Digital transformation of banking system

The government has embarked on the design and development of an all-encompassing digital banking system in the country. This is welcome news because the country's financial institutions need to keep abreast of the developments taking place both at home and abroad. With that in view, Bangladesh Bank has drawn up plans and a roadmap for the banking industry to adopt and adhere to in the near future. All these issues were discussed at an event held recently in Dhaka.

In the light of the fast-paced technological changes that are evolving due to the fourth industrial revolution (4IR), it is only logical that the management of commercial banks prepare themselves to integrate their operations in a manner that will help their transition to digital platforms with the aid of appropriate technologies. Although the process of moving to a digital sphere began nearly a year ago, much has happened in the meantime. The advent of artificial intelligence, machine learning, and other disruptive technologies are expected to bring about radical changes in the banking industry. The central bank (BB) has announced that it is working on the concept of a fully-digital bank and a national debit card; and as regulator, BB will help guide legacy banks to make the leap smoother.

As with any change, there will be some resistance coming out of the fear that digitalisation will result in job losses. Some processes that were done manually will inevitably become redundant. That is the price of technological advancement and this unfortunately cannot be avoided. However, the benefits outweigh the disadvantages. With the adoption of greater online services, customers can avail services much faster and in a safer manner. Bank overheads in the long run are also curtailed. Although the goal is to make 75 per cent of all transactions cashless, that will take time, the process must begin now. Obviously, bank managements will have to go back to the drawing board and revisit the manner in which business is conducted today. As pointed out by BB Governor "Banks need to address what kinds of risk it faces in the new banking model." In other words, whether the existing risk culture is good enough to meet the already-faced risks or whether banks require adopting a new risk-management policy.

This transformation is necessary from the point of view of ensuring good governance too. One of the biggest headaches for policymakers today is the nagging problem of non-performing loans (NPLs) which is not only hurting profitability but also denting the country's international rating. If technology-adoption can cut NPLs down to acceptable levels, then it is obvious that such technology and innovation must be adopted as fast as possible. Bank staffs need to be retrained to make use of these changes and ethical practices need to become cornerstone of procedures involving giving credit. The rules are there on paper, but having digital checks-and-balances will go some way in tackling graft.

Proven technologies already exist. What appears to be lacking in the banking sector is the adoption of those technologies and processes so that customers' demand for greater convenience is met. It is necessary for banks' decision makers to fully comprehend what digitisation will mean before embarking on an automation process, as it will require significant financial outlay. It is hoped that banks and bankers will thoroughly study and analyse what level of technology their individual institutions can absorb and set their timelines accordingly. Otherwise, it might prove to be a wasted effort on the part of the banks.