Bangladesh has entered the superhighway of digital transformation with its financial sector gaining momentum in recent years. The banking sector is considered to be the backbone of the financial system in most economies, and it plays a critical role in achieving economic growth and expansion. The development of the banking sector is necessary for the expansion of trade and commerce, the creation of jobs, and the promotion of the industrial revolution in an economy. The government’s recent initiatives for cashless transactions have drawn public attention. The rapid growth of mobile phone usage and internet penetration in the country has created a favorable environment for digital banking services. Digital banking has become a significant part of the financial landscape of Bangladesh’s economy.
Mobile Banking
Mobile banking is rapidly gaining popularity in Bangladesh. It allows customers to access banking services using their mobile phones, such as checking their account balances, transferring money, and paying bills. Mobile banking has the potential to increase financial inclusion in Bangladesh, particularly among the unbankedpopulation. In the last fiscal year (FY22), the MFS industry experienced a 30.34% increase in transactions, reaching an exceptional level of Tk. 9,90,004 crore. In fact, in April 2022, transactions worth Tk 107,460 crore were conducted through MFS. Moreover, 25% of Bangladeshi adults now use MFS and online banking services for utility bill payments. According to Bangladesh Bank, 178.6 million mobile accounts are now registered for MFS. It is quite conspicuous that MFS providers have been reshaping the country’s financial sector for a while now.The popularity of mobile banking in Bangladesh can be attributed to several factors,including the convenience and accessibility it provides, especially to individuals living in remote or rural areas where physical bank branches may be scarce. Additionally, mobilebanking has helped to reduce the cost of banking services for customers, while also providing a source of revenue for mobile network operators and banks. bKash, Rocket, Nagad and other mobile financial services ( MFS) have become part of our life.
Digital Payments
Digital payments have seen significant growth in Bangladesh in recent years, with more and more people turning to mobile payments, online banking, and other digital payment methods.This growth has been driven by several factors, including increased internet and smartphone penetration, a growing middle class, and government initiatives to promote digital payments. The most popular digital payment methods in Bangladesh are mobile financial services (MFS), which are offered by several providers including bKash, Rocket, and Nagad. These MFS providers allow users to send and receive money, pay bills, top up mobile phone credit, and make purchases using their mobile phones.
In addition to MFS, online banking, automated clearing , RTGS , BEFTN and card-based payments are also growing in popularity in Bangladesh. Banks in the country now offer online banking services, allowing customers to transfer money ,pay bills, and access other banking services through their computers or mobile phones. Card-based payments are also becoming more common,with more merchants accepting debit and credit cards for payment.
Online Banking
Online banking is also gaining popularity in Bangladesh. It allows customers to access banking services through their computers or mobile devices, such as opening new accounts, applying for loans, and managing their finances. Online banking can help banks to reduce their operational costs and increase their customer reach. Online banking has seen significant growth and adoption in Bangladesh in recent years, especially during the Covid-19 pandemic. Internet banking transactions were reported to have risen more than 61 per cent year-on-year to Tk 27,426 crore in November 2022 in Bangladesh as an increasing number of people are opting for digital technologies to carry out financial transactions. This compared to Tk 17,009 crore registered in the same month a year earlier.
Electronic or e-account opening : Electronic or e-account opening in Bangladesh has gained significant popularity in recent years due to the increasing penetration of the internet and mobile devices across the country. E-account opening offers several benefits over traditional account opening methods, including convenience, speed, and accessibility and reduced paper work. e-account opening in Bangladesh is a promising development with the customers opening accounts online with e-KYC . However, it is important to address the challenges associated with e-account opening, particularly security concerns, and to ensure that customers have access to the necessary technology and information to take advantage of this option. The number of e-account openings in Bangladesh has been increasing steadily in recent years.
Fintech Startups
Fintech refers to the application of new technological innovations mostly internet, software and mobile apps for safer, faster and more efficient daily financial transactions. The rise of fintech startups in Bangladesh is creating opportunities for digital transformation in the financial sector. These startups are introducing innovative financial products and services that leverage digital technologies, such as mobile apps, and blockchain. Fintech startups in Bangladesh are steadily growing, and the country has witnessed a rise in digital transactions, particularly through mobile financial services (MFS).
Bangladesh has a relatively low level of financial inclusion, which presents a further opportunity for fintech startups to provide services to the large unbanked population.
Overall, the fintech sector in Bangladesh is still in its early stages but has significant growth potential due to the large unbanked population and increasing adoption of digital technologies. As more fintech startups emerge in the country, we can expect to see more innovation and competition in this space, leading to greater financial inclusion and improved access to financial services for Bangladeshis. However, Bangladesh’s financial sector faces various challenges in its digital transformation journey. Addressing these challenges is crucial to ensure the success of digital transformation in Bangladesh’s financial sector.
1. Infrastructure: The infrastructure for digital banking in Bangladesh is still underdeveloped, particularly in rural areas. The lack of reliable internet connectivity and digital literacy is a significant obstacle to digital transformation.
2. Regulation: Clear regulations and guidelines are necessary to ensure the safety and security of digital banking transactions. Although the central bank of Bangladesh has taken steps to regulate the digital financial services sector, there is still a need for further guidance and oversight.
3. Trust and Security: Building trust and ensuring security in digital banking transactions is essential to the success of digital transformation. Cybersecurity threats, such as data breaches and fraud, pose a significant risk to the adoption of digital banking services in Bangladesh.
4. Low Financial Literacy: Many people in Bangladesh are not familiar with the concept of digital banking and how it works, which makes it difficult for them to adopt these services.
5. Security Concerns: Cyber threats are increasing day by day, making security a major concern for digital banking in Bangladesh. Many people are hesitant to use digital banking services because of the fear of fraud and hacking.
6. Limited Access to Banking Services: Despite the growing popularity of digital banking, many people in Bangladesh still have limited access to traditional banking services, making it difficult for them to switch to digital banking.
7. Limited Language Support: Many digital banking platforms in Bangladesh are only available in English, which makes it difficult for people who do not speak English to use these services.
8. Lack of Use of Data Science and Artificial Intelligence: Although data science and AI are revolutionizing the banking industry by providing new and improved ways to analyze customer data, detect fraud, manage risk, and optimize business operations, many banks in Bangladesh have not fully leveraged these technologies. Utilizing data science and AI can help banks make more informed investment decisions and improve returns for their client
Digital banking in Bangladesh has great potential, but it needs to overcome these challenges to become more accessible and widely used. Digital transformation is creating opportunities for growth and financial inclusion. However, overcoming the challenges of infrastructure, regulation, and security is essential to the success of digital transformation of banking in the country.
Mohammad Abdul Karim works in Social Islami Bank Ltd. Views expressed are his own.
