Go digital or go bankrupt

The traditional way of banking is going to be reshaped rapidly. At this moment, this pandemic is fueling the change that was expected to happen gradually. We have already seen a worldwide technological disruption in the banking and financial industry. Evidently, both fintech and bigtech are leading this technological disruption. 

Simply put, fintech is the financial technology which is used to design and deliver financial services and products; and bigtech means technology companies' presence in the market for digital services.

The global banking and financial industry have undergone major changes over the past several years as bigtech like Google, Amazon, Facebook and Alibaba have expanded their value proposition to include products that were traditionally exclusive to banks. Besides all the tech giants, infant fintech startups are creating their market-place around the world.

But to our dismay, our banking industry remained somewhat traditional. Even during the ongoing Covid-19 pandemic, people are availing banking services by standing in the queue. 

But the scenario will change very soon if this pandemic prolongs. And this technological transition in our banking industry will be abrupt. Now the question arises whether Bangladesh is ready to embrace a sudden technological breakthrough in our banking industry.

A digitalisation movement has been observed in Bangladesh since 2008. We have already entered into the space age and we are experiencing technological upgradation everywhere in Bangladesh. Hence, as a tech-savvy nation we are expecting deep penetration of numerous financial technologies into our banking and financial system.

Apparently, we have already started to enjoy banking and financial services provided by digital technologies. Mobile financial service (MFS), e-commerce payment service and digital payment service are some examples of financial services rendered with the help of digital technologies. 

According to Bangladesh Bank's (BB) recent data, there are 964.76 lac registered mobile financial service (MFS) accounts and daily average transaction through these registered MFS accounts is a staggering amount of Tk2115.96 crores.

It is expected that this mobile banking can bring revolutionary transformation in our digital payment system and financially include six crore people in the country if we can simply ensure interoperability among different MFS operators, banks, FIs, other agents and parties. This desired interoperability is possible through the integration of both blockchain technology and financial innovation.

Surely, technological innovation will be able to bring the financially excluded population under the umbrella of financial inclusion as this revolution will create affordable and accessible financial products and services. Moreover, it will ensure faster and appropriate banking products and services, enabling all of us to enjoy high quality banking at low cost.

TBS Illustration

All it needs is a data connectivity enabled mobile phone. The government of Bangladesh has set a target in its current National Telecommunications Policy to achieve 100 percent teledensity and 65 percent internet penetration by the calendar year of 2021. So, there are ample opportunities for the vast majority of people of the country to be connected to the banking system through different digital financial tools available at data connectivity enabled mobile phones.

Currently, only 1% of total transactions is carried out without cash. But a cashless society is anticipated because of technological mutation in our payment system. Unquestionably, cashless transactions will ensure faster, cheaper and more secure transactions - expanding our economy in enormous ways. We will especially see an explosive rise of e-commerce across the country.

Due to technological disruption in the banking and financial system, traditional branch banking will be obsolete as alternative  forms of financial products and services will emerge. 

That means technological innovation will change the way we are banking now. While it might take years for a traditional bank or financial institution to launch a new financial product or service, fintech startups will appear out of nowhere and start taking their share of the pie.

Technological revolution will create countless opportunities for its stakeholders, however, at the same time it will pose some threats. Data privacy will be one of the biggest challenges. Cybersecurity threats may lead to total failure of the banking and financial system of a country, if the country lacks the capacity and infrastructure to safeguard the financial system against any cybersecurity threat.

Because of the proliferation of easily accessible financial technologies in our financial system, illegal cross border transactions like hundi may be provoked. Besides, the easy to get financial technologies may help build up a strong financial network among the different terrorist groups.

Make no mistake, technological disruption in our banking and financial industry can be a game changing phenomenon, if adopted with the right regulatory framework and technological support. Therefore, regulators should be proactive by keeping the motto of "security first approach".  Complex regulatory changes might be brought to address different threats posed by the upcoming disruption.

To provide an innovative platform to tech companies and banking institutions, the government may establish an institution which will work at the intersection of banking and technology. Our neighbouring country India has already formed such an institution namely Institute for Development & Research in Banking Technology (IDRBT).

So we need to build up a banking ecosystem where tech companies, banks, regulators and end-users are interconnected in such a way that we can manage the potential threats of upcoming technological disruption in our banking industry and only after that we will be able to reap the utmost benefit from our banking and financial system.

Clearly, it is not just about technology, it is a process where people and policy should be aligned with this process. Traditional banks and financial institutions need to equip themselves and revamp their business models in order to remain conversant with this new digital and competitive era otherwise they will continuously lose their existence in the highly sophisticated financial set-up. 

It is as simple as this – go digital or go bankrupt!

Md Shah Jalal is a senior credit analyst and credit approver at a leading non-bank financial institution in Bangladesh. He can be reached at shahjalal248@gmail.com

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.