Digital Bank: Embracing the new reality

If we think of a current bank branch, even today, for most of us, the picture that flashes in our mind is – long queues, paperwork behind deposits or withdrawal of cash and so on. 

For example, just to open an account, we need to visit a branch and submit a variety of documents. Travelling issues, time mismatches and busy staff, all add to our woes, thus delaying the account opening process. 

This is why financial inclusion through traditional banks continues to run on a slow lane. 

The MFS industry, thanks to Nagad's innovation of e-KYC, has introduced an instant account opening process in a simplified way and brought a large section of unbanked people into financial inclusion. Many banks also followed suit. 

Nagad has continued its relentless efforts to reach out to people of all classes with various products and services. But we have limitations, we cannot provide all services on our platform. Likewise, it is not possible for banks to take their services to every nook and corner owing to the high costs of operating a bank branch with the required manpower. 

In this case, an MFS like Nagad has an upper hand with its outreach to even the remotest pockets of our country. 

To go the next mile, it is the need of the hour for MFS to step up with a blend of mobile money and banking services. In fact, we need to ascend with the next wave in banking, which will scale the entire bank down to the size of a smartphone and promise the comfort of having each and every banking service at our fingertips.  That is the era of digital banking, and we will soon move into it – as such plan has been unveiled by the Finance Minister in his FY24 budget speech with a view to expanding and speeding up financial inclusion – which I believe will bring about a positive, qualitative change in our entire financial landscape.        

The Bangladesh Bank has also approved the guidelines to allow operations of digital banks in our country, keeping provision for a paid-up capital amounting to Tk125 crore. The licencing will be under the Bank Company Act 1991, while the payment service will be carried out in line with the Bangladesh Payment and Settlement System Regulations 2014.

Now, we can say that we are inching towards establishing a digital bank with all necessary preparations done. 

The way MFS carriers, Nagad in particular, operate and provide services even at the remotest corners of Bangladesh, they have already proven that they can go for banking without physical branches. 

A large number of people with smartphone and internet penetration are already availing many banking services, mainly offered by MFS, on their mobile phones. Now, they seek a complete financial solution on a single digital platform. But we cannot perform like a bank does with many regulatory limitations. 

When it comes to delivering services digitally, no one can deny the fact that MFS operators have come a long way with paperless and cashless transactions, thus bringing an end to in-person bank visits for many services.  Now is the time for an MFS operator like Nagad to function as a digital bank. In this way, customers will get all their desired financial services on a single platform. 

Let's look at how a digital bank, also known as a virtual bank, will operate in Bangladesh. Such a bank will have no branches but only a head office. There will also be a call centre for handling customer issues. It will provide banking services through websites and mobile phone apps. After going into full operation, it will carry out transactions of large amounts like a traditional bank.

A digital bank's operation is extended in three stages if we look at what other countries did. In other words, we can call it assessment phases to see if a digital bank function properly.

In the first step, their services are limited to retail banking as they only deal with customer deposits and withdrawals, small loans and fund transfers. If they become successful in delivering such services, they will be allowed to go for lending to small and medium enterprises among many other services in the second phase. When a digital bank enters the third stage of service delivery, it receives export payments, settles import bills and goes for lending big amounts.

In the case of Bangladesh, I do not think there is a need for fully complying with such a procedure, especially for the MFS providers looking to launch digital banking. Because a huge customer base of an MFS operator like Nagad is already getting quite a few services and will continue to enjoy a digital bank more extensively. 

If I talk about how Nagad is going ahead or how it is preparing to reach the next level, it is on the right track with products and services tailored to customers' needs. Nagad has also continued its innovations to be better equipped for launching a digital bank that will be a total solution to all financial needs. 

After establishing a digital bank, firstly, we will introduce single-digit and collateral-free loans for small informal businesses who are having to resort to Mahajans (moneylenders) even at a 40% interest rate per day – with no trade licences and no access to credit in the traditional banking system. In this way, we will motivate them to come under financial inclusion, thus putting their money into the formal channel.

To assess one's creditworthiness, we have created an AI-based credit rating system that will analyse all transactions-related data available on public domains using one's NID and mobile number. In this way, the system will determine if giving a loan to a particular individual is safe or not. Our team has worked on this AI-based credit rating system over the last two years, and it is now fully ready. So, if Nagad gets a licence for a digital bank today, it will begin to provide people with services the next day.

We have a customer base of more than 7.5 crore – I believe it will be the X factor for us to disrupt the financial market again. In this way, we will bring all financial activities to our customers' fingerprints. And our country will move to a cashless era.

Tanvir A Mishuk is the founder and managing director of Nagad Limited.