Upstart digital banks face rocky rollout

A much-hyped rollout of digital banking in Bangladesh faces a rocky start with the maiden two stuck in licensing review and compliance quandary, sources say.

The proposed Nagad Digital Bank faces licensing review and Kori Digital Bank struggles with compliance issues, leaving a bunch of others exasperating in the queue.

In October 2023, Bangladesh Bank, the central bank, issued letters of intent (LoIs) to the two proposed digital banks at the first go-Nagad Digital Bank and Kori Digital Bank.

Both were expected to go into operation by April 2024, within six months of receiving the LoIs, under the direct monitoring of the central bank

However, the new BB Governor, Dr Ahsan H. Mansur, has announced that Nagad Digital Bank's licensing is now under review.

Meanwhile, the other one, Kori Digital Bank, which requested an additional six months to April 2024 to meet compliance requirements, was granted an extension that expires on October 25, 2024, according to BB officials familiar with the developments on the front of digital banking.

According to Bangladesh Bank's Board decision in October 2023, once these two banks begin operations, three more will be considered for licensing.

However, with neither Nagad nor Kori launching on time, the future of these additional digits-driven banks also looks cloaked in uncertainty.

Sources familiar with the situation told The Financial Express that Kori Digital Bank stands the chance of losing its opportunity if it failed to submit the necessary documents by the cut-off time of October 25.

"Even we will not issue any further notice. It will automatically lose its chance," says a central bank official on condition of anonymity.

Previously, Bangladesh Bank had received 52 applications from various banks and entities interested in setting up digital banks.

On October 22, 2023, eight proposed digital banks received initial approval, with Nagad Digital Bank PLC and Kori Digital Bank PLC receiving LoIs.

Under central bank instructions, these two banks were expected to launch operations by April 2024, with their infrastructure development supervised by the central bank.

Three other hopefuls-Smart Digital Bank PLC, North East Digital Bank PLC, and Japan-Bangladesh Digital Bank PLC-are set to receive LoIs six months later, contingent on the performance of the maiden duo.

Additionally, Bangladesh Bank gave the go-ahead to three existing banks to operate digital banking services. These include Brac Bank with bKash, DG-10 (a consortium of ten private commercial banks), and Digital Bank PLC, led by Bank Asia. The DG-10 members include City Bank, Eastern Bank, Mercantile Bank, Midland Bank, NCC Bank, Mutual Trust Bank, Prime Bank, Pubali Bank, Trust Bank, and Dutch-Bangla Bank.

The decision to approve these digital banks was made during a board meeting led by former Bangladesh Bank Governor Abdur Rouf Talukder, who resigned following the overthrow of the Awami League government in the August-5th student-mass upheaval.

Digital banking allows customers to conduct banking transactions entirely online, via websites or mobile apps, eliminating the need for physical branches.

Each digital bank will operate solely with a headquarters and no additional branches.

Earlier, three committees had shortlisted nine applications from the initial pool of 52, excluding one insurance company-led application.

Bangladesh Bank has also prepared separate guidelines for existing banks permitted to engage in digital banking.

These banks will operate through digital banking windows without requiring new licences, as they already hold existing ones.

The 52 applications were submitted by individuals or groups representing nearly 500 companies across various sectors, including commercial banks, mobile financial services, food delivery, ride-sharing platforms, IT services, and pharmaceuticals.

The application deadline for digital bank licences was extended by 16 days, closing on August 17, 2023.

Each digital bank requires a minimum paid-up capital of Tk1.25 billion, significantly lower than the Tk5.0 billion required for traditional commercial banks.

Bangladesh Bank initiated the application process in June 2023, following circular inviting firms to apply between June 21 and August 17.

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