Digital banking in Bangladesh: Business models, challenges and opportunities

Bangladesh Bank has twice invited applications for establishing digital banks in the country. Under the previous government, two licenses were politically approved and granted—one to Nagad and the other to Kori. However, following the political shift after 5th August 2024, those licenses were suspended.

In the revised policy, Bangladesh Bank has raised the minimum capital requirement from BDT 125 crore to BDT 300 crore and issued “Guidelines to Establish Digital Bank – Version 2.” Both Version 1 and Version 2 of the guidelines emphasize that digital banks will not be allowed to set up their own physical branches, ATMs, CDMs, or CRMs. Instead, they will operate from a single head office while leveraging partnerships with third-party customer service networks.

The changing demographic landscape in Bangladesh makes digital banking one of the most promising financial sectors. With Millennials and Gen Z now forming the majority of the population, and being the most active users of digital platforms, the growth potential for digital banks is substantial.

Traditionally, banks in Bangladesh have relied on branch-based models, but digital banks—unable to open physical branches—must operate entirely through online platforms and call centers. This requires staff and officers to be trained and move beyond transactional roles to provide advisory services, guiding customers on financial and regulatory matters. As clients increasingly use ATMs, internet banking, and mobile apps, banks must ensure their employees are skilled and knowledgeable. At the same time, they should educate customers through websites, social media, podcasts, influencers, television, and traditional advertising to build trust, enhance financial literacy, and strengthen relationships in a fully digital environment.

There is a common misconception that the introduction of BEFTN (Bangladesh Electronic Fund Transfer Network), RTGS (Real-Time Gross Settlement), NPSB (National Payment Switch Bangladesh), and MFS (Mobile Financial Services) will completely eliminate the need for traditional fund transfer methods such as cash or bearer cheques. In reality, due to the specific nature of certain businesses and client requirements, banks must continue to offer equivalent facilities. However, these traditional transactions can increasingly be replaced by innovative digital solutions, such as secured QR codes and other modern payment tools, which provide the same functionality in a safer, faster, and more convenient manner.

One of the fundamental challenges that digital banks will face is cybersecurity. Since their entire ecosystem will be interconnected with third-party systems through mechanisms such as Application Programming Interfaces (APIs) and exposed to the global digital environment, cybersecurity will not only be critical for operational resilience but will also become a key differentiator in a highly competitive market.

To address this, digital banks must be equipped with advanced safeguards such as Zero Trust Security frameworks, multi-factor authentication (including OTPs), and continuous threat monitoring, Artificial Intelligence. Moreover, their core banking systems should be designed with the flexibility to seamlessly integrate and implement emerging cybersecurity measures, ensuring that new protections can be adopted quickly and without disruption.

A second major challenge for digital banks will be preventing fraudulent transactions. Although Bangladesh’s banking sector has already implemented measures to detect and reduce fraud, the risks will be greater for digital banks due to limited direct interaction with customers. Since call centers will serve as a critical customer touchpoint and require access to sensitive client information, digital banks should operate their own call centers rather than outsourcing to third parties, ensuring stronger security and reducing vulnerability to fraud.

To address this, robust Know Your Customer (KYC), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) processes must serve as the first line of defense against fraudulent activities. Beyond these regulatory safeguards, digital banks should also integrate advanced machine learning–based anomaly detection systems from day one. These technologies can continuously analyze transaction patterns, flag suspicious behavior, and adapt to evolving fraud techniques, providing a stronger, more proactive fraud management framework.

As the world transitions from a cash-based society to a cashless economy, digital banks will become the forerunners of the banking industry in the coming era. Bangladesh will be no exception to this global shift. The digital banks of today have the potential to emerge as the leaders of tomorrow if they can capture the market through innovative products and inclusive financial services.

Although uncertainty remains due to the ongoing banking sector crisis in Bangladesh, the implementation of proper regulations and effective oversight can establish digital banks as strong players within the industry. A decade ago, few anticipated that Mobile Financial Services (MFS) would dominate transaction volumes and values, yet it has reshaped the financial landscape. Similarly, digital banks are poised to drive the next wave of transformation.

However, their competition will not be limited to other digital banks; traditional banks are also rapidly strengthening their digital capabilities. To thrive in this competitive environment, digital banks must adopt sound business strategies, develop customer-centric products, and leverage advanced technologies such as artificial intelligence and data analytics. With these measures, digital banks can position themselves at the forefront of Bangladesh’s financial future.

Equally important is the role of Bangladesh Bank, which must strengthen its capacity to regulate digital banking through specialized supervisory teams, advanced monitoring tools, and real-time oversight. To support customer needs, it should allow non-transactional outlets such as service or advisory centers, while reducing licensing requirements to the minimum to encourage innovation and experimentation. Ultimately, the central bank’s preparedness will shape the sustainability, security, and success of Bangladesh’s digital financial ecosystem.

Obedur Rashid Bin Sakrat Kaderi: Banker & Data Science Enthusiast