'Digital bank a gateway to reaching millions of lives'

There are 61 commercial banks and many mobile financial services (MFS) in Bangladesh as well as agent banking run by banks to serve unbanked populations. Why do we need digital banks?

Many banks in our country have MFS licences. But MFS and agent banking are different from digital banking. Many banks including ours have digital banking divisions but the question is why do we want fully digital banks? 

One of the reasons for this is that it is not possible to propagate cashless services, as the government wishes, with a small division and provide services to villages especially those in remote areas.

Infograph: TBS

Besides, EBL cannot realistically open branches in thousands of villages across the country. The digital banking division is also facing limitations in reaching remote areas. To address this challenge, a consortium of banks, has decided to pursue digital bank licences recognising the need for broader accessibility. 

This strategic move aims to enable these banks to expand their reach to even the most remote corners of the country.

Why are conventional banks so eager to get licences for digital banks?

First of all, there are some inspirational factors that actually led some conventional banks to seek digital banking licences. I have heard that as many as 52 applications have been filed by banks, insurance companies, mobile financial service providers, Telcos, and Fintech firms who want to launch digital banks. Let me share with you some interesting statistics:

The number of internet users in Bangladesh is expected to reach 200 million by 2025 and the number of smartphone users is expected to reach 150 million by 2025. On top of it, the government has set a goal of achieving 100% financial inclusion by 2025. All of these point to digital banks.

Second, the initial paid-up capital for opening digital banks is very low, only Tk125 crore, which is a very low contribution for individuals to become sponsors.

Third, the runaway success of the MFS business landscape in Bangladesh has acted as a major catalyst and motivation to go for a digital bank. bKash has become more of a household name with high visibility and presence all across Bangladesh and turned mobile money into a kind of alternative currency.

Fourth, banks like ours as I said before are no strangers to digital banking and digitisation. In fact, we have a dedicated team of Digital Financial Services (DFS) with a pool of talented resources constantly thinking of innovative solutions and management. Our Skybanking app and corporate fund transfer tool EBL Connect is gaining popularity and market share day by day.

How can a digital bank add value to regular banking?

If you look at the central bank's guidelines for the digital bank, services will be provided to customers only using mobile and digital devices without any branches, sub-branches, or ATM booths.

There will be no in-person transactions or issuance of any physical instruments. Likewise, digital banks would not be permitted to give out loans to carry out foreign trade and term loans to medium and large industries. A digital bank will have its head office in Bangladesh and this office will be used by the bank's management and support staff, where customer complaints will be logged and settled either in person or digitally.

So essentially, we are talking about a full-fledged "virtual bank" that will be compliant in all material respects and that requires massive investment. 

The proposed digital bank can very well align with the government's vision of building a digital Bangladesh, a smart Bangladesh and a cashless society. It will also fulfil the aspirations of bringing the massive unbanked population to the banking system and materialise the vision of full-fledged financial inclusion.

On the product proposition side, first and foremost, a digital bank can make the onboarding journey of the mass customer easy with only an internet connection. The eKYC (electronic Know Your Customer) and connectivity with the NID database are already there, so a customer can transfer and spend money online, via the networks of any other bank or MFS agent, ATM booth, CDM and CRM systems. Digital banks can also introduce virtual cards, QR codes or any other advanced technology-based products to facilitate transactions.

Digital banks will prioritise the development of an innovative and user-friendly mobile banking app that includes features such as budgeting tools, expense tracking, and personalised financial insights. This will empower customers to take control of their finances and make informed decisions. 

Digital banks will prioritise the integration of Al-driven chatbots like customer support, personalised product recommendations, and so forth. Data analytics will be employed to gain valuable insights into customer behaviour and preferences, enabling us to continuously improve our offerings along with loT (Internet of Things) and next-gen innovations.

Why does EBL want to set up a digital bank when it already has a massive footprint in digital banking with its conventional banking licence?

Currently, around 90% of transactions through MFS in our country are cash-out transactions. Using MFS services such as bKash and Nagad, customers can go to any agent and withdraw cash using the cash-out feature. Very few people keep money in their MFS accounts.

Through our digital bank, we want the customers' money not to be cashed out. It will go all the way to ensure that customers can make digital payments.

Our approach will be similar to eCommerce in which customers' money is transferred through different apps instead of being cashed out.

The government's aim is to establish a society where people do cashless transactions. One of the reasons for introducing a digital bank is that customers won't have to carry cash for any kind of transaction.

What advantages do you foresee in adopting a digital bank, both for the bank and its customers?

At a certain time, digital bank entrepreneurs will ask for returns or its share value will increase. The bank's investment and board's strategy will tell when the company will be profitable. There will be less profits with mere investments but if you expand the planned services, there will be bigger profits.

At present, the service that conventional banks are able to provide individually, the same service can be provided digitally through digital banks. This will reduce the wastage of customers' time and the banks will be able to make profits by focusing on the services.

Digital banks will make profits from places that conventional banks cannot reach. Setting up a branch/sub-branch in remote areas will cost conventional banks more but digital banks would not have to set up outposts. Despite that, digital banks will profit by providing services to people in those locations.

It will also help conventional banks because digital banks will use the ATM and POS machines of conventional banks and they will get a share of the profit. That way, both institutions will benefit. The bank which has no customers got profit and the bank which has no branches also got profit.

Customers have to open a digital bank account using a mobile app and there is no need for any paperwork which means that a digital bank will be able to open the account a hundred times faster than a conventional bank.

Different types of services will be linked to the app. Customers would get a loan through the mobile phone. There is no need to go to banks to pay instalments. Customers will just transfer money from account to account.

We want to set up a digital bank as we are thinking about these issues. A marginal customer will get all kinds of banking services through a mobile app which will bring radical changes in the way of banking.

Have you assessed the activities of digital banks in other countries of the world?

Yes, we have. The global success rate of digital banks is around 4-5%. We are just starting up and the government has given various instructions for us. But banks have to invest a lot and the success rate will be lower.

e-commerce platform Daraz is currently the most successful start-up in Bangladesh, followed by another platform Chal Dal. There is no denying that the chances of failure are high for doing something new but there are chances of success as well. That is why we have formed a consortium of 10 banks. Our concerted strength will be greater than other operators who get licences for setting up digital banks. Our confidence will also be much higher.

At what stage will the digital bank be able to make a profit?

It took at least three years for the fourth-generation banks to make a profit. Conventional banks cannot make any profit in the first year of setting up a branch anywhere. Similarly, how long it takes for a digital bank to make a profit depends on the business strategy and the amount of investment. Right now, it is not possible to say how many years it will take to make profits.

Some have invested Tk125 crore and some Tk200 crore. He who invests more will be able to go further and make more profits. For digital banks, more investments will be required in technology and marketing.

Those who applied for digital bank licences had to submit their model of strategy to the central bank. Some will take a conservative approach while others will be more aggressive in expanding services.

Why should customers choose a digital bank for loans and deposits?

When an organisation's cost of funds is low, it can offer high-interest rates to customers. Digital banks will not have any costs in branch operations. They won't have to buy ATMs and POS machines or have to set up booths.

As a result, digital banks will be able to offer higher interest rates for collecting deposits from customers than conventional banks. The interest rate on loans to customers will also be lower because the operating costs are lower.

When there are several digital banks, customers will decide which one to trust and which one will offer a higher deposit rate. Digital banks also have to play a major role in boosting the confidence of the customer base.

Digital banks must strive to gain people's trust early on. But trust will come gradually. When bKash was launched, initially no one wanted to open an account. But gradually people's confidence increased and the number of accounts also increased, transactions as well.

The same will happen for digital backs. In the beginning, many customers will be reluctant to open an account because they already have traditional bank accounts. But as they see better services, they will slowly start to rely on digital banks.

What is the role of cyber security in the management of digital banks?

Cyber security should be increased to provide digital banking services. Currently, we have some people called "ethical hackers" in our bank. Their job is to try to hack their own site in order to make it more secure.

On the other hand, we have firewalls to protect our sites from hackers. These firewalls need to be updated regularly. For digital banks, we will need stronger firewalls.

Is there a skilled workforce in the country to manage digital banks?

Of course, we need to build experienced manpower. People who are currently working on our bank's digital site can be helpful for digital bank operations.

Another thing to look forward to is that our younger population is less interested in taking traditional banking services. They transact through online banking. There was a time when customers had to come to banks to issue demand drafts and pay orders. Now, everything is digitised and the new generation is taking advantage of this. For digital bank operations, we have to train younger people.