The promise of FinTech for Bangladesh
The modern financial services industry is more than 400 years old. Cheques were introduced in the seventeenth century for settling payments and insurance contracts were used a few centuries before that. Over the years, financial services institutions have enabled more people to subscribe to their services. Yet, today, more than 35 million people in Bangladesh don't have a bank account and their economic activities are not part of the formal economy of the country. FinTech can change this scenario, if adopted with the right regulatory framework and technological support.
FinTech, or financial technology, aims to compete with traditional financial methods in the delivery of financial services. It is a new industry that uses technology to improve activities in finance by reducing cycle time and costs of services and by improving the quality of services. FinTech is poised to accelerate financial inclusion in emerging countries like Bangladesh. Financial institutions in other emerging countries like India have already adopted many components of FinTech and are reaping its benefits.
FinTech can reform payments processing activities within the economy of Bangladesh. Today, a significant amount of payments are made through cash or through informal economic transactions. Facilitating payments through specialised financial institutions will help bring a large segment of the informal economy into the formal economy. Increasing payments through the formal economy will improve transparency within the economic system and will improve the effectiveness of tax collection.
FinTech-enabled payments processing will also reduce the amount of cash required for the printing and distribution of currency notes. Additionally, it will help mitigate the risks of counterfeit currencies getting circulated in the country. Reduced requirement of cash will help the central bank reduce costs and manage risks.
Specialised financial institutions for facilitating payments are generally called payments banks. Payments banks are particularly useful for people who don't have any bank account but participate in payments activities. FinTech enables such banks to keep their operating costs at a minimum. Payments banks leverage mobile telecommunication infrastructure and their large subscriber base to remove the barrier of entry. They compete with cash transactions to provide an easier, faster and inexpensive option to their customers. FinTech can help achieve all these for the payments banks. With the right kind of guidelines from the regulators, the payments sector in Bangladesh can grow rapidly.
FinTech has the capability to automate traditional financial activities in a significant way. Retail financial activities such as granting of loans or approval of an insurance proposal require verification of the applications using standardised techniques. FinTech can automate these verification processes entirely. Thus, an individual can submit a loan application or an insurance proposal online with all the supporting documents digitally, and the verification and approval process can be completed within minutes. The applicant will receive a response regarding his/her application online or via email as soon as the process is complete. Such a technology-led service brings consistency in business operations and reduces the risk of error and bias. Moreover, it reduces the time to sell a financial product significantly and, thus, improves the satisfaction of customers.
FinTech is set to disrupt the business of financial advisory services. Traditionally, financial advisors used to be humans with a finite set of clients of high net worth. FinTech can help in setting up a robotic platform for financial advisory services where the services are delivered by robotic software, also known as robo advisors. Robo advisors are inexpensive, fast and consistent and can deliver services to multiple customers simultaneously. As robo advisors are inexpensive, a large group of individuals can avail their services, including individuals of high net worth. Robo advisors help financial institutions to grow their revenue by increasing the customer base without compromising on the quality of services.
FinTech is also redefining customer interactions in financial services institutions. Traditionally, customers used to call service centres for any assistance or service. They would also visit the branch or write to the branch officers. Now, customers have the option to chat with their financial service providers online. On FinTech-enabled platforms, chat discussions are facilitated by software robots, also known as chatbots. Similarly, when customers call service centres, their calls get answered by digital voice assistants or humanoid software. Newer technologies like machine learning and artificial intelligence have made such achievements possible. Such technologies help financial services institutions reduce costs and improve the speed and consistency of their services.
Bangladesh is at an advantageous position and can benefit greatly from FinTech. The country has a large younger population who can adopt technology faster and potentially become avid users of FinTech. The mobile subscription density of the country is at an all-time high, thereby reducing the last mile connectivity challenge. Macroeconomic growth factors are also favourable to catalyse the joining of more people into the formal financial services network. With encouragements from the regulators, the financial services institutions of Bangladesh should embrace and adopt FinTech in their transformation journey.
The writer is partner at PwC. The views expressed here are personal.