Digital Bank: Embracing the new reality

When we imagine a modern bank location, many of us still think of waiting in lines and filling out paperwork for cash deposits or withdrawals.

To illustrate, in order to start a new account, it's necessary for us to physically go to a branch and present several forms of documentation. Various complications such as difficulties with transportation, conflicting schedules, and overburdened personnel can exacerbate the situation, ultimately causing delays in the account creation procedure.

That's the reason why the process of incorporating financially excluded individuals into traditional banking systems is still operating at a sluggish pace.

Nagad's introduction of e-KYC has revolutionized the MFS industry, enabling a swift and uncomplicated account opening process that has extended financial inclusion to a significant number of previously unbanked individuals. Other financial institutions have also followed Nagad's lead.

Nagad is committed to providing a diverse range of products and services to individuals from all walks of life. However, we are restricted in our ability to offer every service on our platform. Similarly, due to the significant expenses associated with operating a bank branch and recruiting employees, banks are unable to establish a presence in every remote area.

Nagad, an MFS, has an advantage in this situation due to its ability to reach even the most remote areas of our country.

It's essential for MFS to enhance their services by combining mobile money and banking to take things to the next level. We must embrace the upcoming banking revolution, which will transform the entire banking system into an iPhone application offering all banking services at our fingertips. This is digital banking, and it's coming soon. The Finance Minister has unveiled plans to include it in the FY24 budget, intending to speed up financial inclusion and improve our financial landscape. This change will likely bring about numerous positive and qualitative transformations.

The Bangladesh government has recently given the green signal to digital banks to operate in the country. In order to obtain a license to operate, a digital bank needs to have at least Tk125 crore as a paid-up capital. The bank must follow the guidelines laid down in the Bank Company Act 1991, and the payment service will be governed by the Bangladesh Payment and Settlement System Regulations 2014.

Currently, we are making progress towards creating a digital bank, having completed all required preparations.

MFS providers such as Nagad have demonstrated that they are capable of offering banking services without the need for physical branches, by delivering their services efficiently even in the most remote areas of Bangladesh.

Many individuals who have access to smartphones and the internet are already taking advantage of various banking services that are primarily offered through mobile financial services. These individuals are now seeking a comprehensive financial solution that can be accessed through a single digital platform. However, we are unable to operate in the same manner as traditional banks due to several regulatory limitations.

MFS operators have made significant progress in implementing paperless and cashless transactions, which has reduced the need for personal bank visits. Nagad, an MFS operator, can now function as a digital bank by providing all necessary financial services on one convenient platform for their customers.

In this blog, we'll explore the functioning of a digital bank, which is also referred to as a virtual bank, in Bangladesh. This kind of bank will not have any physical branches, but only a central office. Additionally, there will be a call center to address any customer concerns or problems. Banking services will be provided through websites and mobile applications. Once operational, the virtual bank will conduct big transactions, just like a conventional bank.

When examining the actions of other nations, we can observe that a digital bank's function is broken down into three separate and distinct stages. These phases can be thought of as evaluations or assessments which determine whether or not a digital bank is performing effectively.

Initially, the services offered by the digital bank are restricted to basic retail banking tasks such as managing deposits and withdrawals, providing small loans, and facilitating fund transfers for customers. Once they prove to be proficient in offering these services, they will be given the green light to expand their services, such as lending to small and medium-sized businesses, in the second stage. The third and final stage involves the digital bank taking on more advanced tasks such as handling export payments, settling import bills, and providing large-scale loans.

Regarding Bangladesh, I believe that following the specified procedure is not necessary, particularly for MFS providers who intend to introduce digital banking. This is because Nagad, an MFS operator with a large customer base, already offers several services, and these customers would benefit from the introduction of a digital bank with more extensive offerings.

When it comes to discussing Nagad's progress and future plans, it's clear that they're on the right path with offerings that are personalized to meet customers' requirements. Nagad has also been working hard on refining their services so that they can introduce a digital banking system that offers comprehensive financial solutions.

Once our digital bank is set up, our first goal is to offer loans to small, informal businesses without them needing to provide collateral and with interest rates in the single digits. Currently, many of these businesses turn to moneylenders who can charge up to 40% interest per day. Because they may not have trade licenses or access to credit through traditional banks, we hope that providing them with loans will encourage financial inclusion and lead to more of their funds entering the formal financial system.

We have developed an AI-powered credit rating system to evaluate if someone is eligible for a loan. By analyzing public transactions data linked to an individual's NID and mobile number, our system can determine if it's safe to approve a loan for them. Our dedicated team spent two years creating and perfecting this cutting-edge system, and it's now fully operational. With the swift licensing of Nagad's digital bank, we can begin providing financial services to the public right away.

We currently have over 75 million customers, and I am convinced that this will be our key advantage in revolutionizing the financial market once more. Our aim is to provide all financial services at our customers' fingertips, thus paving the way for a cashless future in our country.

Nagad Limited's founder and managing director is Tanvir A Mishuk.