OPINION: The promise of FinTech for Bangladesh
DHAKA (The Daily Star/ANN) - FinTech, or financial technology, aims to compete with traditional financial methods in the delivery of financial services.
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
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.