We have all seen the wonders of Fintech to transform the finance industries around the world. Economies like China and the U.S. have massively improved their financial services by introducing innovative financial technologies in banking, financial management and insurance sectors. Soon to be a developing nation, Bangladesh must also extensively implement Fintech in its financial system, which is seriously lagging behind in terms of using technology to automate and digitalize financial activities.
The financial institutions of Bangladesh have been repeatedly criticised for their lack of effort to improve financial inclusion, poor customer care, lack of risk management of information technology (IT) and inefficient operations due to usage of suboptimal technology. The world is moving onto more digital forms of transactions. But, financial institutions in Bangladesh are still struggling to gain and keep more customers. It’s time for the country to catch up.
What is Fintech?
Using modern technology, Fintech makes it easier for customers to access financial services. It’s a technology that replaces existing systems and makes them better. It includes everything from money transfers to server management. Easy transactions or intuitive management systems – you name it, and Fintech delivers. Are you intrigued? Then you can hop over to fintechbd.com for the latest and greatest on the topic.
Fintech has an enormous potential to spice up the financial market. MFSs using Fintech, like bKash, Trust Axiata Pay (TAP) and Nagad, are very popular and loved by the people. These institutions cater to around 35 million people with an annual credit of over USD 7 billion. They have done an incredible job to successfully bring a vast majority of people under the umbrella of financial services. So let’s dive into what is next for Fintech in Bangladesh and how it can improve the financial landscape.
Creating opportunities for financial access
Digital banking can radically change the lives of the people working in the informal sector. MFS and Agent banking are considered key drivers in the financial inclusion strategy by providing low-income groups and disadvantaged people access to financial services at affordable costs. MFS transactions rose by around 30% since last year and till March agent banking has seen 108.38% year-on-year growth in deposits. However, further improvement is much needed. Fintech can introduce more cooperation and inclusiveness to the whole system. Lack of interoperability among the service providers makes it difficult to transact money from one service provider to another. Imagine if you had a GP sim and you could call people who only own a GP sim! Instead of having separate systems, it is important to have a more broader, inclusive system utilizing Fintech. Synergy between the service providers will make data sharing and analytics far smoother. Consumers can finally use one wallet for all their needs through their multichannel digital wallets.
Financial Institutions can know their customers better
It’s no surprise that big data, machine learning and artificial intelligence is driving many business decisions in the modern age. Financial services in many countries use big data to screen potential clients. The system can do extensive background checks in a flash. All these can help to reduce and prevent money loss for loaners who can assess the viability of a loan or investment. The whole system is intuitive, smooth, and easy to use and most of all, it gives accurate results and predictions.
For financial institutions in Bangladesh, this technology is crucial. The percentage of bad loans and poor investments is staggering with 11.4% of recipients defaulting. In the first quarter of 2021, defaulted loans accounted for 8.07% of total outstanding loans. Fintech which assists in digitally retrieving customer data and calculating expected loss can help reduce that percentage by a significant amount. They can not only reduce time, but also improve customer satisfaction.
Companies like Giga Tech are already leading the change to implement Fintech in banks’ customer service. Giga Tech’s e-KYC (Electronic Know Your Customer) solution is fast, powerful, and offers excellent potential. It uses a full range of solutions for customer retention, cross-selling, and onboarding. So far, Giga Tech has worked with more than 10 financial institutions in implementation and integration of e-KYC solutions.
Increased efficiency leading to enormous cost reductions
Technology penetration is approximately less than 40% in Bangladesh. There are so many activities of FIs that FinTech can automate. Fintech can bring personalized ledger systems and real-time investment plans to the table. Online transactions can take place much faster with more security. Even big data can help banks catch on to market trends in the blink of an eye; data is the new currency.
You can also say goodbye to poorly designed websites as companies can tailor one to your needs. Through a single-user interface, FinTech offering financial management services are delivering a transformational user experience, by enabling the users to track their bank accounts, credit card details, investment details, loan balances and transactions. They can also enhance services by implementing chatbots which are essentially software robots which can converse with customers, enhancing the customer’s banking experience.
Remittances are a crucial part of the economy. Still, the process is suboptimal. There are many hidden conversion and handling fees that FIs have to bear. Apart from remittances, banks also incur costs when sending or receiving money. Fintech can help to offset a lot of these costs. The technology makes it easy for banks to handle remittances without hidden fees. Banks can also send and receive money with more ease.
Updating the central database and managing customer profiles becomes much faster with the implementation of fintech. The reduced administrative lag can go a long way in helping FIs reduce costs in the long run.
Substantial security benefits
FIs in Bangladesh are far behind in cyber security and risk management. Recently, 147 public and private organizations – including banks and non-bank financial institutions (NBFIs), came under cyber attacks. Bangladesh Bank itself has often faced cyber attacks which led them to lose millions of dollars.
Integrating artificial intelligence and machine learning for fraud detection, blockchain systems and regulatory technologies (RegTech) with financial services, will help FIs build a secure system. Fintech companies can help employ better tools against scammers, hackers, or phishing sites. They can also keep their servers free from malware with greater ease. e-KYC can also help in preventing money laundering activities by enhancing customer identification and authentication processes.
Fintech enabled payment processing can help bring more cash transactions under the formal sector, thereby mitigating malpractices, improving transparency and effectiveness of tax collections and providing better fund protection for customers. Digital payments can also reduce the amount of money to be printed, thus reducing risks of counterfeit money.
FinTech can also help financial institutions maintain consistency in their operations and reduce the risks of error.
Reach wider markets
With the internet, we are all connected. There’s no reason why FIs shouldn’t hop on that train. Using Fintech and the internet, FIs can introduce their services to a wider market.
Bangladesh’s financial markets where stocks, bonds etc. are sold could see significant transformation by leveraging Fintech. Starting from financial advisory, domestic and international online trading platforms to using technology to improve regulation in stock exchanges, the potential for Fintech is massive. Wealth management, for example, has been one of the financial services that has been disrupted in a big way by FinTech. With the implementation of big data, artificial intelligence, blockchain and other supportive technologies like RegTech, the financial markets will work more efficiently and securely.
Fintech companies in Bangladesh should be encouraged to help create accessible and affordable consumer credit products such as peer-to-peer (P2P) lending platforms, crowdfunding platforms and alternative credit scoring apps. Insurance companies in Bangladesh should widely accept insurtech in their operations for wider availability of insurance products, increased accountability and transparency.
No matter how you slice it, the future is with Fintech. The technology has enormous potential for growth, innovation, and cost savings. There are lots of untapped opportunities for Fintech in Bangladesh. Innovation in financial services should go hand in hand with growth as the country graduates to a developing nation. Out of 83 countries, Bangladesh ranked 78th on the Global Fintech index 2021; declining 17 points since last year. This slow adaptation of technology may hinder the country’s growth.
It is time for the Bangladeshi financial landscape to adopt FinTech. We should leverage our younger population , growing number of mobile subscribers and millions of internet users to boost more Fintech disruption and adaptation. To achieve sustainable growth, it is essential for financial institutions and the government to prioritize Fintech going forward.