Bangladesh's New Digital Banks Aim to Enhance Financial Inclusion

Established banks have successfully provided services through digital platforms such as Citytouch, Astha, SkyBanking, and others, demonstrating customer comfort with bill payments, fund transfers, and deposit management via mobile apps. However, traditional digital banking often continues to bear the burden of branch costs and outdated systems.

In contrast, digital banks operate without physical branches, potentially offering smarter lending solutions. By utilizing wallet and telecom usage data, these banks can identify reliable borrowers, which might reduce default risks typically associated with large corporate loans. Critics have raised concerns that some of these banks are backed by telecom and fintech companies rather than traditional banking experts, stressing the need for experienced risk managers and technology-focused teams in this emerging sector.

For these digital banks to thrive, they must expand beyond mere replication of mobile financial services, which are primarily centered around cash transactions and money transfers. A diversified revenue model incorporating lending, merchant payments, remittance services, insurance, savings, and investment products will be essential. Additionally, minimizing transfer fees within the bank and reducing agent withdrawal costs are necessary steps.

Product design is also key to reaching a wider audience. Digital banks could cater to various demographics, including the elderly with user-friendly pension accounts, students, homemakers, farmers, and small shopkeepers by offering tailored financial products. The mandated Tk300 crore paid-up capital should focus on enhancing technology and risk management rather than solely marketing efforts.

Another concern is the potential for a closed ecosystem where digital banks limit their services to their parent networks. To prevent this, it’s vital to enforce universal interoperability through systems like NPSB and Bangla QR. Financial inclusion efforts will also benefit from collaborations with payroll services, microfinance institutions, cooperatives, and agricultural organizations, leveraging existing agent networks, ATMs, and deposit machines in compliance with regulations.

Innovative technology can further elevate the role of digital banks. Utilizing cloud-native systems, behavioral credit scoring, real-time fraud detection, biometric onboarding, and open APIs can help integrate unbanked populations into the financial system.

The role of regulators remains pivotal, necessitating a functional sandbox, clarity regarding data hosting, access to credit bureaus, liquidity provisions, and robust cybersecurity measures. Consumer protection should also be a priority to prevent easy access to credit from leading to unmanageable debt.

In conclusion, while some may question the need for new banks, millions of Bangladeshis currently without access to formal financial services stand to benefit from these digital banking initiatives, which could significantly enhance financial inclusion.