What Covid-19 has taught the banking industry in Bangladesh

There is no point in repeating how Covid-19 has been wreaking havoc around the world over the last couple of months. Some say Covid-19 didn't break the system—it only revealed what was already broken. This is a perspective that merits some thought.

Remember the countless hours all of us used to waste in traffic gridlock just a few months ago? We commuted to our workplaces, educational institutions, markets and shopping malls, hospitals, banks, restaurants and numerous other places. But was all this commuting really essential? What is stopping us from digitising the service sector drastically, so that people and businesses can do the majority of their activities anywhere and anytime? At least in the banking sector, much of this can be achieved simply by adopting some regulatory and legal reforms, without the need to invest millions of dollars. 

In Bangladesh, all banking transactions are still heavily dependent on paper or documents. To open an account, one has to fill out pages of forms, submit copies of identity documents, photographs, TIN certificate, etc. in paper with wet signature. To file taxes, the taxpayer needs to visit the bank to collect physical statements and various certificates that must be furnished to the tax authorities. To buy a car or a piece of land, it becomes necessary to visit the branch to get a pay order issued. If a person receives remittance from overseas, supporting documents and forms must be submitted to the bank so that they can credit his account. If a factory owner needs to import raw material, it would become necessary for him to visit the branch to submit the LC application form. When the shipments arrive, shipping documents must be collected from the bank and submitted to customs to release the goods. The list goes on and on.

For almost everything related to banking, it is essential to visit the branch. 

The obvious question is, why? Why do banks in our country love paper documents and physical interaction with customers so much? The answer lies in the fact that these practices and requirements evolved over many years, before computers and smart phones became integral parts of our lives. Our business practices, regulations and the legal framework have not yet been comprehensively updated to keep pace with the advancement of technology. 

Making necessary reforms and removing obstacles to enable widespread digitisation can eliminate the dependency on physical branches. Doing so will help banks to improve customer experience and redefine their roles from transaction processors to solution providers. Drawing on the possibilities highlighted above, here are some proposed reforms that are essential to enable this in Bangladesh.

Electronic signature: As a country, we are still heavily dependent on wet (physical) signature on hardcopy documents. Despite being a relatively weak control, it continues to be almost mandatory to prove authenticity of the instruction/mandate, particularly within the legal framework. The ICT Act of 2006 provides legal acceptability of electronic and digital signature in Bangladesh. Adopting this can be a big step towards digitising banking transactions. 

Reduction of physical paper flow: With the wet signature made optional, an opportunity will open up to reduce the physical flow of paper. We can allow documents to be signed and exchanged electronically through email, host-to-host connectivity, Application Programming Interface (API), and other digital channels. Two-factor authentication, encryption, blockchain technology and other security protocols can be adopted to ensure authenticity, data confidentiality and security of documents. 

Integration and interconnectivity of systems: With the drive towards automation, many of the manual processes have been computerised in recent years. What is missing is the real-time integration/connectivity between these systems. 

For example, if all fields in the Election Commission's NID database were available in English and there was real-time API connectivity between banks and NID database, we could have a mechanism where citizens would only have to update static data (for example, address) in one place. Banks and other organisations could easily fetch data from the EC database, eliminating the need for citizens to update the data with all their service providers. Similarly, if the National Board of Revenue had real-time connectivity with banks, life could become easier for both banks, customs and clients. Along the same line, if banks could fetch Credit Information Bureau (CIB) data through API, the speed of granting loans could be improved manifold.

Electronic payments:  Bangladesh has made significant progress in digitising payments through the implementation of electronic fund transfer systems (EFT, NPS and RTGS) and massive popularity of mobile financial services. Yet, for many government payments, cheques and pay orders continue to be the preferred instruments. We can mandate all government payments to be electronic.

Regulatory returns and correspondence: Banks are required to furnish hundreds of regulatory reports. While some have been moved to electronic format, a large number of them continue to be paper-based. In addition to returns, various regulatory circulars and letters continue to be dispatched in hardcopy format. Banks also rely on hardcopy to respond to regulatory queries, seek various approvals, etc. There is no reason why such correspondence cannot be converted to electronic channels, particularly email.

Digital record retention and archival: Current regulations mandate transactional documents to be retained for at least five years from the closure of an account. This takes up a huge amount of storage space and cost. If courts accepted electronic images of old records in case of litigation, old records could be scanned, stored in digital format and paper could be destroyed.

Flexible working and work from home: Although not directly linked to digitising banking transactions, another lesson from Covid-19 worldwide is that it is not necessary to physically go to office for everything. With proper tools and connectivity, it is possible to remain productive and efficiently conduct most of the work from home. During the Covid-19 pandemic, many of the bank employees have been doing so at all levels, except those having customer-facing roles that require face-to-face interaction. Allowing continued work from home can reduce health risks and traffic congestion, while improving job satisfaction and productivity of banking professionals. The industry will be able to diversify workforce by recruiting more women who often can't pursue full-time career due to family needs. Banks will also be able to recruit professionals who are not based in big cities, where the majority of banking jobs are concentrated at present.

These initiatives don't require a huge technological investment. Most have to do with policy, legal and business practice related reforms. However, the dividends can be substantial, if not game-changing. 

End-to-end paperless flow of information will result in substantial improvements in financial inclusion, speed of transactions, accuracy, convenience, improved security, health and safety, and a massive improvement in the ease of doing business index for the country.

Humanity is slowly but surely overcoming the Covid-19 challenge. But in doing so, we are having to rip up the old playbooks and reimagine our society anew. The banking sector, an integral part of modern life, will need to set the pace in this transformational journey.

This can be the start of a digital revolution for banks that is perhaps overdue. 

Khaled Aziz is Managing Director and Chief Operating Officer, Standard Chartered Bank, Bangladesh.