Weathering the economic storm that the pandemic offset was not too bad a sail for Bangladesh. The reason? A slow yet steady digital revolution paved the way for a strong GDP despite inflation and its far-reaching consequences.
Digital disruption has been a key driver of the country’s growth, development, and unwavering resilience. The current landscape looks ripe for innovation since the government of Bangladesh has been a strong ally for technological advancement in the financial sector and particularly aims to expand access to financial services to the unbanked(micro and small-scale homegrown informal groups/businesses).
In this blog, let’s go over the growth trajectory that has been defining Bangladesh’s digital narrative within the financial and banking services space.
Over the last couple of years, digital disruptions have broken entry barriers turning around overnight success stories across healthcare and e-commerce industries. However, the same narrative cannot be pinned to the financial services industry. Growth has been consistent yet slow owing to a highly regulated environment, particularly with mainstream banking and traditional services still continuing to lead the game. Bank-led innovations in the fintech space have taken centre stage, while independent fintech organizations have not realized their fullest potential. Let’s look at a few.
API banking: A huge step in the direction of API banking was taken in early 2020 when Bangladesh Bank signed a Memorandum of Understanding (MoU) with the ICT division. It set the stage for building an interoperable system of digital payments in the country by opening up the floodgates of accessibility to a host of digital services under one API (Application Processing Interface). By creating a bridge of transactions between various payment service participants, such as customers, merchants, payment and receivables, payment processors, e-wallets, banks and financial institutions, payment system operators and non-governmental organizations. API banking has the potential to revolutionize how people in Bangladesh interact with banks and other financial services providers. It helps new entrants cut into the market seamlessly, by removing several barriers to entry and enabling new opportunities for startups, fintech, and tech companies in Bangladesh that are going all out with tools and techniques for disrupting traditional finance models. This also plays a significant part in financial inclusivity in the country.
Prepaid banking and cashless transactions: Contactless transactions, an offshoot of the pandemic, have significantly accelerated e-wallet adoption in the country. As consumers continue to redefine their needs for increased financial accessibility and inclusion, several campaign partnerships are on the rise with many prepaid solutions leveraging APIs to enhance digital payment experiences through integrated, secure, and seamless transactions. The rise of prepaid banking solutions is significant in realizing how consumer needs are shaping a new narrative with their increased dependence on digital transactions for everyday needs. Nagad, a digital financial service, is an initiative by the Bangladesh Post Office that brings the best of electronic money transfer system and postal cash card service to facilitate e-transactions, enable P2P money transfer, and carry out mobile top-ups. Recently, the central bank of Bangladesh has ramped up approval for contactless debit and prepaid card payments via setting a PIN-free transaction limit of Tk3,000 (US$35). This also mandates card issuers to notify customers of transactions through SMS and set a daily limit on the number of contactless payments cardholders make.
Fintech platforms: Several traditional banks have built their own Fintech platforms in the country, and examples include Dhaka Bank Limited (DBL), that has introduced diversified services and uninterrupted banking, and Bank Asia is planning to build a neobank targeting Gen-Z. Islami Bank Bangladesh plans to launch real-time online investment banking.
What’s the future like?
According to PricewaterhouseCoopers (PwC)’s 2021 Global FinTech Survey, regulation continues to be one of the top three challenges for FinTech firms in the country, given that they tend to shelf innovation or build a sentiment of skepticism. The way forward would be to adopt a technology-first approach to public-private partnerships to build a thriving financial ecosystem that will set the stage for future innovation. Combine this with a liberal financial outlook from the Government, and private firms would be able to capitalize on it to dish out collaborative solutions for financial innovation and inclusion.