'Digital banks will lead to improved services and better offerings'

As Bangladesh steps into digital banking, The Business Standard interviewed Selim RF Hussain, the managing director and CEO of Brac Bank, to get his insights into the growing interest in digital bank licences in Bangladesh, the future of banking in the country, potential advantages, and challenges associated with this digital revolution, and much more

Why is there such a massive rush for digital bank licences? 

The rush for digital bank licences in Bangladesh can be attributed to several key factors, all of which point to the crucial role that digital banking is expected to play in the country's financial landscape.

There is a strong emphasis on expanding financial inclusion and digital banks have the potential to efficiently reach underserved and remote communities, aligning with Bangladesh's goal of enhancing financial accessibility for all.

Additionally, changing customer preferences are driving this shift. Consumers increasingly favour digital banking due to its convenience, speed, and accessibility, putting pressure on traditional banks to adapt or risk becoming obsolete. Furthermore, digital banking is seen as a catalyst for economic growth, as it has the potential to revolutionise financial services and enhance efficiency — a crucial development in a developing economy like Bangladesh.

Moreover, the emergence of digital banks has spurred market competition, ultimately leading to improved services and better offerings for customers. The government's support for the development of digital banks is further motivating traditional banks to venture into digital banking.

Lastly, advancements in technology and increased mobile penetration have made it more feasible for financial institutions to provide digital banking services. Together, these factors push digital banking to be a vital part of the future of banking in Bangladesh.

Why are traditional banks in Bangladesh opting for digital bank licences despite already having internet banking wings?

The Bangladesh Bank has set specific regulations and licensing requirements for digital banks. While traditional banks have incorporated digital technologies, obtaining a separate licence ensures compliance with these regulations, allowing them to offer specialised digital banking services. 

Besides, digital banking licences allow banks to offer a more extensive range of digital services, including mobile banking and online payments, creating a competitive edge and attracting tech-savvy customers.

Not to mention, the banking landscape is evolving rapidly worldwide. Traditional banks recognise the need to adapt and remain relevant in a changing financial environment. To stay competitive, obtaining digital bank licences is a strategic move.

How will digital banks save time and cost for overall banking operations and customers in Bangladesh?

First of all, digital banks provide round-the-clock access to banking services through mobile apps and online platforms. Customers can perform transactions and access their accounts anytime. It provides the convenience of managing accounts, checking balances, and making payments from anywhere, which not only saves time but also eliminates the need for customers to travel to a bank branch.

In addition, digital banks often have lower transaction fees than traditional banks, leading to cost savings for customers, especially for frequent transactions such as fund transfers and bill payments.

Moreover, leveraging technology, digital banks enable faster transaction processing, reducing waiting times and enhancing overall efficiency. By operating without physical branches, digital banks significantly reduce overhead costs, resulting in cost-saving benefits for customers through improved interest rates and lower fees.

Furthermore, digital banks' streamlined operational processes require fewer resources and staff, leading to cost savings for the banks themselves. Enhanced security features, such as multi-factor authentication and encryption, reduce the risk of fraud and financial losses.

What will be the main differences between digital banking and online platforms of conventional banks?

There are a few differences. To begin with, digital banks are standalone banks that operate entirely online without physical branches, meaning they offer services exclusively through digital channels, such as mobile apps and websites. Additionally, digital banks often have a cost advantage due to lower overheads associated with the absence of physical branches. This can result in better interest rates and lower fees for customers.

Also, the target customer base can be somewhat different. Digital banks may target tech-savvy customers who prefer the convenience of online banking and are comfortable with minimal in-person interactions.

In short, digital banks operate solely online, while conventional banks offer a combination of physical and digital banking services to serve a broader range of customer preferences.

What will be the advantages of the growth of digital banks in Bangladesh? Are there any obstacles?

Digital banks in Bangladesh have the potential to enhance financial inclusion, convenience, and cost-efficiency. 

However, digital banking also presents challenges related to cybersecurity, customer education, regulatory frameworks, infrastructure, and trust. Addressing these obstacles is essential for realising the benefits of digital banking in the country.

How will digital banks protect customer data and money?

Safeguarding customer data will be of utmost importance for digital banks. Like any online financial institution, they are susceptible to cybersecurity threats and must employ various measures to protect customer information.

To mitigate these challenges, digital banks can implement the latest security protocols, including robust encryption techniques, both for data in transit and at rest. This ensures that customer data remains confidential and inaccessible to unauthorised parties.

Additionally, deploying robust firewalls and intrusion detection systems can help monitor network traffic and promptly identify any suspicious activities or potential breaches.

Multi-Factor Authentication (MFA) is another crucial component of their security strategy. MFA adds an extra layer of protection by requiring customers to provide multiple forms of verification (such as passwords, fingerprints, or one-time PINs) before gaining access to their accounts.

Moreover, conducting routine security audits is essential for identifying vulnerabilities proactively and maintaining a strong security posture. These audits enable digital banks to address potential weaknesses promptly.

Also, digital banks must ensure that their staff is well-trained to recognise and counteract security risks.

Having well-defined incident response plans is critical. These plans enable digital banks to swiftly contain and mitigate any breaches, along with notifying customers and relevant regulatory authorities as required.

Regular penetration testing should be part of their security strategy, helping identify vulnerabilities proactively and strengthening their overall security measures.

Compliance with cybersecurity regulations set by the Bangladesh Bank is non-negotiable. Digital banks must adhere to these regulations and continually monitor their systems and transactions in real-time to detect and respond to threats promptly, minimising potential damage.

Will we have enough skilled workforce to run digital banks?

As the country embraces digital banking, there is a growing demand for individuals with technology, cybersecurity, data analytics, and digital marketing expertise. The availability of a skilled workforce is crucial for the successful operation of digital banks in Bangladesh.

Bangladesh is trying to enhance its workforce's skills, including those needed for the digital banking sector. Initiatives such as training programs, skill development projects, and collaborations with organisations like the Asian Development Bank (ADB) aim to bridge the skills gap in various sectors, including information and communication technology (ICT).

While Bangladesh is taking steps to develop a skilled workforce, challenges remain in ensuring an adequate supply of talent, especially in specialised areas like cybersecurity and data analytics. Continuous efforts in skill development and education will be essential to meet the workforce demands of the evolving digital banking landscape.