The wave of online banking adoption has swept across rural Bangladesh, propelled by a significant increase in internet users. In a remarkable shift, every bank branch in the country now offers online services, transforming the banking landscape and allowing customers to access a myriad of services without the need to visit a physical branch.
Bangladesh has witnessed a surge in the popularity of online banking in recent years, allowing bankers to offer advanced services through the Internet. Consequently, customers find it more convenient to access online services compared to traditional banking. This form of banking presents alternatives for the swift delivery of services to a diverse customer base. The banking industry in Bangladesh has embraced online banking to align with developments in more advanced countries. However, the infrastructure for online banking is still catching up to state-of-the-art standards.
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Historically, customer demand for banking services focused on the safety of their money and the interest earned on savings. In the contemporary landscape, customer preferences have shifted from mere financial security to evaluating how efficiently banks deliver services. This shift has prompted the emergence of online-based services and products in the banking industry.
In 2010, banks initiated various measures to encourage customers to embrace digital channels. The integration of digital technology has profoundly transformed Bangladesh’s financial sector, extending banking services to millions. This transformation has simplified access to services, allowing customers to conduct transactions from the comfort of their homes. Rapid introductions of electronic transaction modes, including ATMs, telephone banking, mobile banking, and Internet banking, are evident.
Online banking facilitates seamless cash withdrawals, deposits, and fund transfers for customers. While traditional banks initially underestimated the demand for online services, nearly every bank now offers some form of online banking.
Online Banking in Bangladesh
In the journey towards online banking, foreign commercial banks took the lead in adopting modern technology for retail banking in the early 1990s, while state-owned and private commercial banks gradually introduced such services on a limited scale in the late 1990s.
The surge in online users, coupled with the widespread availability of smartphones and digital services, has propelled online banking to significant popularity, reshaping customers’ banking habits. Internet banking transactions in Bangladesh more than doubled in the previous fiscal years, driven by a substantial number of people, particularly the younger generation, engaging in financial activities on the platform.
According to Bangladesh Bank’s data, internet banking transactions reached Tk 20,559 crore in December 2021, marking a 154 percent year-on-year increase and a 21 percent rise from the previous month. In the fiscal year 2021-22, transactions surged by 122.60 percent year-on-year to Tk 224,958 crore. The number of internet banking users in Bangladesh reached 5.35 crore in June, representing a 47 percent increase from the previous year, as reported by the central bank.
To support online banking operations, the central bank has provided regulatory assistance to banks. In September 2020, Bangladesh Bank raised the limit for inter-bank fund transfers through internet banking to a maximum of Tk 5 lakh per day, up from the previous limit of Tk 2 lakh. The central bank also doubled the ceiling for a single transaction to Tk 1 lakh from Tk 50,000, allowing clients to conduct up to 10 transactions per day, compared to the previous limit of five.
Commercial banks have introduced various products to enhance their digital presence, with nearly all banks launching mobile applications for banking services to complement their internet banking operations.
The Online Banking Surge in Rural Bangladesh
“A few years back, I never dreamt of doing any banking transactions online. I had to travel six kilometers from my village just to deposit a cheque,”-Billal Gazi, a business owner in Khulna
The surge in online banking adoption in rural Bangladesh can be attributed to the increasing number of Internet users. Presently, all bank branches in Bangladesh offer online services, enabling customers to access bank services without the need to physically visit any branch. As of September 2023, rural areas have 5,300 fully online banking branches, compared to 5,933 in urban areas.
In contrast, the scenario in 2019 showed a different picture with 3,809 fully online banking branches in rural areas and 5,145 in urban areas. The data indicates that online banking branches experienced a faster growth rate in rural areas compared to urban areas. Between 2019 and 2023, online banking branches in urban areas grew by 15.31 percent, while the growth rate was 39.11 percent in rural areas.
According to Bangladesh Bank data, fully online banking branches witnessed a compound annual growth rate of 6.8 percent in rural areas and 2.9 percent in urban areas from 2019 to 2023. The lockdown during the COVID-19 pandemic prompted more people to adopt online banking as they had limited offline transaction options.
Brac Bank and other top-tier banks invested heavily in technology post-COVID, contributing to the surge in online banking transactions in rural areas.
The increase in internet users in rural areas also played a significant role in the expansion of online banking, with 29.7 percent of rural households having internet access at home, as reported by the Bangladesh Bureau of Statistics.
Security Issues on Online Banking
Internet banking encompasses providing services like accessing accounts, transferring funds, and purchasing financial products or services through online platforms. Nevertheless, concerns about hacking, data tampering, and the need to maintain secrecy are issues that present potential threats to the use of online banking. Recent incidents have highlighted the vulnerability of online banking in Bangladesh, with examples such as ATM booth skimming, the BB heist, and other cybercrimes exposing the inadequate security measures in the banking industry. Notably, the reserve heist revealed a lack of security and protection in the central bank, sounding an alarm for the state of online banking in Bangladesh.
“Banks will encounter additional security risks in the future due to the manner they are entering the digital sphere. Even deception will advance in sophistication.“-SELIM RF HUSSAIN, Managing Director of BRAC Bank
As per a study conducted by the Bangladesh Institute of Bank Management (BIBM), 52% of the country’s banks face high cyber risks. The banking sector encounters up to 630 cyberattacks daily, with 32% of banks classified as having moderate cyber risks, and only 12% deemed to have low risks, according to the report titled ‘Cybersecurity Landscape of Banking in Bangladesh and Recommendations.’ The report identifies a significant weakness in the form of a lack of in-house IT expertise, and it emphasizes that the expenditure on cybersecurity and IT training remains notably low, exposing banks to cyber threats.