The shortcomings in Bangladesh's digital banking

When it comes to digital finance or banking, there was a time when people only thought it meant chatbots or paperless operations. Those times and that notion has changed dramatically due to the inevitable shift in people's mindsets following the worldwide pandemic. 

Providing finances mostly through non-physical means, which include app-based requesting systems, no printed paperwork, no filling out forms and transactions through e-wallets, is actual digital finance. 

According to the UN, digital finance can help 70-100 million affected populations around the world who are pushed to extreme poverty due to Covid-19 breakout. But only if we properly understand and implement digital finance and rule out the myths.

Before pointing those out, we need to realise that digital finance in Africa and in the Asia Pacific are poles apart. Therefore, expecting a single solution that fits all will simply not work. It depends on various factors such as digital literacy rate, young population portion, digital adoption rate, government regulations, transaction behaviours, impact of finances on users' lifestyle and disposable income, and most importantly, how frequently the market needs finances.

In simple words, with the most basic financial services consisting of savings, investments, payments and credits, the financial system includes the savers, borrowers, investors and taxpayers overlapping one another. Opening an account by not being physically present in the bank's branch is the first step toward going digital.

Perhaps, providing financial access through digital channels would get more returns than just opening accounts. Bringing transactions in digital channels is, indeed, the real challenge here. Let's refer to the 2016 Brookings Financial and Digital Inclusion Project (FDIP) report which analyses the access and usage of financial services in 26 politically and economically diverse countries, Bangladesh happens to be one of them. 

The report revealed a scorecard of the countries based on four dimensions — country commitment, mobile capacity, regulatory environment and adoption rate. Kenya stood 1st with 84% whereas Bangladesh was 19th with 66% score. With a 25 million adult population, Kenya's adoption rate was 78%; however Bangladesh got 39% in adoption with a 106 million adult population. 

Lack of account penetration strategy for the lower-income groups by the banks and adults not using online payments for bills and purchases drove the score down for Bangladesh. Hence, it has become imperative that we quarantine the  digital finance fallacies to blue-pencil these two major shortcomings.

That only people who have bank accounts mostly need financial products and services is a basic myth. People who do not have bank accounts, in fact, may require more financial access than the ones with bank accounts. Global Findex Database indicates that 62% of the global adult population have bank accounts; out of which, 27% save in banks, 18% receive salaries and pay bills and only 11% borrow from banks. 

So, have we designed digital finances for the ones without bank accounts?  The approach to gathering basic identity information through physical documents to "know your customer" slows down the growth of digital banking or finance. It may sound presumptuous to some, but digital identity or traceability can be an essential part of digital banking. 

Coming back to digital finance, do we really need an account in that particular bank to finance the borrowers? Couldn't we just transfer and adjust from another bank? The banks should be "comfortable" if you as a borrower transact in that bank.

Besides, it's time to think from the customer's perspective, not a bank's. The financiers still believe in papers and wet signatures in all procedures– from application to deal closure. Each of these processes, on papers, requires a separate application and feeds a separate silo in the back-office. This can be highly irritating to the customers, especially for business customers requiring a large number for forms. 

In addition, Banks should optimise the system for a better customer experience to save the customers time and hassle. 

For example, introducing a mobile app with the highest possible prefilled sections from the internal system and using an API-based service layer to adapt the data can be the first steps.

API (Application Programming Interfaces) is basically a piece of software that acts as an intermediary between other pieces of software, Google says. APIs can certainly help them connect to outside address lookup and aggregation services, and save them from asking for the same information twice.

Before going digital, forget about the monolithic banking structure and the one-size-fits-all approach. The banks have back-office for production, semi-office and front-office for distribution. While production requires predictability and long-term impact of any changes, distribution prefers agility and freedom to respond to customer needs. 

Digital finance becomes difficult when there is a single integrated system that requires one change in distribution in order to add another one in production. Though the data flow between these two ends is critical, it will bring better results if changes in one end do not affect the other.

People love to use smart devices to get things done because of the conveniences and quick accomplishments they offer. From getting a cup of coffee to buying a flat, in almost every activity of life, one prefers a hassle-free experience. 

Initially, the big players termed the digital banking customers as niche markets. 

However, with the rise of robotics and machine learning in credit history, bulk corporate payments, use of mobile financial services in G2P transactions, bill collections and rising demand for research of online customers, the initially-termed-niche markets are turning out to be the mainstream. 

Before hopping to announce, think about what we need more – a super-app for digital devices or plush offices?

Adnaan Jamilee is a Financial Services Professional

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