Challenges facing digital banking

The government move to give the go-ahead for setting up digital or virtual banks in the country seems to have been prompted by the roaring success being enjoyed by the online payment services. Also, the fast expansion of online banking service offered by the traditional banks may have acted as a catalyst in this direction.  However, digital banking is wider and far more comprehensive in its scope, coverage, range of services offered, security measures and the use of technology than just online banking. Meanwhile, the Bangladesh Bank (BB) is learnt to have granted eight entities, out of 52 applicants looking for the opportunity, the permission to start digital banking operation. The banks so approved will, of necessity, operate according to the regulatory guidelines prepared for the purpose under the Bank Company Act.

Of those who won the BB's approval, two has reportedly been issued Letters of Intent (LoIs), which are about the timeframe allowed them to prepare their digital banking infrastructure under the close monitoring of the BB regarding their performance-related indicators for the next six months. Three other applicants backed by traditional banks, on the other hand, have been allowed to run digital banking windows. A separate guideline or standard of operating procedure (SoP) is reportedly being prepared by the BB for these banks to run their digital windows. The permission to the rest three aspirant digital banks, as reported, would depend on how the first two applicants who have been issued LoIs perform over the next six months. There is no question that to be in step with the times when everything is going digital, the banking sector cannot stay behind. Notably, the digital banking essentially combines online banking and mobile banking services under the same umbrella. As could be learnt, the digital banks will carry out their operations entirely online, either through a website or mobile app and they will have no branches except headquarters allowing customers to perform transactions and access banking services remotely without physically visiting a bank. 

Doing away with all paperwork such as checks, pay-in slips, demand drafts, etc., including all physical movement involved with brick-and-mortar banking is definitely fascinating. Especially, the scope of bringing the people so far left unbanked under the umbrella of mainstream banking through its digital mode is indeed a liberating idea. But given the history of digital security breaches, especially in the banking sector leading to the infamous cyber heist of the BB in 2016 and the recent NID data leakage from the Election Commission's server,  the digital data security regime of the country does hardly look reassuring. Under the circumstances, establishment of full-blown digital banking presupposes the existence of a sound and secure digital infrastructure. So, meeting these conditions will be urgent for the organisations that have won the BB's permission before they start functioning as digital banks. 

In this connection, some experts are of the view that at a time when not only the banking sector, but the entire economy is in deep crisis, the government could have waited until after the upcoming parliamentary election before giving permission to something new as well as challenging like digital banking. Others think that the requirement of paid-up capital amounting to Tk1.25 billion for the aspiring digital banks will not be enough to build the necessary infrastructure for the purpose.