'Conventional banks have to meet and surpass new industry benchmarks to stay competitive'

What is the reason behind this sudden rush for a digital bank licence?

In my opinion, it is actually not a rush; it is rather a timely initiative. However, of course, there is a kind of rush for those who do not have the foundational groundwork in place to go for digital banks. By this, I refer to those who currently lack a strong digital presence in their organisations (which is an indication of their lack of digital aspiration) and yet are opting for digital banks. They are not ready and they are indeed rushing. 

Digital banks are indeed the future of banking in Bangladesh. You see, large-scale digital transformation always requires a certain push at certain intervals. Sometimes it is planned, sometimes unplanned. Take Covid-19 for example: Nobody could have planned for it, but the Covid-19 pandemic gave a huge unplanned boost to digital transformation in Bangladesh. 

As a result, Bangladeshis became more digitally literate (although it is still low at about 32% of the total population) and banks started offering more and better digital banking services. The digital bank licence will be a huge boost and cause even more rapid growth in the digital transformation of the whole banking industry.

The reason is that digital banks will change the service benchmarks in the banking industry and customer expectations from the banking industry. Imagine a customer getting used to getting a loan from a digital bank within two minutes. This same customer will simply not accept the conventional bank's five to six days' time for the same purpose. Conventional banks will have to meet and surpass the new industry benchmarks to stay competitive and offer value to customers. This is how digital banks will shape the banking industry.

Why are traditional banks opting for digital bank licences though they already have internet banking?

The answer is simple. If you want to transform a conventional bank, you will need to do some activities like process review and re-engineering, culture transformation, employee reskilling, business model transformation, core system upgrades and modifications like CBS, CMS and many other change management activities. All these activities cost a huge amount of resources and time. But a new digital bank can start with a fresh, digital-centric culture and infrastructure and start producing optimal performance from day one.

What a traditional bank will need five years and millions of cash to do, a digital bank can do from day one of its inception. Also, being a stakeholder in a digital bank will grant hands-on experience and benchmark knowledge needed for the traditional bank to successfully transform digitally. This is actually an example of the fundamental difference between design thinking and grand design thinking. In design thinking, you simply add layers upon layers of new requirements on an ad hoc basis, and in the end, you have a mess. But with the grand design principle, you envision the future and build it cohesively. Therein lies the difference between conventional banks (which largely follow design thinking principles) and digital banks (which will largely follow grand design principles).

Also, from a regulatory point of view, conventional banks going for new digital products and services need to spend time getting approval for each and every digital initiative, whereas, for digital banks, all activities fall within the digital bank guidelines and do not require any such approval. Hence, new digital products and services can be offered to customers at a much faster rate by digital banks.

How will digital banks save time and money for overall banking operations and for customers?

Digital banks are not allowed to have any physical presence except the head office and any customer-facing employees. Hence, digital banks will have to offer products and services that rely on automatic processing and instant to quick delivery, all of which are entirely based on data verification from various integrations with government servers and partner organisations' servers.

So, less manpower and thus fewer man hours will be needed, and customers will get the desired banking service instantly or very quickly. Also, digital banks can ensure scalability. As there is no reliance on human personnel to provide banking services, it does not matter if even 100 million customers take the service of a digital bank because it is all system-based. The same kind of volume can never be handled by a traditional bank using traditional means.

Then what will be the main differences between digital banks and internet banking?

Digital banks and the online platforms of conventional banks will be similar in one way: user interface and user experience. But the main difference will be in the backend processing of the customer service requests. Imagine two customers applying for loans through the digital bank app and the conventional bank app.

Even if the frontend experience is the same (which may not be the case as many conventional banks' apps are poorly designed and some do not even have apps at all), the digital bank app will be able to process, approve and disburse the loan instantly or quickly. But the conventional bank will take five to six working days as the processing is entirely manual. So, even though the input may be the same, the output will not be the same for the digital bank apps and the conventional bank apps.

Will digital banks face more cybersecurity threats? How will they protect customer data?

Digital banks will face increased cybersecurity threats because they are entirely data-based, and as such, they are more lucrative for cyber terrorists and hackers. Protecting customer data and ensuring data privacy must be a top priority. For this, digital banks have to use the most up-to-date solutions and tools to prevent data breaches, brute force attacks, malware, and ransomware.

A proper data encryption tool also needs to be used. At the customer end, multi-factor authentication (MFA) needs to be introduced, and customers must be made aware of how to protect their data from leakage. Unscrupulous cyber security threats will always target banks, and more so, digital banks, but all banks must remain extra vigilant and proactive in ensuring maximum data security and safety.

What will be the advantages of the growth of digital banks in Bangladesh? Are there any obstacles, too?

We have the highest demographic dividend in the world, so the strongest younger and tech-savvy customer segment will be easily reached. We have better tech orientation and adaptation, as evidenced by the popularity of MFS, so digital banking's popularity will also grow exponentially.

Moreover, there is still more than 50% of the unbanked population, so there is the opportunity for digital banks to grow and capture market share without impacting any other players in the banking industry. Unserved and underserved CMSME is around 11–14 million, so there is ample scope for financing and ensuring financial inclusion.

But there are obstacles too. The only effective and convenient channel for a digital bank to reach the customer is through a digital device. But unfortunately, we have only around 35% digital inclusion, so greater financial inclusion will not bring the greater good until and unless we have full-fledged digital inclusion.

Additionally, very few have an end-to-end understanding of the customer journey of loan disbursement and repayment. In the digital modality, whenever a customer gets a loan, he gets an SMS confirmation, and the loan is disbursed. So, what is the available channel for him to withdraw this money and also to pay back the money to the bank using only digital and cashless means?

Payment economies and infrastructure are also not robust enough to support cashless transactions everywhere in the country for every purpose. National digital infrastructure and related infrastructures, considering neighbouring countries, especially India, are not sufficient to cater to all services through digital channels. 

Like I said, in many areas, people still have to climb trees to get cell network coverage on their mobile phones. In such an ecosystem, all people cannot enjoy the benefits of digital banks and their ecosystem.

Considering a full-scale digital bank that has a dependency on the level of artificial intelligence turning into auto-generated intelligence, at least a 4G network for all people, secured data sharing infrastructure interlinked with Web 3.0 and next-generation technologies, and national data rail, Bangladesh needs to go a long way in blending together all the aforementioned things.

Will you have enough skilled manpower to run digital banks?

There is not enough skilled manpower to run digital banks. Although there are a huge number of traditional bank employees, there is hardly the required number of digital banking-savvy personnel required to run digital banks.

However, we will have to manage resources from a combination of bank resources who understand digital, digital resources who understand banks, and those who can think from the customer point of view and design the easiest customer journey. Still, I believe that a lot of talent is there, maybe in different industries; we just need them to transform into bankers.