A news article was published on October 23 stating that eight banks have been approved by Bangladesh Bank to conduct digital banking services. In line with the global experience, as a more advanced and simpler mode of financial transaction, digital banking is supposed to make people’s lives easier and contribute to financial inclusion.
Yet, our understanding of the intricacies of this new banking system in Bangladesh remains limited. Questions linger about its implementation, its approach to serving marginalized communities, and how it distinguishes itself from traditional banking or the Mobile Financial System (MFS).
Admittedly, the concept of digital banking is new in Bangladesh, yet the country has a decade of experience in mobile or digital financial services that are similar to digital banking in some aspects.
Given this background, it would be prudent to consider insights from the MFS industry before venturing into digital banking. To pinpoint the primary obstacles within the DFS journey, the BRAC Institute of Governance and Development (BIGD) at Brac University, in partnership with Quicksand Studio Design Ltd and with financial support from the Bill and Melinda Gates Foundation, recently undertook a research initiative titled “DiFi for All.”
The qualitative study documented banked, under-banked, and unbanked people’s onboarding journey into digital financial platforms focusing on the themes of trust, fear, and privacy. Some of the key insights from this study could be relevant to digital banking in Bangladesh.
Trusting physical locations
The first challenge that could arise in the forthcoming phase of digital banking in Bangladesh is earning public trust. Traditionally, the population of Bangladesh prioritizes cash-in-hand over digital money due to the fear of losing funds, lack of knowledge about checking balances, and fear of fraud.
Concerns remain significant as long as the money is within the mobile wallet. Findings indicate that people promptly withdraw money from their mobile wallets out of fear of losing money. Consequently, people emphasize traditional banks as a place for saving purposes instead of digital accounts, particularly Mobile Financial Services wallets as banks have a physical existence and financial infrastructure. The absence of a physical structure and prevalent negative impressions of digital money will pose a significant challenge for digital banks in gaining public trust.
Sharing details
Another point that could be crucial for digital banking is how it will be aligned with our culture. Bangladeshis generally place a larger focus on the collective self rather than the individual self, which contradicts the fundamental premise of DFS -- individual account ownership. Sharing NIDs, mobile phones, SIM cards, and other account details is a common practice among Bangladeshis.
The BIGD study, for example, found that PIN (personal identification number), a confidential number for accessing the account, is shared widely among trusted individuals for several socio-cultural reasons, including lack of digital literacy and fear of not remembering the number. As an illustration, a village woman surveyed for the study said, “My husband means everything to me. He takes care of the whole family, so he should know everything about me including my PIN.” Thus, an individual product like MFS becomes shared in practice.
Our observations indicate that individuals who are aware that their PIN is shared with others are less inclined to use their accounts for saving or conducting larger transactions. As we don’t yet know the unique code for accessing accounts or financial transactions within a digital banking system, it is essential to take into account the prevailing norms of a sharing culture, especially in regard to the PIN.
Unequal levels of digital literacy
The ecosystem for digital finance is not equal across the country, especially in rural and marginalized communities. Digital literacy, use of personal devices such as smartphones, and internet use, all of which are required for digital banking, are lower in marginalized communities, thereby demanding a special mechanism to bring them under the service of digital banking.
As per a BIGD study in 2022, the digital literacy rate, smartphone access, and internet usage are reported at 29%, 41.9%, and 40% respectively in rural Bangladesh, portraying a dismal scenario for digital banking. Our findings show that MFS agents do not only provide the cash-out services, but also act as hubs with multiple financial services including information on digital finance, MFS account registration, account recovery, PIN reset, cash out, cash in, maintenance of PIN, and so on.
Moreover, the MFS agents are locals and provide services informally that make people’s onboarding journey easier and more comfortable. It remains to be seen if digital banking will target the grassroots communities, which requires special attention for onboarding.
Gender disparity in financial matters
Women experience a number of challenges while using DFS due to cultural norms, societal values, and religious beliefs. Using mobile phones, visiting public places for financial services, keeping confidentiality of account details, and even decision-making power are all perceived negatively for women, thereby limiting their access to digital services. As a result, women typically rely on others, primarily men, for access to digital and financial services, resulting in passive users who get onboarded into digital financial services only when compelled to.
The core goal of digital banking was to expand the financial inclusivity of all populations in the banking sector. To make the services more inclusive and trustworthy, the critical junctures related to digital financial services need to be addressed and scrutinized before the digital banking system is implemented in the financial infrastructure. Otherwise, it might fail to reach the needs of the mass population.
As we transition from MFS to digital banking, we hope to resolve challenges that mobile financial services have confronted throughout service operations, resulting in improved performance.
Faruq Hossain, Senior Research Associate, Brac Institute of Governance and Development (BIGD), Brac University. Aishwarya Sanjukta Roy Proma, Research Associate, Brac Institute of Governance and Development (BIGD), Brac University.
