How digital innovation helped banks stand strong amid a global crisis

Brac, one of the largest private commercial banks in the country, started investing in the digital space three years back, soon after Covid-19 struck the country. Now, the bank is getting returns from the investment as 85% of its transactions have gone digital, up from only 17% to 18% in 2020. 

The rise in digital transactions has reduced the operational cost of the bank, helping it maintain strong financial performance even amid low lending rates and global inflation. 

Brac Bank's Managing Director and CEO Selim RF Hussain said that digital investment is now being reflected in its balance sheet — deposits grew by 24% in 2022 when the industry average growth was 7%. Loan growth of the bank also rose by 28% last year when industry average growth was 13%. 

Dutch-Bangla Bank Limited (DBBL), another private bank which built its largest ATM network in the year 2004, is now one of the most preferred banks for customers due to transaction convenience. Despite offering a low deposit rate, the bank has one of the largest deposits, with 45 million customers. 

Customers choose DBBL because of its digital services, not for its interest rates, said Abul Kashem Md Shirin, managing director of the bank. 

He said a huge digital network has helped the bank get low cost deposits from across the country, reducing fund costs. 

"The bank maintained strong financial performance and ample liquidity even amid the double global crises of the pandemic and Russia-Ukraine war only because of digital innovation," he added. 

He said this investment in technology helped the bank create a huge customer base, which in turn helped it get smaller deposits and reduce its cost of funds. In 2004, the share of fixed deposits was 80%, which came down to only 7%, and low-cost deposits like current and savings accounts' share rose to 93%. 

Addressing the "Digital Transformation Summit 2023" held recently, Selim RF Hussain, who is also the chairman of Association of Bankers Bangladesh (ABB), said the entire sector has to take this digital transformation initiative forward.

He thinks that banks that are not investing in technology now will not survive in five to seven years, adding that many banks did not focus on digital services that much, but now most of the banking services are app-based.

Not only private commercial banks, but state-owned banks which were lagging behind in digital transformation are now investing to come out of traditional banking. 

For instance, Sonali Bank, the largest state-owned bank in the country, has set its goal to be a smart bank through massive investment in digital products. 

As part of that, the bank has introduced multiple digital products and services after Md Afzal Karim joined it as the new managing director in August last year. 

He said Sonali Bank is the first among state-owned banks to introduce QR codes in January this year to facilitate customers withdrawing cash without a cheque book, using the Sonali e-Wallet app instead. 

How banks began going digital 

When movement was restricted during the pandemic, private commercial City Bank introduced a mobile app in 2020 for opening accounts online, replacing the traditional method.

Soon, this innovative digital solution became popular in the banking sector as most banks now have mobile apps that facilitate opening accounts. This helped banks see a growth in the number of new customers even amid the pandemic. 

Bank customers are now used to digital banking solutions, reflected in the rising online banking transactions. This is ultimately leading the country towards a cashless society. 

The pandemic has drastically changed the banking transaction behaviour of customers. The sector has gained nearly 3.8 million new internet banking customers in three years, starting from pandemic year 2020 to December 2022. At the end of December last year, the total number of internet banking users stood at 6.25 million, which was 2.5 million in January 2020, according to data by the Bangladesh Bank. 

Internet banking transactions also increased by four times during the same period, reaching a monthly value of Tk27,500 crore in December last year from Tk6,600 crore in January 2020. 

Banks have also introduced digital solutions for remitters to bring money home through the banking channel during the pandemic, which ultimately keeps the inflow stable when the country needs remittance most due to the global economic crisis brought on by the Russia-Ukraine war. 

For instance, in 2020, Prime Bank was the first to launch a real-time remittance service abroad, RemitPrime, for its subsidiaries in Singapore and the United Kingdom. 

Through RemitPrime, expatriate Bangladeshis can transfer remittances in real-time to any Prime Bank account and any bKash wallet across the country. 

For all other banks, remittances will be transferred instantly as per the Bangladesh Electronic Funds Transfer Network transaction cycle. Along with remittance, the new service ensures the payment of a 2% incentive instantly. RemitPrime also provides real-time information about the transaction to its users.  

Expatriates from Bangladesh, India and the Philippines residing in Singapore, can send money to their respective home countries through RemitPrime services through the Prime Bank app as well.

Brac Bank launched a digital remittance service for its Visa cardholders in the year 2020. The newly introduced facility enabled customers to receive remittance to their debit and credit cards directly from remitters residing in Malaysia and Singapore. 

Moreover, monthly inward remittance through mobile financial services increased by 12 times to nearly Tk400 crore in November last year from the pre-pandemic level of Tk30 crore in January 2020, according to the Bangladesh Bank data. 

The Bangladesh Bank has also promised the International Monetary Fund (IMF) to enhance electronic fund transfer coverage in government cash management to support electronic payments. 

According to the IMF country report on $4.2 billion loan approval for Bangladesh, the central bank has made a commitment that it will optimise cash management by expanding the coverage of the treasury single account (TSA) and the use of electronic funds transfer (EFT). 

The Ministry of Finance will conduct a census of all bank accounts held by institutional units of the central government remaining outside the TSA and develop a policy note to guide decisions on their integration and sequencing of TSA enhancements by December this year. 

The Bangladesh Bank will progressively expand the use of EFT to cover vendor payments and target a coverage of at least 60% of central government transactions by end of 2024, which will enable efficient settlement of obligations and reduce leakages.

Lastly, the central bank will continue to build out the functionality of Integrated Budget and Accounting System (iBAS++) to enable commitment controls, reconcile tax receipts and deductions, and support electronic payments.