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SHAPING TOMORROW’S FINANCE

The Digital Transformation of Bangladesh’s Financial Landscape
MAHMUDUL HASAN
Bangladesh’s financial sector is advancing rapidly in digitization, unveiling a robust digital infrastructure and innovative products. This development enables millions to access financial services while enhancing service delivery efficiency.
In a remarkable stride toward modernization, the sector is undergoing a digital revolution aiming to enhance financial inclusion, streamline services, and propel the nation into a digital future.
Bangladesh’s financial institutions have made significant investments in upgrading their digital infrastructure to meet the demands of a rapidly evolving market. The implementation of advanced technologies such as blockchain, artificial intelligence, and cloud computing has strengthened the sector’s resilience and efficiency.
The Bangladesh Bank, the central bank of the country, has also played a role in fostering this digitization wave. Its initiatives include the development of a secure and robust digital payment infrastructure, facilitating seamless transactions and reducing dependency on traditional banking channels. A host of innovative products has been introduced to cater to the diverse needs of consumers and businesses. mobile financial services, digital wallets, digital nano loans, and online payment platforms have become integral parts of everyday financial transactions.
These tools not only provide convenience but also promote financial inclusion by reaching the unbanked population. The Bangladesh Financial Intelligence Unit (BFIU) issued a comprehensive guideline for Electronic Know Your Customer (eKYC) in 2020, revolutionizing the account opening process for any bank or financial service provider (FSP). This innovative approach allows individuals to initiate the account creation or digital wallet setup entirely through a digital framework.
Under this streamlined eKYC process, a customer engages in a straightforward procedure by capturing images of the front and back of their National ID (NID) card, along with a selfie. Subsequently, the bank or FSP utilizes advanced technology to meticulously verify the authenticity of the NID and the profile photo. This verification process is conducted against the national election commission database, ensuring the accuracy and legitimacy of the provided information.
This digitized KYC method not only expedites the account opening process but also enhances security measures by leveraging technological advancements, according to industry experts.
The financial institutions in Bangladesh have invested heavily in robust core banking systems, central software that enables financial institutions to manage and streamline key banking operations that form the backbone of their activities. These systems integrate various banking processes, including account management, transactions, and customer relationship management, according to industry experts. Some forward-thinking banks and financial institutions have started using blockchain technology for secure and transparent financial transactions. Blockchain enhances security, reduces fraud, and streamlines processes like cross-border payments. For scalability, flexibility, and cost-efficiency, some are adopting cloud infrastructure. Financial institutions are migrating some of their operations to cloud-based platforms to improve accessibility and reduce dependence on physical infrastructure. Many banks have already struck deals with some of the cloud service providers.
Given the increasing threats in the digital space, financial institutions prioritize robust cybersecurity measures. This includes firewalls, encryption tools, and threat detection systems to safeguard sensitive financial data. Institutions are also investing in data analytics tools and artificial intelligence to derive insights from large datasets, enabling them to be more efficient in risk management, fraud detection, and personalized customer experiences.
Cash recycling machines (CRMs), set up by banks in Bangladesh to help clients deposit, withdraw, and transfer money instantly, almost doubled in the last financial year. As of September 2023, banks installed 3717 such machines, according to data from the Bangladesh Bank. Five years ago, the number of such machines stood at only 219. Banks have been increasingly installing CRMs as they offer a range of core banking services, reducing customers’ reliance on branches and giving them more freedom to carry out financial transactions whenever they want since the machines operate round the clock.
A CRM can accept cash, count the notes, authenticate them, and credit the amount to accounts on a real-time basis, helping banks do away with the manual labor needed to provide the service.
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