When Bkash – Bangladesh’s top mobile financial service (MFS) provider – began its journey back in 2011, the country witnessed a boom in MFS licence seekers. Many took the licence to operate as MFS, but only a handful of providers managed to dominate the market so far.
The history may be repeating itself, as more than 50 entities – both domestic and foreign – are now seeking licence from the regulator to operate as digital banks.
Experts say that the fintech industry requires a certain degree of tech expertise not necessary for the traditional banking sector, and many who are jumping on the digital bank bandwagon may be lacking adequately skilled manpower and IT strength.
Bangladesh Bank sources say among the 52 applicants currently seeking digital bank licence, there are entities such as commercial banks, mobile financial service (MFS) providers, ride-sharing and food delivery services, IT service providers, and pharmaceutical companies.
While some companies have applied individually, others have submitted joint applications. Insiders say many of the applicants lack experience in both the banking and the IT sectors.
What’s the MFS industry story?
The Bangladesh Bank introduced MFS in 2011, and 13 MFS companies are now operating their services in the country. Bkash, Nagad, ROCKET, and Upay are the major players in this sector, and the rest are fighting to get a foothold.
Speaking to The Business Post, Bdjobs CEO AKM Fahim Mashroor said, “The MFS providers that managed to succeed in Bangladesh are the ones that emphasised heavily on technology. They hired experts from telecommunication and IT sectors.
“Most of the MFS providers failed to gain a sizable foothold in the industry because they mistakenly believed that it to be a traditional banking sector.”
Drawing a parallel between the MFS and digital banking industries, Mashroor said, “Establishing and running a digital bank is far more difficult compared to a traditional bank. Those who are seeking a digital bank licence, must possess tech-savvy manpower.
“Without good strength in IT, it will be difficult for a company to operate a digital bank successfully. A digital bank cannot operate on the strengths of bankers and businessmen alone.”
Trust Bank Managing Director and CEO Humaira Azam said, “The MFS providers that are dominating the local industry now succeeded because of their expertise in baking, tech and IT sectors. Many failed because of a lack of such diversification, and a proper strategy.”
Mutual Trust Bank Ltd Managing Director and CEO Syed Mahbubur Rahman said, “Making a sizable investment will not be enough for an entity to launch a successful digital bank. Technology and a proper strategy can make all the right differences.”
On condition of anonymity, a senior official of the Bangladesh Bank said, “We have received 52 applications for digital banks, but we have no plans to provide licenses to all applicants. Only the companies that submitted good proposals and met our guidelines will be considered.”
Central bank sources say ten banks have jointly applied for a digital bank licence. They are – City Bank, Eastern Bank, Mutual Trust Bank, Mercantile Bank, NCC Bank, Midland Bank, Dutch-Bangla Bank, Prime Bank, Trust Bank and Pubali Bank.
Besides, four state-owned commercial banks – Sonali, Agrani, Janata, and Rupali – have sent a joint application to the banking regulator.
Zahid Hussain, former lead economist of World Bank Dhaka Office, said, “Numerous companies are expressing interest in establishing digital banks. However, many lack the potential to offer the services and benefits properly.
“For many companies, it is unclear whether they will ultimately be successful.”
He added, “I have seen that Pathao – a ridesharing company – has applied for a digital banking licence. But does Pathao have any experience in operating a banking system?
“The Bangladesh Bank should not provide licenses to the companies that have no guidelines, because the banking system is a very sensitive component of the economy.”
Dr Ahsan H Mansur, executive director of Policy Research Institute, said, “Currently, more than sixty banks are operating in the country. But we could say that only around ten banks are operating systematically, and following all rules and regulations.
“There are many irregularities in most of the banks, and the regulator has not taken firm action against them. Most of these banks are becoming unhealthy in the country. This is the same case for NBFIs and the insurance industry as well.”
We must see to it that the upcoming digital banks do not fall into the same pattern, he added.
Saad/Sairas
