How innovations are transforming banking in Bangladesh

The adoption of digital technology has significantly transformed Bangladesh's financial sector in the last one-and-a-half decades, bringing millions under banking services that have even reached the village level.

The transformation made it easier for customers to get these services as they can perform their transactions from the comfort of home.

Apart from the modernisation of the traditional banking system, the introduction of Mobile Financial Service (MFS) providers, payment service providers, and fintech has also played a vital role in adopting technology in the country's banking system.

Besides, agent banking took banking services to villages; banks are rolling out cash recycling machines (CRMs) that provide faster deposits; and internet banking is facilitating the customer's smooth cash withdrawal, deposit and fund transfer services.

MFS

Over a decade earlier, availing financial products and access to financial services were unavailable and unaffordable for many individuals and businesses in Bangladesh.

But the introduction of MFS, which allows its customers to conduct financial transactions remotely using a mobile device, has paved the way for millions of people to be included in the financial system. 

Over 18 crore account holders now conduct 2 crore transactions through MFS each day.

Dutch Bangla Bank appeared first in March 2011 with its "DBBL Mobile", later rebranded as "Rocket".

Today, MFS operators register Tk 3,000 crore in average daily transactions, employing 11.23 lakh agents.

Now it is possible to top-up mobiles, pay at shops and e-commerce platforms, utility bills and various educational fees, transfer money among banks, send remittance, receive education stipends and much more.

''In just a decade, within a clear regulatory framework, Mobile Financial Services (MFS) have made money's toughest last mile journey much smoother in Bangladesh. Unbanked, and underbanked, millions now have access to some of the most advanced financial services through just their basic mobile phones. MFS is now a powerful tool for people's financial freedom,'' shared Mahfuz Sadique, Chief Communications Officer at bKash.

Apart from the modernisation of the traditional banking system, the introduction of Mobile Financial Service (MFS) providers, payment service providers, and fintech has also played a vital role in adopting technology in the country's banking system.

AGENT BANKING

In 2012, Bangladesh Bank introduced agent banking in the country by issuing a guideline, aiming to provide a safe alternate delivery channel of banking services to the underprivileged and under-served population who generally live in geographically remote areas beyond the reach of traditional banking networks.

The agent banking sector saw rapid growth as an alternative to the branch-based banking model in Bangladesh, especially in rural areas, where setting up full-fledged offices is not commercially viable because of their low business volume.

Usually, basic banking services such as cash deposits, cash withdrawals, and receipt of remittances are provided through agent banking. Apart from that, banks have also started disbursing loans through their agents.

Transactions through agent banking accounts rose 43 per cent year-on-year to Tk 5,64,844 crore in fiscal year 2021-22 as a growing number of people are now using the new banking window, shows Bangladesh Bank data.

In fiscal year 2020-21, the amount passing through these accounts, opened through agent banking services, stood at Tk 3,94,068 crore.

Bank Asia introduced the country's first agent banking services in January 2014.

 Apart from the sharp growth in transactions, the number of agent banking accounts, meaning accounts opened by agents, has also increased year-on-year.  The number of agents across the country stood at 14,300 as of June 2022 while it was 12,930 in the same month the previous year. The number of agent banking outlets rose to 19,738 from 17,147 during the period.

Apart from the sharp growth in transactions, the number of agent banking accounts, meaning accounts opened by agents, has also increased year-on-year.

The total number of agent banking accounts stood at 1.6 crore in June 2022, up by about 31 per cent from the same month a year earlier. However, there was 54 per cent growth in the number of accounts in June 2021 from the same month of the previous year.

According to Bangladesh Bank data, 79.80 lakh males had opened agent banking accounts as of June 2022, a year-on-year growth of about 20 per cent.

As of June 2022, out of a total of 19,738 agent banking outlets, 17,005 were in rural areas while the rest were in urban areas while 12,115 agents out of a total 14,300 were in rural areas, shows central bank data.

In the case of the number of transactions, more than Tk 1.85 crore out of 2.25 crore transactions in total took place in rural areas.

As per central bank data, the deposit balance was Tk 27,754 crore as of June 2022, up from Tk 20,218 crore in the same month of 2021.

Banks disbursed Tk 671 crore in loans through the agent banking system until June this year, up from Tk 456 crore in the same period last year.

"Agent banking has brought an enormous enthusiasm in the rural economy," said former managing director of Bank Asia Md Arfan Ali, who led the advancement of agent banking in Bangladesh.

While it is providing banking services to disadvantaged unbanked people, it is also a cost-effective model for banks, he said.

"In future, banks will go further with this partnership model," he added.

Thanks to the growing use of internet banking, people can now deposit and transfer funds any time, from anywhere, eliminating the necessity to visit a physical branch of a bank.

INTERNET BANKING

In 2010, banks started taking up a wide range of initiatives as a part of their efforts to encourage customers to adopt the digital window.

Thanks to the growing use of internet banking, people can now deposit and transfer funds any time, from anywhere, eliminating the necessity to visit a physical branch of a bank.

Besides, they can comfortably recharge their mobile phones, and pay utility bills and rent.

Transactions through internet banking in Bangladesh more than doubled in the last fiscal year as a huge number of people, especially the young generation, are using the platform to carry out financial activities.

The outbreak of Covid-19 in early 2020 has turbocharged internet banking as the virus forced people to turn to technologies to communicate, work, study and find entertainment.

In fiscal 2021-22, transactions shot up 122.60 per cent year-on-year to Tk 224,958 crore, as per data from Bangladesh Bank.

Mohammed Monirul Moula, managing director of Islami Bank Bangladesh Ltd, said thanks to the fast-growing internet users and availability of smartphones and digital services, internet banking has gained huge popularity over the years and brought visible changes to customers' banking habits.

In Bangladesh, the number of customers using internet banking stood at 5.35 crore in June, an increase of 47 per cent from a year earlier, central bank data showed.

The central bank had provided support to banks at the height of the pandemic so that they could expand their internet banking operations.

CRM

Banks in Bangladesh are consistently introducing new technology to make banking services easier for customers. Cash recycling machines (CRMs) are one such technology that transforms the country's financial sector.

Banks are aggressively installing CRMs to provide faster deposit and cash withdrawal services to clients, a move that is helping customers cut reliance on branches and giving them more freedom to carry out banking activities.

The CRMs are set to make cash deposit machines (CDMs) obsolete, which only allow injecting cash, and replace automated teller machines (ATMs), which permit fund withdrawal, said several bankers.

A CRM accepts cash, counts the notes, authenticates them, and credits the amount to accounts on a real-time basis, helping banks do away with the manual labour needed for the service.

The new technology is also allowing users to deposit and transfer cash in others' accounts. In Bangladesh, banks started setting up CRMs in 2017.

As of July this year, the number of machines was 1907, up from 208 three years ago, data from Bangladesh Bank shows.

e-KYC

Opening an account without visiting a bank has always been a cumbersome task for customers. 

In January 2020, the Bangladesh Financial Intelligence Unit rolled out the electronic Know Your Customer (e-KYC), facilitating clients to bank accounts in just five minutes, a procedure that previously took two to four days.

The system is now cutting the existing KYC-related cost by as much as 80 per cent.