Challenges for digital banks in Bangladesh

Shabnam Nida Wazed

In a rapidly evolving financial landscape, digital banks have emerged as a disruptive force, revolutionizing the way people manage their finances. These tech-savvy financial institutions operate end-to-end digitally, offering a range of banking services without the need for physical branches. Bangladesh has taken initiatives to introduce Digital Bank and already there are advancements in a few steps.

The Bangladesh Bank-central bank of Bangladesh received a good number of applications from various business firms that the applicants are interested to invest in Digital Banks. The most exciting and promising applicant is the consortium of 10 private banks who unveiled their joint bid for a proposed digital bank named Digi10 Bank PLC. These progressive banks recognized the potential of the digital banking frontier.

Now the waiting time starts until central bank evaluate and assess all applications to issue licenses for the best applicants. For a digital bank to operate, a minimum paid-up capital of Tk1.25 billion is required, adhering to section 13 of the Bank Company Act 1991. This capital must solely consist of ordinary shares. And each sponsor is mandated to hold a minimum shareholding stake of Tk5 million, with the possibility of flexible stake holding, subject to government consultation. While finance may not be any challenge for the applicants, the most important issue is operation and to continue digital bank business by hiring or engaging the right resources. The digital banks will leverage cutting-edge technologies like AI, machine learning, and block chain from the 4th Industrial Revolution to offer efficient, low-cost, and innovative financial products and services through a comprehensive online ecosystem. This approach aims to bridge gaps in financial access for underserved and remote market segments, fostering financial inclusion.

Guided by BB’s directives, digital banks will have AI-driven resolution mechanisms to streamline transactions. Additionally, these banks will be able to accept movable property as collateral, presenting a modern approach to banking operations, they said. While digital banks can introduce advanced technology-based products like virtual cards and QR codes, physical instruments for transactions are prohibited, aligning with the principles of decentralized finance (DeFi).

A digital bank is to provide round the clock services and it can offer virtual cards, QR codes and any other advanced technology-based products to facilitate customer transactions. However, no plastic card can be given for the transaction. However, customers can use other bank’s ATMs, agents and other services to avail the services of this bank. Besides, a Digital Bank cannot open any Letter of Credit (LC) and no loans can be given to large and medium industries either. It can lend only small amounts of loans.

As per Bangladesh Bank’s policy a Digital Bank will not have any branch, sub-branch, ATM booth or any establishment. Banking services will be provided to customers using mobile phones or digital devices. This digital bank will run according to the bank company law and policy.

The central bank has also set several other conditions like after a certain time a digital bank has to issue an initial public offer (IPO) or shares in the capital market of the country. The amount of IPO should be equal to the minimum amount of the initial contribution of the sponsor.

Apart from this, the condition also states that half of the stakeholders in setting up this bank should have education, knowledge and experience in technology-based banking, emerging technologies, cyber laws and regulations. The other half should have adequate knowledge and experience in banking, e-commerce and banking laws and regulations. Digital Bank has to maintain Minimum Cash Deposit (CRR) and Statutory Deposit (SLR) prescribed by Bangladesh Bank from time to time, as per the Companies Act, like conventional banks.

A person who is in default of any bank or financial institution or any member of his family cannot be the involved with the proposed digital bank. The maximum number of directors from one family will be determined according to the Bank Companies Act. The Chief Executive Officer (CEO) of Digital Bank should have at least 15 years of experience in the banking profession, including at least five years of experience in technology-based banking, regulations, guidelines, circulars and others.

For technology and cybersecurity must establish partnerships with global technology providers and cybersecurity firms. Regularly update systems and protocols to stay ahead of evolving threats. Engage local cybersecurity experts to enhance protection against region-specific risks. There must be research for user experience and design to understand local preferences and needs. Employ local designers who can create interfaces that resonate with Bangladeshi customers, reflecting their culture and preferences. In product development we must create products tailored to the specific needs of the Bangladeshi market. Leverage digital platforms for market research and rapid prototyping to quickly iterate and refine offerings.

Compliance and legal compliance is a major factor and digital bank personnel need to work closely with regulatory bodies to ensure compliance with local laws and regulations and need to establish a robust dedicated team to monitor changes in regulations and adapt the bank’s operations accordingly.

Among other challenges are marketing and for this the investors need to develop targeted marketing campaigns that resonate with the local population. Leverage social media and digital channels to reach a wide audience, and consider partnerships with local influencers for greater outreach.

For operations and customer support and strategy management one need to establish a clear strategic roadmap that aligns with the bank’s goals and the evolving landscape of digital banking in Bangladesh. Regularly assess the strategy’s effectiveness and make adjustments as needed and need to offer multilingual customer support to cater to diverse linguistic preferences in Bangladesh. Leverage AI-powered chatbots for quick issue resolution while ensuring a human touch when needed.

The writer Founder and Chief Executive Officer, AGAM International Limited

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