The digital banking revolution is sweeping across the globe, transforming the way financial services are accessed and delivered. Bangladesh, a country known for its dynamic economic growth, is now entering the realm of digital banking with fervor. More than 500 companies have stepped up to the plate, filing 52 applications with Bangladesh Bank, aiming to secure the highly coveted digital bank licenses. In this blog post, we’ll delve into the diverse pool of applicants and their aspirations in racing for digital bank licenses.
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The Array of Applicants:
The race for digital bank licenses in Bangladesh has attracted a wide array of applicants representing various sectors. Among the contenders are not just traditional banks and financial institutions, but also unexpected players like mobile financial service providers, mobile operators, gas pump companies, pharmaceutical giants, corrugated sheet manufacturers, and even foreign financial technology companies. This eclectic mix reflects the broad appeal and potential that digital banking holds in reshaping the country’s financial landscape.
Infograph: The Business Standard
The Application Process:
Bangladesh Bank initiated the process by inviting applications for digital bank licenses in late June. The application window closed on August 17, and more than 500 companies took part in this groundbreaking opportunity. A non-refundable application processing fee of Tk 500,000 was required for submission. In contrast to traditional banks, which need a minimum paid-up capital of Tk 5 billion, digital banks have a lower initial capital requirement of Tk 1.25 billion.
Key Guidelines for Applicants:
The guidelines for establishing a digital bank underscore the importance of technology expertise and knowledge. A minimum shareholding stake of Tk 5 million is required for each sponsor, and the digital bank’s board of directors should ideally include at least 50% members with proficiency in technology-based banking, cyber laws, and emerging technologies. The remaining members should possess knowledge of banking, e-commerce, and related regulations.
The Who’s Who of the Race:
Among the standout applicants, a consortium of 10 private banks has joined forces to invest Tk 1.28 billion in the proposed “Digi10 Bank PLC.” This consortium includes City Bank, Eastern Bank, Pubali Bank, NCC Bank, Mutual Trust Bank, Dutch-Bangla Bank, Trust Bank, Prime Bank, Mercantile Bank, and Midland Bank. Brac Bank, a major stakeholder in bKash, the leading mobile financial service provider, has applied for the “bKash Digital Bank PLC.” This application has attracted international attention with participants like Money in Motion LLC, the International Finance Corporation, the Bill and Melinda Gates Foundation, Ant Group, and SoftBank Vision Fund.
Mobile financial service provider Nagad and various entrepreneurs are pursuing the “Nagad Digital Bank PLC.” State-owned commercial banks Sonali, Rupali, and Agrani have also entered the race for digital banking licenses. Telecom operator Banglalink and its parent company VEON Ltd. are among the notable contenders.
The banking industry in Bangladesh is undergoing a significant transformation with the introduction of digital banking. As part of its effort to move towards a cashless economy, Bangladesh Bank has opened the doors for various institutions to apply for digital bank licenses. This initiative has sparked interest from a wide range of players, including commercial banks, fintech companies, and unexpected industry participants. In this section, we will take a closer look at the main contenders in the race for digital bank licenses in Bangladesh, providing insights into their backgrounds, strategies, and potential impact on the country’s financial landscape.
1. Upay Digital Bank PLC: Pioneering Technological Innovation
A consortium led by Upay, the mobile financial service of United Commercial Bank (UCB), applied for launching the Upay Digital Bank PLC. Other members of the consortium are NRB Commercial Bank, Meghna Bank, corrugated sheets manufacturer Aramit Ltd., Navana Pharmaceuticals and IT start-up Genex Infosys. Several entrepreneurs of private NRB Commercial Bank own Genex Infosys.
Genex Infosys Limited, a notable player in the IT sector, is among the contenders for a digital bank license. The company’s decision to invest in digital banking reflects its ambition to leverage its technological expertise to drive innovation in the financial sector. As a member of a consortium, Genex Infosys aims to contribute to the digital transformation of banking services, integrating cutting-edge technology to enhance customer experiences and streamline transactions.
2. Pathao Digital Bank: A Pioneer in Digital Services
Pathao, one of Bangladesh’s largest digital services companies, is eagerly awaiting a digital bank license from Bangladesh Bank. With a large user base comprising young consumers, drivers, delivery agents, and micro-entrepreneurs, Pathao aims to bridge the financial inclusion gap through its ‘one-stop’ digital banking solution. By leveraging its extensive customer data, advanced analytics, and engineering capabilities, Pathao aspires to offer innovative financial services that cater to the unique needs of its target audience.
3. State-Owned Banks Consortium: Uniting for Digital Innovation
Four state-owned banks—Sonali Bank, Agrani Bank, (Janata Bank), and Rupali Bank—have joined forces to form a consortium with the goal of securing a digital bank license. This collaborative effort reflects their commitment to adapting to the evolving financial landscape. By pooling resources, these banks intend to provide digital banking services that align with the government’s vision of a cashless economy.
4. Bkash Digital Bank: Fintech Innovation by BRAC Bank
BRAC Bank Limited, a leading player in the banking industry, is exploring the digital banking realm through its subsidiary, Bikash. While the specifics of its alliances are yet to be confirmed, BRAC Bank’s deep industry expertise and established customer base position it as a potential game-changer in the digital banking sector. With a focus on technology-driven financial solutions, the bank aims to contribute to reshaping the way banking services are accessed and utilized.
5. Unique Hotels & Resorts Plc: Diversifying into Digital Banking
Unique Hotels & Resorts Plc, a player in the travel and leisure sector, has taken an unexpected step by expressing interest in investing in a proposed digital bank named ‘Amar DG Bank Plc’. This decision underscores the diverse range of industries exploring digital banking opportunities. By venturing into the financial sector, Unique Hotels & Resorts Plc aims to tap into the potential of digital banking to enhance financial services accessibility and convenience.
6. Bank Asia: Pioneering Digital Banking Excellence
Bank Asia, a private commercial bank, is actively participating in the digital bank license race. With its decision to become a sponsor shareholder of a digital bank, Bank Asia exemplifies its commitment to pioneering digital banking excellence. As an established player in the financial sector, the bank’s involvement signifies its intent to remain at the forefront of transforming banking services through technology and innovation.
7. The DG10 Bank Plc Consortium: Fostering Collective Transformation
One of the most prominent consortia in the digital bank license race is the ‘DG10 Bank Plc’, consisting of 10 private sector banks. The banks, including City Bank, Eastern Bank, Pubali Bank, NCC Bank, Mutual Trust Bank, Dutch-Bangla Bank, Trust Bank, Prime Bank, Mercantile Bank, and Midland Bank, have united with the shared goal of reshaping the nation’s financial services landscape. By pooling their resources and expertise, they aim to leverage collective strength to navigate the regulatory landscape and offer innovative digital banking solutions.
8. Nagad Digital Bank
Nagad is also very active in the race. It surrendered its non-bank financial institution (NBFI) license and announced that it would be applying for a digital bank license instead.
Nagad is one of the leading mobile financial service (MFS) providers in Bangladesh. Its experience in the MFS sector will be an advantage in its application for a digital bank license. Nagad is one of the frontrunners in the race for a digital bank license. If it is successful in securing a license, it will be a major milestone for the company.
While the race for digital bank licenses in Bangladesh has garnered significant interest and potential, it hasn’t been without its share of criticisms and concerns. Some of the criticisms raised about the entrants and the process include:
1. Lack of Transparency: One common criticism revolves around the lack of transparency in terms of alliances and partnerships among the entrants. Many companies have expressed their interest in establishing digital banks, but details about their consortium members or joint venture partners have not been fully disclosed. This lack of transparency has led to speculation and skepticism about potential conflicts of interest and the true intentions behind these alliances.
2. Regulatory Concerns: Critics have raised concerns about the regulatory framework surrounding digital banks in Bangladesh. Some worry that the regulatory guidelines might not be stringent enough to ensure the stability and security of digital banking operations.
3. Inclusion of Non-Financial Companies: The decision of certain non-financial companies, such as Unique Hotels & Resorts Plc, and Aramit Ltd, to invest in digital banks has raised eyebrows. Critics argue that these companies might not possess the necessary expertise or understanding of the financial sector to operate digital banks effectively. This inclusion could potentially dilute the focus and purpose of digital banking institutions.
4. Lack of Clarity on Alliances: The formation of consortia and alliances among various entrants has been criticized for lacking transparency and clear information. It’s not always clear why certain companies are partnering with each other and what specific strengths they bring to the table. This lack of clarity raises questions about the viability and sustainability of these partnerships.
5. Commercial Banks Dominance: Some critics argue that the dominance of commercial banks, especially in consortiums, might stifle competition and limit innovation in the digital banking space. They fear that the established banks might prioritize their existing customer base and traditional banking practices over genuinely transformative digital banking solutions.
6. Focus on Profit Over Inclusion: While digital banking is intended to promote financial inclusion and accessibility, some critics have raised concerns that profit motives might overshadow the goal of serving the unbanked and underbanked populations. They fear that the entrants might prioritize profit generation rather than addressing the needs of those who are currently underserved by the traditional banking system.
7. Data Privacy and Security: The digital nature of these banks raises concerns about data privacy and security. Critics worry about the potential for data breaches and cyberattacks, especially given the increasing sophistication of cyber threats. Without robust cybersecurity measures, customers’ sensitive financial information could be at risk.
8. Rushed Application Process: The relatively short timeframe for applying for digital bank licenses has drawn criticism. Critics argue that such a crucial decision requires careful consideration and due diligence, and a rushed application process might lead to inadequate preparation and planning.
Stock Market Players Joining In:
Interestingly, the stock market has seen a surge of interest in digital banking. The boards of directors of 21 companies listed on the stock market have announced their decision to invest in setting up digital banks. For instance, a consortium led by Upay, the mobile financial service of United Commercial Bank, is driving the Upay Digital Bank PLC initiative. The consortium comprises NRB Commercial Bank, Meghna Bank, corrugated sheets manufacturer Aramit Ltd., Navana Pharmaceuticals, and IT startup Genex Infosys.
The Consortium Approach: Strength in Numbers
One prevailing trend in the race for digital bank licenses is the formation of consortia or alliances among various institutions. These partnerships allow participants to pool resources, share expertise, and collectively meet the regulatory requirements set by Bangladesh Bank. Among the most prominent consortia is the ‘DG10 Bank Plc’, which comprises 10 private sector banks. The consortium approach signifies collaboration in a competitive landscape, highlighting the shared vision of transforming the nation’s financial services.
The Promise and Potential of Digital Banking in Bangladesh
The entrance of diverse entities into the digital bank license race signifies the promising potential of digital banking in Bangladesh. With technological innovations, customer-centric approaches, and a commitment to financial inclusion, these players aim to redefine how financial services are accessed and utilized. As digital banking gains traction, it could enhance the convenience, security, and efficiency of financial transactions, benefitting both consumers and businesses.
FAQs on Racing for Digital Bank Licenses
Q1: What is the current status of the digital bank license race in Bangladesh? Answer: More than 500 companies have submitted a total of 52 applications to Bangladesh Bank to secure licenses for opening digital banks. The application window closed on August 17, and the central bank is in the process of scrutinizing the applications before making decisions.
Q2: Who are the applicants for digital bank licenses in Bangladesh? Answer: The applicants encompass a wide range of entities, including traditional banks, financial institutions, mobile financial service providers, mobile operators, gas pump companies, pharmaceutical companies, corrugated sheet manufacturers, and foreign financial technology companies. Notable applicants include a consortium of 10 private banks, Brac Bank, Nagad, state-owned commercial banks, and telecom operator Banglalink, among others.
Q3: What are the key guidelines for establishing a digital bank in Bangladesh? Answer: The guidelines emphasize the importance of technology expertise and knowledge. Each sponsor must hold a minimum shareholding stake of Tk 5 million. The digital bank’s board of directors is expected to have at least 50% members with expertise in technology-based banking, emerging technologies, and cyber laws. The remaining members should have knowledge of banking, e-commerce, and related regulations.
Q4: What is the significance of the stock market’s involvement in the digital bank license race? Answer: The stock market has shown strong interest in digital banking, with the boards of directors of 21 companies listed on the stock market deciding to invest in setting up digital banks. These companies are forming consortia to drive digital bank initiatives, combining expertise from various sectors such as mobile financial services, manufacturing, pharmaceuticals, and IT startups.
Q5: How does the digital bank license race align with Bangladesh’s financial landscape? Answer: The race for digital bank licenses signifies a significant shift in Bangladesh’s financial landscape. With more than 500 applicants, the country is poised for a transformation in financial services. This diverse pool of applicants, ranging from traditional institutions to unexpected players, reflects the broad potential of digital banking to promote financial inclusion and accessibility, ushering in an era of innovation and competition.
The digital bank license race in Bangladesh has ushered in a wave of innovation and competition across various industries. With more than 500 applicants vying for the opportunity, the financial landscape of the country is set for a transformation. The diverse range of applicants, from traditional financial institutions to unexpected players, underscores the vast potential of digital banking in promoting financial inclusion and accessibility.
As Bangladesh Bank reviews and scrutinizes the applications, the nation eagerly awaits the decisions that will shape the future of banking. With digital banks poised to bridge the gap between technology and finance, the race promises not just business success, but also a leap forward in providing accessible and efficient financial services to the masses.