Over the past decade, Bangladesh’s financial sector has undergone a remarkable transformation, largely driven by the rapid expansion of mobile financial services (MFS). Platforms such as bKash, Nagad and Rocket have enabled millions to experience digital transactions for the first time. Yet, sending money or paying bills is only the beginning. The global trajectory is moving towards full-scale digital banking, where customers can save, borrow, invest and receive international remittances directly through their mobile phones.

Against this backdrop, Bangladesh Bank has once again taken the initiative to issue fresh licences for digital banks. The central bank first introduced the licensing framework in 2023, when the minimum paid-up capital requirement was set at Tk 125 crore. Recently, however, the figure has been raised to Tk 300 crore, a decision aimed at filtering out weaker players and encouraging stronger, financially resilient institutions. While traditional banks require a minimum of Tk 500 crore, the revised threshold places digital banks somewhere in the middle, reflecting both caution and ambition.

The move also underscores the importance of technological competence. A branchless, app-based banking model demands robust digital infrastructure, without which the promise of inclusive banking will collapse. The first licensing phase, however, was far from smooth. Of the 52 institutions that applied, only two received Letters of Intent, while Nagad Digital Bank’s licence was suspended amid allegations of political influence, financial irregularities and fraud. Another applicant, Kori Digital Bank, remains in limbo. The process sparked widespread criticism, with the International Finance Corporation (IFC) bluntly observing that corruption, political interference and a lack of transparency had undermined innovation and discouraged new entrants. Inevitably, this cast a shadow of mistrust over the very beginning of Bangladesh’s digital banking journey.

Nevertheless, the case for digital banking remains compelling. A significant share of the country’s adult population still lacks access to formal banking. Traditional banks, weighed down by costly branch and staffing requirements, find little incentive to operate in remote or rural areas. Digital banks could bridge this gap by providing round-the-clock services, removing geographical barriers, easing remittance flows, supporting small entrepreneurs with microloans, and most importantly, bringing the unbanked into the formal economy.

Global experience shows that digital banks are not an abstract future concept, but a thriving reality. Revolut in the UK, N26 in Germany, and Nubank in Brazil have already demonstrated how technology-driven models can attract millions of customers in just a few years. Neighbouring India and Pakistan have also introduced digital banks, rapidly expanding their customer base. Bangladesh, with its young, tech-savvy population, high smartphone penetration and growing digital payment ecosystem, is equally well-positioned to make this leap—provided the foundations are laid correctly.

Yet challenges cannot be overlooked. Transparency in licensing is paramount; a repeat of the earlier irregularities will severely damage credibility. Cybersecurity must also be taken seriously. Protecting customers from fraud, hacking and money laundering will require advanced encryption, biometric verification and multi-factor authentication. Above all, building and sustaining public trust will be essential. Without seamless, reliable and transparent services, the very people digital banks seek to serve will remain unconvinced.

Policy coherence is another critical factor. The recently enacted “Payment and Settlement Systems Act, 2024” must be enforced in full to avoid regulatory ambiguity. At the same time, gaps in rural internet connectivity must be addressed if digital banks are to serve the whole population. For policymakers, the agenda is clear: ensure transparent licensing, strengthen cybersecurity, regulate fees to protect customers, design special incentives for small entrepreneurs and marginalised groups, and enforce accountability by mandating public listings within five years of operation.

Bangladesh now stands at a crossroads. Digital banks, if properly implemented, could become a milestone in sustainable financial inclusion and mark a decisive step towards a cashless economy. The potential to transform millions of lives is enormous. But success will hinge on political will, regulatory transparency and a steadfast commitment to technology-driven governance. If those conditions are met, digital banking in Bangladesh will not merely be an addition to the existing financial system—it will be a new horizon altogether.

—The writer is a Director of Bengal Commercial Bank, Bengal Islami Life Insurance and Managing Director of JCX Group