Digital financial services and fintech

Access to digital financial services — storing money securely, accessing competitive loans to smooth consumption or purchase assets, availing insurance to weather financial shocks, sending money to relatives with minimal fees, and making and receiving payments quickly and affordably — is increasingly recognised as a basic need in a modern economy.

Affordable financial services are critical for poverty reduction and economic growth. Countries with deeper, more developed financial systems have higher economic growth and larger reductions in poverty and income inequality. For poor people, access to and use of basic financial services can improve incomes, increase resilience and improve their lives. Women especially benefit. Far too many people—65 per cent of adults in the developing world—lack access to even the most basic transaction account that would allow them to send and receive payments safely and easily, much less the savings, insurance, and credit services that would help them expand their businesses, mitigate risks and plan for their futures.

Internet penetration in Bangladesh has increased. Along with that, internet speed has shown improvement too. This internet and smartphone penetration improvement has increased mobile banking and Internet banking transactions. Fintech was generally used for completing bill payments, doing e-commerce shopping and top-ups of mobile. However, there is a huge section of people without a bank account. In other words, the potential for fintech is currently massive in the country.

Digital financial services, powered by fintech, have the potential to lower costs by maximizing economies of scale, increasing the speed, security and transparency of transactions and allowing for more tailored financial services that serve the poor. Fintech is helping governments quickly and securely reach people with cash transfers and other forms of financial assistance and reach businesses with emergency liquidity. It is allowing people to transfer funds—including cross-border remittances—and to pay bills from their homes, or in a market or store setting, with limited physical contact. But the potential is much larger than what has been achieved. This crisis has highlighted the benefits of digital financial services in many different dimensions and its critical role in achieving the Sustainable Development Goals. In this way, increasing usage of digital financial services can hasten the resolution of the health emergency, support economic recovery and underpin the return to economic growth. Over the longer term, it will contribute to economic development and ending poverty. We hope this report will provide valuable insights for policymakers and for financial sector players seeking to expedite financial inclusion and the development of digital financial services.

Unfortunately, though, digital financial services are yet to be adopted along expected lines. Bangladesh needs to strengthen its digital financial infrastructure and introduce data protection legislation — in consultation with industry as well as human rights groups and consumers. This is becoming ever more critical. Consumers must be empowered to understand their digital footprint, how their data is used and the options available to them. At the same time, limitations must be placed on how the industry can mine, store and use customer data.

The industry should collaborate to remove at least some of the key bottlenecks over the next three to four quarters to realise the potential of digital financial services. Discouraging the use of excess cash, availability of smart cell phones for women and rationalising the cost of branchless banking services are some of the suggestions made by the relevant experts.

For the proper development of this ecosystem, it is essential to ensure higher digital financial literacy to improve the penetration of smartphones and the Internet. In addition to this, the start-ups working on the digital financial ecosystem should be provided with a helping hand to get adequate funding.