Over the last three years, Bangladesh's digital payment channels have gained significant traction, including the adoption of QR codes, mobile banking apps and digital wallets.
With increased FinTech investment, 67% of banks see a potential boost in their retail business.
Not only that, 87% have witnessed greater adoption in payments via digital channels compared to credit cards and current accounts and savings accounts (CASA), according to a joint survey by the Association of Bankers Bangladesh (ABB) and PricewaterhouseCoopers (PWC).
The report stated that financial inclusion in Bangladesh has increased in the last five years, with wider access to microcredit and growth in digital finance services (DFS) adoption and product alignment.
With Bangladesh having invested significantly in its digital infrastructure, wider use of mobile phones and increasing access to the internet, people have begun adopting DFS such as mobile and internet banking, digital payments and agent banking.
As per the ABB Digital Transformation Survey 2023, in the past three years, 86% of survey respondents have focused significantly on process redesign and digitisation in retail banking, followed by corporate banking and SME.
Furthermore, 67% of the respondents believe that increased process digitization has helped them achieve retail business growth.
Banks have witnessed digital disruptions across the value chain in areas such as customer acquisition (in the form of digital distribution partnerships and sales assist models), customer servicing via digital channels, risk management and underwriting via alternative data strategies as well as innovations in product design and middle/back-office operations.
From a value chain standpoint, customer acquisition is the area in which Bangladesh's CXOs have invested the maximum time and effort to bring about digitization (42% of respondents).
It is interesting to note the different technology strategies banks in Bangladesh are adopting to seize the available growth opportunities.
When asked to rank the most important technology area that they plan to invest in in the coming years to transform digitally, 43% of the respondents selected API-enabled integration platforms as the top priority.
The next priority differed by generation. Respondents from banks that started operations prior to the 2000s (first and second-generation banks) considered omnichannel platforms as their next most common top priority (35%), whereas respondents from banks that started operations post-2000 (third and fourth-generation banks) considered upgrading digital channels (internet and mobile banking) as their next most common top priority (23%).
Managing Director and CEO of Brac Bank and Chairman of ABB Selim RF Hussain said: “Recent years have seen Bangladesh's FS sector undergo a rapid transformation, propelled by the adoption of FinTech models and the proliferation of digital payment platforms. This positive development has been further bolstered by regulatory initiatives, strategic partnerships and business innovations by various incumbents in the FS industry, and ecosystem enablers like MFS and FinTechs.”
“These efforts have expedited the impact of digitization on the banking value chain. Despite such progress, a significant portion of the population in Bangladesh remains underbanked and underserved, highlighting the untapped potential for FS providers in the country.”
“All ecosystem partners must collaborate towards the common goals of improving financial inclusion and driving sustainable economic progress to ensure the continued expansion and growth of Bangladesh's DFS landscape,” he also added.
According to the “Monthly Economic Trends – February 2023” report by the Bangladesh Bank, as of December 2022, the number of Internet banking customers has crossed 6.2 million, seeing 40.83% growth over December 2021.
On the other hand, the number of mobile banking subscribers grew by 12.57% over the same period, crossing over 191 million as of December 2022.
Another report from Bangladesh Bank showed that the total value of transactions made through Internet banking channels in 2022 was Tk224,958 crore, which is an increase of 123% compared to the previous year.
Expansion of mobile money and digital wallets
During ABB's Digital Transformation Survey 2023, 77% of respondents mentioned that they were actively partnering with MFS players.
Mobile money has emerged as a key driver of financial inclusion in Bangladesh, with MFS platforms gaining significant traction.
According to the e-Banking and e-Commerce Statistics Unit of Bangladesh Bank's Statistics Department, the total number of MFS agents and personal accounts was 194,125,137 as of January 2023 compared to a mere 67,670,468 in December 2018 (amounting to an approximate CAGR of 30% over the period).
The report also said that mobile money players, as well as banks, have seen a spike in digital remittances in recent years.
Some MFS providers have entered into partnerships with foreign banks and money transfer operators (MTOs) to facilitate cross-border transactions.
With the growing remittance inflow into Bangladesh, which stood at $21,031.68 million in the first six months of FY2021–22 (an increase of 2.5% from the same period in the previous year), there is potential for MFS providers to further partner with cross-border payment solutions providers for convenient and cost-effective remittance disbursement.
In November 2022, Bangladesh Bank launched an interoperable digital transaction platform (IDTP) to make transactions across banks, MFS players and payment service providers seamless, and boost digital financial transactions.
Initially, the application incorporated three MFS operators, one wallet, one state-owned commercial bank and nine private commercial banks.
The ABB Digital Transformation Survey 2023 was conducted by ABB and PwC from March to April 2023 to analyze the digital transformation strategies being adopted by banks in Bangladesh.
The survey aimed to assess the current and future priorities of Bangladeshi banks in terms of their DFS strategies and technologies they are looking to leverage to overcome their current challenges.
In addition, it sought to explore the use of ecosystem strategies (for instance, partnerships) by Bangladeshi banks as well as areas where interventions by regulators and policymakers could be impactful.
CXO-level executives from 39 banks participated in the survey. Based on the year of establishment, the survey responses have been categorized into four segments – first, second, third and fourth-generation banks.