Nagad, Kori get licence for digital banking

TBS Illustration

The Bangladesh Bank on Sunday granted digital banking licences to two out of 52 applicants, a senior official of the central bank told The Business Standard. 

The newly licensed banks are Nagad Digital Bank and Kori Digital of ACI.

Besides, three other applicants, each backed by different traditional banks, have been granted permission to establish digital banking windows, said Md Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank.

Another three applicants – backed by fintech firms and other companies – may receive licence after a six-month monitoring period to assess the performance of the initial two digital banks.

The decision came at a board meeting held at the Bangladesh Bank headquarters, with Governor Abdur Rouf Talukder in the chair.

Following the approval of these licences, the central bank will now issue a Letter of Intent (LoI) to Nagad and Kori. The LoI will stipulate a timeline within which the digital banks must establish their infrastructure and launch their services.

Notably, digital banks will function without any physical branches, sub-branches, or ATM booths, and they will not facilitate in-person transactions. These operational guidelines for digital banks were officially made public by the central bank on 14 June of this year.

Digital banks will be subject to governance under the Banking Company Act, as outlined in the central bank's guidelines.

"We are planning to launch digital banking services on 26 March next year," said Tanvir A. Mishuk, founder and managing director of Nagad, a joint venture mobile financial services provider with the state-run Bangladesh Postal Department.

Nagad is confident about the quick launching of the services as it is already using advanced technology.

Monir Hossain Khan, finance director of ACI Group, said Kori Digital is an initiative of a group of sponsors that include ACI, Square, Ispahani, Paragon, Transcom and some other individuals. IT entrepreneur Habibullah N Karim, former managing director of MTB Anis A Khan, Raihan Shamsi and ASM Mainuddin Monem of Abdul Monem Limited are among the individuals who are sponsors of Kori Digital.

"Now sponsors will sit and decide on how to raise capital and build infrastructure within the deadline," he told The Business Standard.

Md Mezbaul Haque revealed that three committees within the central bank meticulously evaluated 52 applications for the establishment of digital banks. 

Subsequently, these committees carefully curated a list of nine prospective digital banks, which was presented during the central bank's board meeting on the following Sunday.

Out of the nine entities considered, the Bangladesh Bank board opted not to entertain a digital banking proposal submitted by an insurance company.

Who can be allowed licences after 6 months?

Three applicants – Japan Bangla Digital Bank, North East Digital Bank and Smart Digital Bank –  may be given the digital banking licences after monitoring the six months' performances of Nagad and Kori, said the BB official.

Of which, Japan Bangla Digital Bank PLC is a joint venture of Japan Remit Finance, a financial transfer and prepaid payment instrument issuer in Japan and some other local companies and individuals.

However, it is not yet made public who are the sponsors of North East Digital Bank and Smart Digital Bank.

Who was allowed to open digital banking windows?

bkash Digital Bank, Digi Ten, and Digital Bank have been allowed to open digital banking windows. A separate guideline will be issued for them.

"We are confused as we have applied under a consortium of 10 banks. How will this consortium open a digital banking window," questioned a managing director of one of these 10 banks.

bkash Digital Bank PLC is an initiative of the leading MFS provider bKash and Brac Bank.

Digi Ten PLC is a consortium of the City Bank, Dutch-Bangla Bank, Eastern Bank, Mercantile Bank, Midland Bank, Mutual Trust Bank, NCC Bank, Prime Bank, Pubali Bank and Trust Bank.

When asked Abul Kashem Md Shirin, managing director of Dutch-Bangla Bank, on the digital banking window, said, "Maybe a new guideline will make it clear".

Digital Bank led by the Bank Asia is a joint venture consortium comprising fintech and other firms where Bank Asia is a sponsor with 10% stakes. 

"Who among the consortium will be allowed a digital banking window or all sponsors will be allowed is not clear," said a senior Bank Asia official.

However, a Bangladesh Bank official said, for a digital banking window, a consortium applicant has to form a subsidiary company first and they do not need to deposit the licence fee.

Criteria for establishing a digital bank

Bangladesh Bank has set the minimum capital requirement for a digital bank at Tk125 crore when a conventional bank requires minimum Tk500 crore to get the licence.

The minimum shareholding of each sponsor will be Tk50 lakh (maximum 10% or Tk12.5 crore), according to the guidelines.

Difference between digital and conventional banking

The distinction between digital and conventional banking is not always black and white. Many traditional banks now offer robust online banking platforms, blurring the lines between the two. 

Customers often choose between digital and conventional banking based on their individual preferences for accessibility, convenience, and the range of services offered.

Yet, digital banking and conventional banking differ in several key ways.

Digital banks operate solely online, with no physical branches, while traditional banks offer in-person services through physical branches in addition to online banking options.

Digital banks often have lower operational costs, as they do not need to maintain physical branches. This can result in lower fees, higher interest rates on savings, and more competitive loan rates.

Digital banks primarily offer core banking services like savings, loans, and payments, often complemented by innovative fintech products. Conventional banks, in contrast, provide a broader spectrum of financial products and services, encompassing banking, investment, insurance, and wealth management.

Digital banks lead in tech innovation with mobile check deposits, budgeting tools, and real-time alerts. Traditional banks, while slower to adapt, have improved their online and mobile services in response to digital competition.