh” by 2041.
In this article, let’s explore the world of digital banking in Bangladesh, where convenience meets innovation, and the future of finance is at your fingertips. So, get ready to be amazed as we dive into this fintech revolution taking Bangladesh by storm!
What is Digital Banking?
Digital banking is a modern financial services approach that leverages digital technology to provide customers with convenient and efficient access to various banking and financial services. It enables individuals and businesses to perform a wide range of banking activities remotely using internet-connected devices such as smartphones, tablets, or computers.
These activities encompass managing accounts, transferring funds, paying bills, applying for loans, monitoring transactions, and even investing in financial products. Without the need for physical visits to a brick-and-mortar bank branch. Digital banking has not only transformed the way people interact with financial institutions. But has also ushered in a new era of financial inclusion, making banking services accessible to a broader audience and enhancing the speed, ease, and security of financial transactions.
As technology continues to advance, digital banking is at the forefront of redefining the banking industry, offering an ever-expanding array of services and features to meet the evolving needs of customers in an increasingly connected world.
Digital Transformation Over Time in Banking
Digital transformation in banking has been an ongoing journey that has evolved significantly over time. The financial industry has seen a remarkable shift from traditional banking methods to fully embracing digital technologies.
Here’s a timeline that highlights key developments in the digital transformation of banking:
1960s – 1980s: Early Automation
- Banks began to automate their processes with the introduction of electronic data processing systems.
- ATMs (Automated Teller Machines) were introduced, allowing customers to perform basic transactions outside of bank branches.
1990s: Online Banking
- Banks launched online banking services, providing customers with the ability to check balances, transfer funds, and pay bills over the Internet.
- The adoption of secure socket layer (SSL) encryption made online banking safer.
2000s: Mobile Banking and SMS Alerts
- The proliferation of mobile phones led to the introduction of mobile banking services.
- SMS alerts were used to notify customers about account activity and transactions.
- Online payment gateways like PayPal gained popularity.
2010s: Fintech Disruption
- The rise of fintech startups challenged traditional banks, offering innovative solutions for payments, lending, and personal finance management.
- Mobile banking apps evolved, providing features like mobile check deposits, P2P payments, and budget tracking.
- Regulatory changes, like PSD2 in Europe, encouraged open banking and data sharing between banks and third-party providers.
The mid-2010s: Blockchain and Cryptocurrency
- The emergence of blockchain technology and cryptocurrencies like Bitcoin created new avenues for financial transactions, particularly in the areas of cross-border payments and remittances.
- Central banks explored the potential for central bank digital currencies (CBDCs) as digital counterparts to physical currency.
Late 2010s – Early 2020s: AI and Automation
- Artificial intelligence (AI) and machine learning were integrated into banking systems for customer service, fraud detection, and risk assessment.
- Robo-advisors gained traction, offering automated investment advice.
- Chatbots and virtual assistants have become common in customer support.
Present and Beyond Omnichannel Banking and Personalization
- Banks are moving towards providing a seamless omnichannel experience, where customers can transition between online, mobile, and physical channels seamlessly.
- Personalization is a key focus, with banks using data analytics to offer tailored financial products and services.
- Enhanced cybersecurity measures, including biometrics and multi-factor authentication, are being adopted to protect digital assets.
Future Directions
- Quantum computing and 5G technology may further revolutionize the banking industry by enabling faster data processing and more secure transactions.
- Decentralized finance (DeFi) and blockchain-based financial services could become more mainstream, potentially reshaping the industry’s infrastructure.
The digital transformation in banking continues to evolve, driven by rapid advancements in technology and changing customer expectations. As banks adapt to these changes, they are likely to remain at the forefront of innovation, offering increasingly convenient and secure financial services.
Types of Digital Banking Channels
1. Mobile Banking
It allows customers to access their bank accounts and conduct financial transactions using a mobile device, typically through a dedicated banking app or mobile web browser. It offers features like checking balances, transferring funds, bill payments, and mobile deposits.
2. Internet Banking
It also known as online banking, enables customers to access their bank accounts and perform transactions through a web portal using a desktop or laptop computer. It provides services such as account management, bill payments, and fund transfers.
3. ATM (Automated Teller Machine)
ATMs are self-service kiosks that allow users to withdraw cash, deposit checks or cash, check account balances, and perform other basic banking functions. They are available 24/7 and are often located at bank branches, retail locations, and standalone machines.
4. Phone Banking
It involves using a telephone to interact with a bank’s automated system or speaking to a customer service representative to access account information and conduct transactions, such as fund transfers and bill payments.
This way of banking is convenient for customers who prefer voice-based interactions; accessible via landline or mobile phone; and provides personalized assistance when needed.
5. Online Payment Gateways
These gateways are digital platforms that facilitate secure online transactions. They are commonly used for e-commerce and allow customers to make purchases or payments electronically.
6. Digital Wallets
It is also known as e-wallets are mobile apps or online platforms that allow users to store and manage their payment information, such as credit card details and bank account information. They enable quick and secure payments for a wide range of transactions, both online and in physical stores.
7. Online Bill Payments
Online fund transfer services allow users to send money to individuals or businesses electronically. These services include peer-to-peer (P2P) payment platforms, wire transfers, and interbank transfers. They offer a convenient and efficient way to move money between accounts.
8. Online Investment Services
It also known as robo-advisors or online brokerage platforms, provides individuals with the ability to invest in stocks, bonds, mutual funds, and other financial instruments online. They often use algorithms to offer investment advice and portfolio management services.
9. SMS Banking
It allows customers to access their bank accounts and perform basic transactions via text messages on their mobile phones. It’s a convenient option, especially for customers with limited internet access.
10. QR Code Payments
It involves scanning a Quick Response (QR) code with a mobile device to initiate a payment. This technology is commonly used for in-store and person-to-person (P2P) transactions, making payments swift and contactless.
Digital Banking Vs Online Banking: Key Differences
Both are closely related terms but have distinct differences in terms of scope and functionality:
1. Scope of Services
- Online Banking: It typically refers to digital access to your existing bank account through a web portal or a mobile app. It allows you to perform basic banking operations like checking account balances, transferring funds, and paying bills online.
- Digital Banking: It encompasses a broader range of financial services. It often includes not just basic banking functions but also more advanced services like investment management, budgeting tools, and even the ability to open new accounts online. It’s a comprehensive, all-in-one financial platform.
2. Access Points
- Online Banking: It is primarily accessed through a bank’s website via a web browser or a dedicated online banking app. It’s essentially an electronic version of traditional banking services.
- Digital Banking: It can include online banking but extends beyond it. It can encompass multiple channels, such as mobile apps, dedicated banking apps, fintech apps, or even integrated financial management platforms.
3. Interconnected Services
- Online Banking: It focuses on the core banking services offered by a specific bank or financial institution. It doesn’t necessarily integrate seamlessly with other non-banking financial services.
- Digital Banking: It integrates with a broader ecosystem of financial tools and services. It may provide access to third-party financial apps, investment platforms, and personal finance management tools, creating a more holistic financial experience.
4. Customer-Centric Approach
- Online Banking: It is essentially a web-based version of traditional banking, offering convenience and 24/7 access to basic banking services, but it may not always prioritize customer-centric innovations.
- Digital Banking: It is designed with a strong customer-centric approach. It often incorporates user-friendly interfaces, personal financial insights, and customized financial solutions, emphasizing a more tailored and modern user experience.
5. Innovation and Integration
- Online Banking: It may not always keep up with the latest fintech innovations and trends, and its services can be limited to what the specific bank offers.
- Digital Banking: It is more likely to adopt the latest technological innovations, including artificial intelligence, blockchain, and open banking principles. It’s often more adaptable to evolving customer needs and preferences.
While online banking is a subset of digital banking, the latter offers a more comprehensive and technologically advanced suite of financial services. Digital banking leverages technology to create a more holistic, customer-focused, and integrated financial experience, often involving a broader ecosystem of financial tools and services.
Current Trends in Digital Banking
There are several trends that are shaping the landscape of digital banking. It’s important to note that the digital banking industry is dynamic, and new trends may have emerged since then.
Here are some of the current trends in digital banking up to that point:
1. Open Banking and API Integration
Open banking initiatives, such as PSD2 in Europe, have promoted data sharing between banks and third-party providers through APIs. This enables customers to access a broader range of financial services and manage multiple accounts from a single platform.
2. Artificial Intelligence (AI) and Machine Learning
Banks are using AI and machine learning for enhanced customer service, personalized product recommendations, fraud detection, and credit risk assessment. Chatbots and virtual assistants have become common in customer support.
3. Biometric Authentication
Enhanced security measures, such as biometric authentication (fingerprint, facial recognition, and voice recognition), are increasingly used for secure access to mobile banking apps and online accounts.
4. Contactless Payments
The adoption of contactless payment methods, including mobile wallets (Apple Pay, Google Pay) and contactless cards, has grown significantly, especially in response to the COVID-19 pandemic.
5. Cryptocurrency Integration
Some banks are exploring or integrating cryptocurrencies and blockchain technology, offering services like cryptocurrency custody and trading to meet the evolving demands of customers.
6. Robo-Advisors and Wealth Management
It continues to gain traction, providing automated and algorithm-based investment advice to customers. These platforms make investing more accessible and affordable.
7. Digital Identity Verification
Digital banks and financial institutions are investing in advanced digital identity verification methods to streamline the onboarding process and comply with regulatory requirements, such as Know Your Customer (KYC) checks.
8. Enhanced Cybersecurity
With the increased digital footprint, cybersecurity remains a top priority. Banks are adopting advanced security measures, such as multi-factor authentication and AI-driven threat detection, to protect customer data and assets.
9. Real-Time Payments
Real-time payment systems are being adopted in many countries, allowing instant fund transfers and reducing the time and cost associated with transactions.
10. Regulatory Compliance
Compliance with evolving financial regulations, including data privacy laws like GDPR and consumer protection regulations, is a significant focus for digital banks.
Key Benefits and Impacts of Digital Banking
Digital banking benefits customers by offering convenience, cost savings, and personalization, while it benefits banks through cost reduction, increased customer reach, and data-driven insights, leading to improved customer engagement and competitiveness in the financial industry.
Customer
- Convenience: It offers 24/7 access to banking services, allowing customers to manage their accounts, make transactions, and pay bills from the comfort of their homes or on the go.
- Cost Savings: It typically comes with lower or no fees for basic transactions, as it reduces the need for physical infrastructure, such as bank branches.
- Accessibility: Digital banking widens financial inclusion by providing services to those in remote areas with limited access to traditional banking infrastructure.
- Efficiency: Customers can complete transactions quickly and easily, reducing the time spent on paperwork and in physical bank branches.
- Personalization: Many digital banks use data analytics to offer personalized financial advice, product recommendations, and notifications, enhancing the overall customer experience.
- Security: Advanced security features, such as biometric authentication and real-time fraud detection, help protect customer accounts and data.
- Transparency: Customers can view their transaction history, account statements, and real-time balances, helping them track their finances effectively.
Banks
- Cost Reduction: It reduces operational costs associated with maintaining physical branches and handling paper-based transactions.
- Increased Customer Reach: It can reach a broader customer base, including the unbanked and underbanked populations, through digital channels.
- Improved Customer Engagement: Digital platforms enable banks to engage with customers more effectively, leading to better retention and cross-selling opportunities.
- Data Insights: Banks can gather and analyze customer data to gain insights into spending habits, preferences, and behaviors, which can inform product development and marketing strategies.
- Faster Transactions: Real-time payment systems and digital fund transfers enable faster and more efficient transaction processing, reducing settlement times.
- Compliance and Reporting: Digital banking systems can assist banks in automating regulatory compliance and reporting, streamlining these processes.
- Innovation and Agility: It can quickly adapt to market changes, roll out new services, and integrate with fintech partners to offer cutting-edge solutions.
- Reduced Fraud Risk: Advanced security measures and AI-based fraud detection tools help banks mitigate fraud risk and safeguard customer assets.
- Eco-Friendly: Reduced paper usage and the absence of physical infrastructure contribute to a more eco-friendly banking model.
Is Bangladesh Ready for Digital Banking?
Bangladesh is undoubtedly making significant strides towards embracing digital banking, A total of 52 domestic and foreign entities have applied to the central bank for the license to set up digital banks. The Business Standard reports that the Bangladesh Bank made a decision to approve digital banking licenses to two of the 52 applicants, as confirmed by a senior official from the central bank.
The two newly licensed digital banks are Nagad Digital Bank and Kori Digital. The Bangladesh Bank has granted permission to three other applicants, each with the support of various traditional banks, to establish digital banking services.
Furthermore, there are three more applicants, who have the backing of fintech firms and other companies, who may also be granted licenses after a thorough six-month evaluation period to assess the performance of the initial two digital banks.
However, the question of whether it is fully ready for this transformation involves several key considerations:
- Infrastructure: The readiness for digital banking in Bangladesh hinges on its technological infrastructure. While the country has seen an increase in mobile penetration and internet access, there is still room for improvement, especially in rural areas. A robust and widespread digital infrastructure is essential for the success of digital banking.
- Regulatory Framework: The regulatory framework plays a pivotal role in shaping the digital banking landscape. Bangladesh has recognized the importance of digital banking, and its regulators have taken initial steps to facilitate the integration of fintech and traditional banking. However, continued development and adaptation of regulations are necessary to ensure security, consumer protection, and innovation in the sector.
- Collaboration: As highlighted in the provided context, collaboration between traditional banks and fintech firms is often the key to successful digital banking. Bangladesh is seeing some collaboration efforts, but fostering a culture of cooperation and synergy between these entities will be essential for the digital banking ecosystem’s growth.
- Security Measures: The proliferation of digital banking also brings security risks. Ensuring robust security measures and cybersecurity protocols is paramount to gain consumer trust and prevent cyber threats. Bangladesh needs to invest in advanced security infrastructure to safeguard its digital banking system.
- Consumer Awareness: An essential aspect of readiness for digital banking is the level of awareness and trust among consumers. People need to be educated about the benefits, risks, and how to use digital banking services effectively. Building this awareness is an ongoing process.
- Fintech Ecosystem: The development and growth of the fintech ecosystem play a significant role in the readiness for digital banking. Bangladesh has shown promise with its mobile financial services (MFS) providers like Rocket and bKash. The expansion of such services and the entry of new fintech players will further contribute to the readiness of digital banking.
- Education and Training: To fully embrace digital banking, Bangladesh must invest in education and training programs for its workforce to ensure that they have the necessary skills to operate and manage digital banking systems effectively.
- Regulatory Support: Regulatory bodies should continue to support and encourage innovation in the financial sector. They need to be agile and responsive to changes in the digital landscape.
List of Banks That Are Moving to Digital Banking
There are 52 banks, that applied for digital banking licenses to the Bangladesh Bank. This list highlights 40 forward-thinking banks that have been at the forefront of this shift, actively embracing digital banking to offer their customers more convenient, efficient, and secure financial services.
As these institutions continue to evolve and adapt to the digital age, they are setting new standards and shaping the future of banking for the better.
- Alliance Fingular Islami Digi Bank PLC
- Nagad Digital Bank PLC
- bKash Digital Bank PLC
- Digi Ten PLC
- Digital Bank PLC
- Upay Digital Bank PLC
- JRF Digital Bank (BD) PLC
- Japan Bangla Digital Bank PLC
- Elegant Digital Bank PLC
- Digi Bank PLC
- North East Digital Bank PLC
- Next Century Digital Bank PLC
- Adhunik Bank PLC
- Somriddhi Digital Bank PLC
- Desh Digital Bank PLC
- Shonchoy Digital Bank PLC
- Smart Digital Bank PLC
- Shompod Digital Bank PLC
- North West Digital Bank PLC
- Bijoy Digital Bank PLC
- NUH Digital Bank PLC
- Uddipan Digital Bank Ltd
- UNO Digital Bank PLC
- Shomoy Digi Bank PLC
- Amar Digi Bank PLC
- Zamzam-Islami Digital Bank PLC
- Islami Digital Bank PLC
- Shuborno Digital Bank PLC
- Ekota Digital Bank PLC
- Sunam Digital Bank Ltd
- Bangladesh Digi Bank plc
- Aalo Digi Bank PLC
- Aasha DigiBank PLC
- Delta DiGi Bank Ltd
- Starline Digital Bank PLC
- Shadin Digital Bank
- Pathao Digital Bank PLC
- Agami Digital Bank PLC
- Artist Digi Bank PLC
- Shetu Digi Bank PLC
Conclusion
In the ever-evolving world of finance, digital banking isn’t just a trend; it’s a transformation that’s changing the way we interact with our money. From the palm of your hand, you can now manage your finances, invest, and make payments with unprecedented ease and security.
Digital banking has put the power back in your hands, eliminating the need to stand in line or shuffle through piles of paperwork.
It’s a revolution that’s inclusive, convenient, and future-proof, bringing financial freedom to your fingertips. So, as we ride the wave of this digital transformation, remember, that the future of banking is now, and it’s as close as your smartphone.
