Why digital banks may be more successful

Bangladesh Bank issued comprehensive guidelines for establishing digital banks in mid-June. This important decision has generated a lot of excitement among different groups, including major banks, non-banking financial institutions (NBFIs) and innovative startups.

The most promising aspect is the cooperation between established financial institutions and startups as they work together to obtain licenses and lead the way. This collaboration has the potential to propel Bangladesh into a digitally advanced future. Media reports say 52 groups or institutions have applied for digital bank licenses.

Over the past few years, the landscape of mobile financial services (MFS) has undergone a remarkable transformation. Initially focused on tasks like withdrawing and transferring cash, MFS has expanded to include activities such as paying bills, making purchases from merchants, saving money, and offering loans. This expansion has made it very popular among users and signifies a significant move toward making financial services more accessible to everyone. 

The inclusion of digital banks in this context paints a positive picture of a nation rapidly adopting digital financial solutions, positioning itself for a dynamic future in financial technology.

Digital banks will operate exclusively online, without physical branches, which significantly reduces operating costs. To comply with the Bank Company Act, these banks will establish their main offices in the country. Automation will enable them to require fewer staff, resulting in lower labour costs.

This streamlined approach not only reduces costs for the banks, but also translates to more affordable and accessible financial services for the general public.

Customers of digital banks would conduct their activities online, including transferring money, making payments, and carrying out transactions. These transactions can happen through various channels, such as the bank's website, interbank networks, MFS agents, ATMs, and cash deposit machines (CDMs). Digital banks can also introduce technology-based products like virtual cards and QR codes to make transactions more convenient. .

It has the potential to bring individuals without access to banking services into the banking system, promoting financial inclusion and providing underserved populations with essential banking services including small loans.

Building a successful digital bank system requires a comprehensive strategy that combines technology, customer focus and adherence to regulations. A strong technological foundation is essential, marked by user-friendly interfaces and robust security measures.

Prioritising the customer experience is crucial, requiring intuitive platforms and efficient services. Achieving financial inclusion means ensuring access for underserved populations through educational initiatives that enhance digital literacy.

Personalisation, powered by data analysis, deepens customer engagement and loyalty by tailoring services to individual needs. Compliance with regulatory standards is essential, requiring ongoing collaboration with regulatory authorities to ensure adherence. Providing responsive customer support, fostering innovation, and establishing feedback mechanisms are essential to effectively address customer needs.

Forming strategic partnerships with fintech companies and third-party providers opens opportunities for expanded service offerings and market growth. Effective marketing campaigns play a significant role in raising awareness, highlighting the advantages of digital banks in terms of convenience and security. Scalability and adaptability are crucial to accommodate growth and respond quickly to changing market dynamics. By systematically addressing these aspects, digital banks can chart a course toward success in the ever-evolving financial landscape.

The author is an economic analyst