The e-banking Imperative: Time to Tune in Bangladesh

    Bijon Islam
    Bijon Islam

    As of 2017, Bangladesh has lot of be proud of. We have entered the lower rungs of middle income nation as per World Bank, have maintained a GDP growth rate that is second in the region, with a GDP of ~U$ 200 billion+ is the 34th largest economy and have an impressive ~80% mobile telecom penetration.

    “Digital Bangladesh” is being pushed as a strong economic pillar by the government with both local and foreign capital flowing into the sector. However, the story of e-banking which started back in 2009 when Bangladesh Bank gave a directive to enable online utility bill payments is still gain the momentum the vertical deserves.

    The technological “leapfrog” that the country is experiencing is coupled with a growing middle income tech-adaptable younger consumer class. Currently, estimated at ~12 million the middle income class is expected to triple in size by 2025. This growth in middle and affluent consumers is going to come from all over Bangladesh to near about 33 cities – the burgeoning middle class won’t be restricted to “A tale of two cities” anymore. While all the fundamentals point towards strong usage of digital services by the consumers and internet banking rising by 41% in 2016 (YOY-source: Central Bank) – Bangladesh face several potential bottlenecks that is slowing down prospective growth.

    Where do we see the problems?

    First of all mobile financial services (MFS) especially the success case of bkash was largely dependent on fund transfer and remittance focused towards rural and peri-urban consumers. In terms of financial inclusion the strategy and the penetration was a phenomenal success. However, as of now as MFS is moving into urban markets in digital wallets vertical – the exercise is proving a lot tougher. The urban and affluent consumers are mostly smart phone users and have understanding of how digital wallets work. However, with their understanding comes a set of valid concerns as well which currently inhibits growth.

    As revealed by survey done across 2000+ consumers by LightCastle in 2015, security is a prime concern for the “digital middle class” of Bangladesh – with 70% of the respondents citing reasons like cyber security, smart phone hacking and trust in online transactions. Recent fiasco with the Central Bank fund heist didn’t help the issue either. Banks here have to pick up while there will be growth in credit/debit card sells the main push in digital wallets will come via smartphone integration (Going Mobile! Mobile! Mobile! Is the mantra for Bangladesh). For that adequately addressing cyber security issues will be major challenge considering we are still struggling with ATM security.

    The consumers are increasingly being exposed global quality applications where everything is linked to social media accounts and single sign-ins. Given the finance ecosystem of Bangladesh – where 60% of the adult population is unbanked the digital user experience (UX) is often difficult to free flow. However, even considering that even cursory talks with consumers reveal that the UX and systems indeed need to become more adaptive and friendly if the sector is to reach its growth potential. While FinTech companies like Paytm has made e-banking intuitive in India we are lagging behind.

    The telecom sector boasts a 99% 2G penetration. 3G coverage is spreading rapidly and companies are investing heavily in infrastructure with population density (Bangladesh is the 5th most dense in terms of people/sq. ft. country in the whole world) especially in the cities making the capital flow possible. However, internet connectivity is by no means ideal. There are blind spots, intermittent connections, low bandwidth and often not fully transparent billing. As e-banking progresses consistent telecom driven internet connectivity given that the growth will be extremely mobile heavy will become important.

    How can the financial institutions win?

    Apart from working with stakeholders and being more nimble by partnering with FinTech companies, the FIs can start by taking up digital banking as core part of their growth strategy. While we definitely see the emergence with banks entering in multiple partnerships with telecoms – we are yet to see them come mainstream in digital marketing as opposed to traditional channels.

    The next wave of digital consumers are in the social media and search engine space. They make their decisions here and spend most of their time in second screen (in their smart devices). Hence it’s natural for banks to receive more marketing ROI by investing in digital communications. While FMCG (fast moving consumer goods) and telecoms has largely exploited digital marketing – its time the financial institutions start making digital a core part of their marketing mix strategy.

    A stronger ICT integration focused towards consumer experience would add impetus to growth. This doesn’t necessarily have to come from internal R&D but compared to countries like India where large banks like “Yes Bank” is investing in FinTech Startups to spur innovation – Bangladesh is still at its nascence. Accepting the case of GP, corporate based accelerator programs or investments are yet to pick up and banks at this stage can be pioneers and reap the benefits.

    Lastly, for Bangladesh the game is not just online but that of hybrid mobile. This means a strong digital presence has to be backed by on the ground experience and brand building. Banks would need to focus on brand advocates, peer-to-peer recommendation building, PR events and strong set of partnerships (with consumer product and service companies) that is going to drive demand while ensuring that the technology product is seamless.

    What the government can do to spur growth?

    The government has been extremely supportive of the ICT industry with significant funds flowing into digitization. However, for payment gateway integration a few supports has become essential. At this stage given the mobile internet ecosystem of Bangladesh (~60 million internet users, 95% of whom are on mobile devices) DCB (Direct Carrier Billing) has become an important issue. DCB will allow consumers to directly use their mobile balances to purchase via their smart devices directly. This will make the user purchase experience extremely smooth and will add growth points for the local tech ecosystem who can have a direct monetization channel. The adaptive behavioral change will definitely add to the e-banking growth.

    Centralization of citizens’ database via social security numbers to ensure credit history and accountability will help account maintenance and tracking experience. While we understand that smart card is a good start adding more centralization algorithms will reward consumers with proper credit history and will make due-diligence by the financial institutions a lot more fluid and hassle free.

    Into the Next Level

    Digital Banking is the future – the Telco revolution is a testament that consumers here are adaptable and open to moving into the cyber age. We just need to figure out how we integrate more immersive FinTechs while sufficiently addressing their concerns on security and mobilize the right stakeholders.

    Bijon Islam

    Bijon Islam is specialized in business model development, financial structuring and inclusive business design with 10+ years of experience in corporate/ investment banking (with Citibank, N.A.), private, development and public sector consulting. Co-founder and CEO of LightCastle, one of the country’s fastest growing consulting firm with 100+ projects in 3 years and social ventures like and