Bangladesh, a country of around 165 million people is at a crossroads. It can either stay a low-tech country or move into the future and make the internet widely available to all of its citizens.
At the beginning of 2022, internet penetration in Bangladesh stood at 31.5%. However, what is encouraging, the number of internet users has increased by almost 12% (5.5 million) between 2021 and 2022.
There are also 61 scheduled, 5 non-scheduled banks, and 35 non-bank financial institutions in Bangladesh.
These traditional banks and institutions have seen rapid growth in online banking as technology moves forward, as some of them started offering online bank accounts. These include:
- SC Mobile Banking by Standard Chartered Bank
- Citytouch from City Bank
- MTB Smart Banking by Mutual Trust Bank
- EBL Sky Banking by Eastern Bank Ltd.
- Brac Bank Mobile
But what about pure digital or challenger banks?
Digital Vs. Online Banking in Bangladesh
While there’s basically no shortage of online banks in Bangladesh, namely, all the major banks already have some sort of mobile banking app, there’s a glaring shortage of digital banks in the country.
A digital bank is usually a fintech startup that offers mobile banking accounts that are extremely easy to open with minimal documents needed (or even none at all, just an ID).
They have no physical branches and offer more or less simplistic spending and or savings accounts to the general public.
All the banking and financial actions are done through a mobile app or browser on a computer.
Digital banks are extremely popular around the world and have already gathered hundreds of millions of users. Some of the biggest and most well-known digital banks are Revolut and Wise from London, UK, Cash App, Chime, SoFi, and MoneyLion from the United States, and many others around the world.
What separates digital banks from online banks is that online banks are simply traditional bank accounts from conventional banks offered online.
They still keep all their physical locations and their antiquated systems and processes based on mainframe computers or even pen and paper.
Digital banks, on the other hand, keep all their products and services in the cloud, which makes the system lean and much more affordable, both for the company and its end users.
That’s why most digital banks offer free bank accounts with very little or even no other fees.
Digital Banking in Bangladesh
There are no digital banks in Bangladesh as of now. This is a fact that puts the country in a group of countries with very closed banking systems that are not fit for the future without deeply usurping their status quo.
And while developed countries have very much opened their banking systems to fintech companies, Bangladesh is only now preparing to do so.
It’s a process that could take a couple of years to materialize, meaning we won’t see any challenger banks on the market that soon.
Banks in Bangladesh are still relying very much on old systems to do things, and some still use pen and paper, which is kind of unreal.
Yes, transforming from analog to digital costs a lot of money, and you need to hire outside people to do it properly. However, it is necessary if they don’t want to go the way of the dinosaurs.
Once the first fully digital banks start to appear on the market, people will flock to them because they have free accounts and very little red tape for opening said accounts.
Namely, most, if not all, digital banks in the west require only a government-issued ID and a tax number, as well as a selfie, to open a digital bank account. It can be done seamlessly from a smartphone app in literally 5 minutes.
This is a very good thing for many millions of unbanked or underbanked people in the country, as it will remove barriers to entry.
A perfect example is Nubank from Brasil (now also in Mexico and Argentina). This digital bank took the country (and now the continent) by storm and is one of the biggest banks in the world, with more than 70 million customers!
To illustrate this magnificent achievement, I’ll just mention that the bank was founded less than ten years ago. There are also other digital banks in Brazil that bring value to the people and still manage to make good money.
Let that be an example for the Bangladesh Central Bank (BCB) and the establishment.
Preparations for Digital Banking
The Bangladesh Central Bank (BCB) is moving forward with issuing regulatory guidelines to establish operations of fully-fledged digital banks in the country.
After the regulatory guidelines are completed, BCB will issue a license to a digital bank operator, likely a fintech startup or an already existing traditional bank wanting to enter a completely separate digital bank.
BCB bureaucrats noted that the policies would be formulated under the Bank Company Act, and digital banks would have to comply with all the directives of the act.
One of these directives is that digital banks will have to bring forth Tk 500 crore as the paid-up capital. The same is required for traditional banks. All other capital-related requirements for digital banks would also be the same as for traditional banks.
Another requirement is that there should be no physical branches, which is, of course, normal for digital banks.
Obviously, the biggest concern regarding digital banking in Bangladesh are the low internet penetration figures. As of 2022, there’s only 31.5% of the population with an internet connection.
In a modern world filled with smartphones, that’s a shocking number and probably the biggest obstacle to digital banking because, as we know, digital banking is performed on smartphones via the internet.
Although millions of new users are added every year, that’s way too slow in today’s world, and the government should really work hard on that.
Another concern is the country’s gender gap. Namely, 65 percent of men in Bangladesh have bank accounts compared to only 36 percent of women. That’s one of the largest financial gender gaps in the world and a fundamental issue that needs to be addressed.
How Will Digital Improve Bangladesh Banking?
Digital bank accounts will provide many advantages to Bangladesh banking customers. Here are just some of them.
1. Easy account opening
One of the main advantages of digital banks is their account-opening process which includes no paperwork. The only things you need to supply are a government-issued ID, tax number, and basic personal data such as a current address and contact details.
You also need a smartphone, which, granted, might not be available for the majority of the country yet; however, there are many cheap models out there that will do the trick.
2. Accessible to more people
To open and use a bank account, you no longer need to visit a physical location. All you need is an internet connection and a mobile phone.
That means that even rural parts of the country that were traditionally neglected by big banks are finally able to avail of banking services.
Digital banks are just as secure, if not even more so than traditional banks. Digital bank accounts typically have many layers of security, such as two-factor authentication, fingerprint, and Face ID, that keep others from logging into your account.
Of course, one should always be concerned about scams that can happen to anyone not paying attention and trusting people they shouldn’t trust.
4. Low fees
Digital bank accounts traditionally have no fees or offer a free account in conjunction with paid ones that offer more features.
Most, if not all, everyday banking and financial actions have no fees as well, making digital bank accounts very affordable to even the poorest people.
Gone are the days of monthly maintenance fees, expensive transactions, ATM fees, and excessive foreign exchange rates.
5. All the features in one place
With digital banks, you carry all the banking features you need with you. That’s because they all reside in the mobile app on your phone.
Whether you want to make an international transfer, move money around to your savings account, split a bill with a friend, pay the electricity bill, or many other things, you can do that in the middle of the night if you want to, all from the comfort of your home.
Digital banking in Bangladesh is still non-existent, as there are only online banks from established banks available.
Only now, the government is waking up and getting ready to issue digital banking licenses. However, that will again take a couple of years until the whole process is completed and digital banks get ready to enter the market.
There’s not much more to say about this topic except that we hope the government and its institutions are going to work in the meantime on making sure many more people get an internet connection and financial education, especially women.