Chapter-1

9
1.1 Definition of a bank
A bank is a financial institution that provides a wide range of financial services,
including accepting deposits, offering loans, facilitating money transfers, and
providing various other financial products and services to individuals,
businesses, and governments. Banks play a critical role in the economy by
serving as intermediaries between savers and borrowers, promoting economic
growth, and ensuring efficient money flow within an economy. Government
authorities typically regulate them to maintain stability and protect the interests
of their customers and the overall financial system. Over time we saw so many
changes in the banking sector.
Digital Banking is the 4th stage of the banking industry. Initially, we saw
traditional banking. After that, we were introduced to e-banking where
electronic machinery such as computers, ATM booths, etc... helped us save time
and keep us protected from making mistakes in transactions. Later on, the
Internet joined in the game and created more fixability in banking that offers
customers banking from home. Finally, digital banking was introduced in the
pandemic period which turned out more convenient way of banking.
Each stage has weaknesses and those weaknesses become new stages strength.
here is a brief discussion about the weaknesses of each stage and how those
weaknesses become the next stage's strength.
1.2 History of bank
Banking has an extensive and intricate history that stretches back through the
ages. Over time, banking has adapted and evolved to meet the needs of various
societies and economies. In this brief overview, we will examine the history of
banking starting from its earliest beginnings.
Ancient Banking (2000 BCE - 14th Century CE):
The earliest forms of banking originated in ancient civilizations. The Sumerians
used clay tablets to record deposits and withdrawals while in ancient Egypt,
temples acted as banks, storing valuables and grain for the public. Ancient
Rome had a system of moneylenders and exchange bankers.
Medieval Banking (14th - 17th Century):
During the medieval period, goldsmiths emerged as secure storage providers for
people's gold and valuable items. They issued receipts for the stored items,
which could be used as a form of payment. These receipts gradually evolved

10
into paper money. Banking practices such as bills of exchange and promissory
notes became more common.
Rise of Modern Banking (17th - 19th Century):
The Bank of England, founded in 1694, is widely considered the first central
bank. It played a significant role in facilitating trade and providing a stable
currency. Other European countries established their own central banks and
commercial banks in the 18th and 19th centuries. The Industrial Revolution led
to increased demand for banking services, and more banks were established to
support economic growth.
20th Century Banking:
The 20th century witnessed the global expansion of banking services and the
development of financial markets. The Great Depression in the 1930s led to the
creation of regulatory bodies such as the Federal Reserve in the United States to
oversee and stabilize the banking sector. Advances in technology, such as
ATMs and electronic banking, transformed the industry.
Contemporary Banking (Late 20th Century - Present):
The late 20th century and early 21st century saw a wave of financial innovation,
including the development of credit cards, online banking, and electronic
trading. The globalization of financial markets and the proliferation of
multinational banks became prominent. Banking has faced various challenges
and crises, including the financial crisis of 2008, which resulted in significant
regulatory changes. Today, banks continue to evolve with the advent of fintech,
digital currencies like Bitcoin, and changing customer expectations. Banks
provide a wide range of services, including savings and checking accounts,
loans, investments, and more. The history of banking reflects the dynamic
nature of finance and its critical role in the global economy.
1.3 History of banks in Bangladesh
The economic and political progress of Bangladesh has been closely intertwined
with the development of its banking sector. This paper provides a concise
overview of the key milestones in the history of banking in Bangladesh.
Banking in what is now Bangladesh has a long and rich history, dating back to
the British colonial period. The British established several banks in the region,
including the Bengal Bank (1784) and the Bank of Bombay (1840). Following
its independence from Pakistan in 1971, Bangladesh inherited a largely agrarian
and

11
underdeveloped economy. Its banking sector was also relatively small and
underdeveloped.
In 1972, the government of Bangladesh, led by Sheikh Mujibur Rahman,
nationalized all major banks and financial institutions in the country as part of a
socialist economic policy. This move was intended to bring banking services to
the rural population and promote economic equality. In the mid-1980s, the
government began privatizing and liberalizing the banking sector, allowing
private and foreign banks to enter the market and promote competition and
innovation.
The Bangladesh Bank was established in 1972 as the country's central bank. Its
mandate included regulating and supervising the banking sector, controlling the
money supply, and ensuring overall monetary stability. Bangladesh is well-
known for its microfinance initiatives, with Grameen Bank being a prominent
example. Founded by Muhammad Yunus in 1983, Grameen Bank focused on
providing small loans to impoverished individuals to help them start small
businesses. This approach became a microfinance model worldwide. Over the
years, Bangladesh has seen significant expansion in banking services. A range
of commercial, specialized, and Islamic banks now operate in the country,
providing various financial products and services.
The banking sector in Bangladesh has embraced modernization and
technological advancements. Online banking, mobile banking, and electronic
payment systems have become increasingly popular, making financial services
more accessible to the general population. The regulatory framework for the
banking sector has evolved to enhance transparency and protect the interests of
depositors and the overall stability of the financial system. Despite progress, the
banking sector in Bangladesh still faces challenges such as non-performing
loans, governance issues, and financial stability concerns. However, it also
presents opportunities for growth and development, given the country's large
and dynamic population. In summary, the history of banking in Bangladesh
reflects the country's journey from a newly independent nation with a relatively
underdeveloped financial sector to a more diversified and competitive banking
industry that plays a crucial role in its economic development.

1.4 Bangladesh's banks have contributed to its economic growth.

The role of the banking sector in Bangladesh has been paramount in the
country's economic growth and development. By extending their services to
both urban and rural areas, banks have enabled a vast percentage of the

12
population to access financial services, which has, in turn, allowed people to
save money, access credit, and invest in various economic activities.
Banks in Bangladesh have provided an array of credit facilities, including
personal loans, business loans, and agricultural loans. These credit options have
helped individuals and businesses finance their end beavers, expand their
operations, and generate economic activity. Simultaneously, banks have played
an instrumental role in supporting small and medium-sized enterprises (SMEs),
which are a vital component of Bangladesh's economy. By providing loans,
technical assistance, and financial support, banks have enabled SMEs to
increase their productivity, create jobs, and reduce poverty. Banks have also
played a crucial role in facilitating remittances from Bangladeshi expatriates
working abroad, which are a significant source of foreign exchange and
contribute significantly to the country's balance of payments. Additionally,
banks have supported export-oriented industries in Bangladesh by providing
financing, letters of credit, and other services, which have helped the country's
products gain access to international markets. Furthermore, banks have been
involved in financing infrastructure development projects, such as roads,
bridges, power plants, and telecommunication networks. These investments are
crucial for economic growth and attracting foreign investment. Microfinance
institutions, such as Grameen Bank, have been a powerful tool in lifting people
out of poverty by providing small loans to entrepreneurs and individuals,
enabling them to start small businesses and improve their livelihoods.
Moreover, the adoption of modern banking technologies, including online
banking and mobile banking, has increased the efficiency and accessibility of
banking services, making it easier for individuals and businesses to manage
their finances. It is worth noting that the financial and banking sector itself
contributes a significant portion to Bangladesh's Gross Domestic Product
(GDP), which is a testament to its growing importance in the country's overall
economy. Despite the banking sector's significant contributions to economic
growth and development in Bangladesh, it faces challenges such as non-
performing loans and governance issues, which require addressing for sustained
economic progress. Nonetheless, the role of banks in supporting economic
activities, facilitating investments, and promoting financial inclusion in
Bangladesh is indispensable.

13
Chapter 2

14
2.1 TRADITIONAL BANKING SYSTEM
The traditional banking system refers to a conventional, established model of
providing financial services to individuals, businesses, and institutions. It is
characterized by physical bank branches and a wide range of services, including
savings and checking accounts, loans, mortgages, investment products, and
various other financial instruments. Traditional banks have a history of in-
person customer interactions and are subject to government regulations to
ensure stability and protect customers. While they have adapted to the digital
age with online and mobile banking services, traditional banks typically
maintain a physical presence and are known for their long-standing reputation
for stability and trustworthiness.
2.2 THE PRIMARY CHARACTERISTICS OF THE TRADITIONAL
BANKING SYSTEM
The traditional banking system, also known as brick-and-mortar banking, is
based on physical bank branches and face-to-face interactions. Here are some of
the primary characteristics of the traditional banking system:
1. Physical Presence: Traditional banks have physical branches and offices
located in various cities and towns. Customers can visit these branches to
conduct banking transactions, open accounts, or seek financial advice.
2. In-Person Transactions: The traditional banking system emphasizes in-
person interactions between customers and bank employees. Customers
typically visit branches to deposit or withdraw money, apply for loans, and
access other banking services.
3. Paper-Based Transactions: Traditional banks rely on paper-based
transactions and documentation. Customers often fill out physical forms for
various banking activities, and many documents, such as checks, passbooks, and
account statements, are paper-based.
4. Human Interaction: Customer interactions are primarily with bank staff,
including tellers, customer service representatives, and loan officers. These
interactions often involve face-to-face communication and are considered an
essential aspect of the traditional banking experience.
5. Limited Operating Hours: Traditional banks typically have fixed operating
hours during weekdays, and they may be closed on weekends and holidays. This
can be inconvenient for customers who require banking services outside of
regular working hours.
15
6. Physical Security: Traditional banks invest in physical security measures,
such as safes, security personnel, and surveillance systems, to protect cash and
valuable assets within their branches.
7. Limited Accessibility: The physical presence of bank branches limits
accessibility for customers, particularly those in remote or underserved areas.
Customers may need to travel significant distances to access banking services.
8. Time-Consuming: In-person transactions at traditional banks can be time-
consuming, as customers may need to wait in line and interact with bank staff,
leading to potentially long processing times.
9. Limited Account Information: Customers typically receive periodic paper
statements to keep track of their account balances and transactions. Access to
real-time account information is limited, requiring customers to visit a branch or
use ATMs for updates.
10. Traditional Services: Traditional banks offer a wide range of financial
services, including savings and checking accounts, loans, mortgages, and credit
cards. However, the scope and convenience of online and mobile banking
services may be more limited.
11. Limited Flexibility: Traditional banking may lack the flexibility and
convenience of online and mobile banking, as customers must adhere to the
bank’s operating hours and visit branches for various transactions.
12. High Overhead Costs: Maintaining physical branches can be costly for
banks, as it involves expenses related to rent, staff salaries, and infrastructure
maintenance. These costs can affect the fees and interest rates that banks offer
to customers.
It is worth noting that while traditional banking still exists, the industry has
evolved significantly with the advent of online and mobile banking. Many
traditional banks now offer digital services to provide customers with more
convenient and accessible banking options. This evolution has led to a more
blended approach, where customers can choose between in-person and digital
banking channels to suit their preferences and needs.
2.3 SOME STRENGTHS OF THE TRADITIONAL BANKING SYSTEM
The traditional banking system, with its brick-and-mortar branches and in-
person services, has several strengths that appeal to certain customers and offer
unique advantages:

16
1. Face-to-face interaction: Personalized service is a significant strength of
traditional banks. Customers can visit branches and speak directly with bank
employees, fostering trust and a sense of familiarity. This is particularly
valuable for customers who prefer human interaction and require in- depth
financial advice.
2. Customer Relationship: Traditional banks often focus on building long-term
relationships with their customers. Bank staff can get to know their customers'
financial needs, preferences, and goals, which can lead to tailored financial
solutions and advice.
3. Expertise and Advice: Traditional banks typically employ financial experts
and advisors who can guide on complex financial matters, investment strategies,
and retirement planning. This can be especially helpful for customers looking
for comprehensive financial planning services.
4. Security and Trust: The physical presence of traditional bank branches can
instil a sense of security and trust in customers. Many people feel more
comfortable knowing that there is a physical location where they can go to
address their banking needs and concerns.
5. Accessibility for Certain Services: Some complex transactions or services,
such as large loan approvals, mortgage applications, and estate planning, may
be better suited for in-person interactions, as they often involve extensive
documentation and legal requirements.
6. Regulatory Oversight: Traditional banks are subject to strict regulatory
oversight, which can offer customers added protection and assurance that their
deposits are safe and insured by government agencies.
7. Physical Banking Services: Traditional banks offer services like safe deposit
boxes for securely storing valuable items, cash transactions, and access to
physical check books and passbooks.
8. Security Concerns: While physical bank branches provide a sense of
security, they can also be vulnerable to security threats, such as robberies.
Customers may also be concerned about the safety of their paper-based
documents.
9. Limited Demographic Appeal: The traditional banking system may not
appeal to younger and tech-savvy customers who prefer the convenience and
speed of digital banking.
10. Competition from Online Banks: Traditional banks face stiff competition
from online-only banks and fintech companies, which can offer more
17
competitive interest rates, lower fees, and a more streamlined customer
experience.
11. Environmental Impact: The paper-based nature of many traditional
banking transactions can have a negative environmental impact due to the
consumption of paper and other resources. To address these weaknesses and
remain competitive in the modern banking landscape, many traditional banks
have incorporated digital banking services, allowing customers to access their
accounts, make transactions, and interact with the bank online or through
mobile apps. This hybrid approach aims to provide the benefits of both
traditional and digital banking while addressing some of the weaknesses
associated with the former.
2.4 SUMMARY OF TRADITIONAL BANKING SYSTEM
The traditional banking system is an established and enduring model of
financial services with a physical presence, offering a wide range of services,
including savings accounts, loans, and investment products. It is characterized
by stringent government regulation, a focus on building customer relationships,
and a reputation for stability and trustworthiness due to its long history.
Traditional banks also serve as intermediaries and provide credit assessment
services, supporting liquidity management and contributing to community
development.
Strengths of the traditional banking system include its stability, full-service
offerings, customer relationships, expertise, and strong regulatory oversight.
The physical presence of branches and commitment to community involvement
are also notable strengths. However, this system has several weaknesses,
including limited accessibility, high operating costs, slower transaction
processing, bureaucratic decision-making, and limited innovation. Traditional
banks may also have higher minimum requirements for accounts, less
competitive interest rates, and complex fee structures. They face increasing
competition from online banks and fintech companies and must grapple with
cybersecurity vulnerabilities, regulatory compliance costs, and the risk of
overextending credit.
In summary, the traditional banking system's strengths lie in its stability,
customer relationships, and full- service offerings. At the same time, its
weaknesses include limited accessibility, higher operating costs, and a
reluctance to embrace innovation. Adapting to the digital age and addressing
these weaknesses is crucial for traditional banks' continued relevance and
competitiveness in the ever-evolving financial landscape.

18
Now we jump into our next stage where the traditional banking system starts to
absorb electronic equipment to overcome weaknesses of the traditional banking
system.

Chapter-3

19
3.1 ELECTRONIC BANKING SYSTEM (E-BANKING)
E-banking, short for electronic banking, refers to the provision of banking and
financial services through electronic channels and digital technology. This
includes the use of the internet, mobile devices, and other electronic means to
access and manage various financial activities and transactions, such as
checking
account balances, transferring funds, paying bills, applying for loans, and
investing. E-banking offers convenience and accessibility to customers,
allowing them to conduct their financial affairs from the comfort of their homes
or on the go, without the need to visit physical bank branches. It has become an
integral part of the modern banking system, offering a range of online and
mobile banking services to meet the needs and preferences of tech-savvy
customers.
3.2 THE MAIN CHARACTERISTICS OF E-BANKING
Electronic banking, or e-banking, refers to the use of electronic channels, such
as the internet, mobile devices, and telecommunication networks, for
conducting various banking activities. The main characteristics of e-banking
include:
1. Online Access: E-banking allows customers to access their bank accounts
and conduct financial transactions through the internet. This provides the
convenience of 24/7 access to banking services from anywhere with an internet
connection.
2. Account Management: Customers can view account balances, transaction
history, and other account details online. This helps in monitoring and
managing finances without the need to visit a physical bank branch.
3. Electronic Funds Transfer: E-banking facilitates electronic funds transfers
between accounts, both within the same bank and between different banks. This
includes features like wire transfers, ACH (Automated Clearing House)
transfers, and online bill payments.

20
4. Mobile Banking: With the proliferation of smartphones, e-banking has
expanded to include mobile banking applications. Customers can perform
various banking activities using dedicated mobile apps, enhancing accessibility
and flexibility.
5. ATM Services: Automated Teller Machines (ATMs) are an integral part of
e-banking, allowing customers to withdraw cash, deposit money, and perform
other basic transactions outside traditional banking hours.
6. Electronic Statements: E-banking often replaces traditional paper
statements with electronic statements, sent to customers through secure online
portals. This reduces paper usage and provides a convenient way to review
account activity.
7. Security Measures: Security is a crucial aspect of e-banking. Banks employ
various security measures such as encryption, multi-factor authentication, and
secure sockets layer (SSL) protocols to protect customer information and
transactions from unauthorized access.
8. Online Customer Support: E-banking platforms typically offer online
customer support through chat, email, or phone. This provides customers with
assistance and resolves queries without the need to visit a physical branch.
9. Multi-Channel Integration: E-banking is often integrated with other
channels, such as telephone banking and in-branch services, providing
customers with a seamless and consistent banking experience across various
touchpoints.
10. Innovative Services: E-banking allows for the introduction of innovative
services, such as robo-advisors, online investment platforms, and peer-to-peer
(P2P) payment systems, expanding the range of financial products available to
customers.
11. User-Friendly Interfaces: E-banking platforms focus on providing user-
friendly interfaces to enhance the overall customer experience. Intuitive
navigation, responsive design, and easy-to-use features contribute to customer
satisfaction.
12. Data Analytics: Banks use data analytics in e-banking to analyse customer
behaviour, preferences, and trends. This information helps in tailoring services,
improving customer engagement, and preventing fraudulent activities. As
technology continues to advance, e-banking is likely to evolve further,
introducing new features and services to meet the changing needs of customers
and the financial industry.

21
3.3 SOME KEY STRENGTHS OF E-BANKING SYSTEMS
Electronic banking (e-banking) systems come with various strengths that
contribute to their widespread adoption and popularity among consumers and
financial institutions. Here are some key strengths of e-banking systems:
1. Convenience: E-banking systems provide unparalleled convenience by
allowing users to access their accounts, conduct transactions, and manage
finances from anywhere with an internet connection. This eliminates the need
for physical visits to bank branches.
2. 24/7 Accessibility: E-banking services are available 24 hours a day, seven
days a week, providing users with round-the-clock access to their accounts and
banking services, which is particularly beneficial for those with busy schedules.
3. Cost Savings: For both customers and banks, e-banking reduces costs
associated with traditional brick-and-mortar branches. Customers can avoid
travel expenses and time, while banks benefit from reduced infrastructure and
operational costs.
4. Efficiency: Transactions conducted through e-banking systems are typically
faster and more efficient than traditional methods. This includes quick fund
transfers, online bill payments, and instantaneous account updates.
5. Transaction History and Monitoring: Users can easily track their
transaction history, monitor account balances, and receive real-time alerts and
notifications, promoting better financial management and awareness.
6. Global Access: E-banking systems enable users to perform transactions
globally, facilitating international banking activities without the need for
physical presence.
7. Security Measures: E-banking platforms implement robust security
measures, such as encryption, multi-factor authentication, and secure
communication protocols, to protect user information and transactions from
unauthorized access.
8. Paperless Environment: E-banking contributes to environmental
sustainability by reducing the need for paper through electronic statements,
digital documentation, and online communication.
9. Integration with Other Financial Services: E-banking systems can
seamlessly integrate with various financial technology (fintech) services,
expanding the range of available financial products and enhancing the overall
customer experience.

22
10. Customization: E-banking platforms often allow users to customize their
experience, setting preferences for alerts, notifications, and the layout of their
digital banking interface.
11. Remote Deposits: Some e-banking systems enable users to deposit checks
remotely using mobile devices, adding a layer of convenience to traditional
banking tasks.
12. Innovative Services: E-banking systems are often at the forefront of
innovation, introducing new services such as robo-advisors, online investment
platforms, and other fintech solutions to meet evolving customer needs.
13. Data Analytics: E-banking systems utilize data analytics to provide users
with insights into their financial behaviours and trends, helping them make
informed decisions.
14. Mobile Banking: The integration of mobile banking apps extends the
convenience of e-banking to users' smartphones, allowing them to manage their
finances on the go.
15. Online Loan Applications: E-banking systems streamline the loan
application process by offering online applications, making it more convenient
for users to access credit.
16. Risk Management: E-banking systems often include features for risk
management, helping users monitor and control potential risks associated with
their financial activities. Overall, the strengths of e-banking systems lie in their
ability to enhance accessibility, efficiency, and security, offering a modern and
user-friendly approach to banking services.
3.4 SOME OF THE WEAKNESSES OF THE E-BANKING SYSTEM
While electronic banking (e-banking) systems offer numerous advantages, they
also come with certain weaknesses and challenges. Here are some common
weaknesses associated with e-banking systems:
1. Security Concerns: E-banking systems face ongoing threats from
cybercriminals, including phishing attacks, malware, and hacking attempts.
Security breaches can lead to unauthorized access, identity theft, and financial
losses.
2. Technology Dependence: E-banking relies heavily on technology
infrastructure. Any disruptions, whether due to system failures, technical
glitches, or cyberattacks, can result in service outages and inconvenience for
users.

23
3. Fraud Risks: Despite security measures, e-banking is susceptible to various
types of fraud, such as account takeover, card fraud, and social engineering
attacks. Users need to be vigilant to avoid falling victim to fraudulent activities.
4. Limited Access for Some Users: Not all individuals have access to the
internet or the necessary technological devices, limiting the reach of e-banking
services. This digital divide can exclude certain demographics from enjoying
the benefits of electronic banking.
5. Complexity and Learning Curve: Some users, particularly older individuals
or those less familiar with technology, may find e-banking systems complex and
challenging to navigate. This can hinder the adoption of e-banking among
certain demographics.
6. Dependency on Third-Party Providers: E-banking systems often rely on
third-party service providers for various functionalities, such as payment
gateways and security services. Any issues with these providers can impact the
overall performance of e-banking platforms.
7. Data Privacy Concerns: The collection and storage of user data in e-
banking systems raise privacy concerns. Users may be wary of sharing personal
and financial information online due to the risk of data breaches and
unauthorized access.
8. Regulatory Compliance: E-banking systems must comply with various
regulations and standards, and changes in regulatory environments can pose
challenges for banks in terms of adapting their systems and practices to remain
compliant.
9. Phishing and Social Engineering: Users may fall victim to phishing scams
or social engineering attacks, where malicious actors attempt to trick them into
revealing sensitive information such as passwords or account details.
10. Customer Service Limitations: While e-banking platforms offer online
customer support, some users may prefer face-to-face interactions. Resolving
complex issues or providing personalized assistance can be challenging in an
entirely digital environment.
11. Transaction Errors: Technical glitches or user errors during online
transactions can lead to financial discrepancies. Resolving such errors may
require additional time and effort compared to face-to-face transactions.
12. Limited Cash Transactions: E-banking systems are primarily focused on
digital transactions, and users may face limitations when it comes to handling

24
physical cash. This can be a drawback in regions where cash transactions are
prevalent.
13. Phishing and Social Engineering: Users may fall victim to phishing scams
or social engineering attacks, where malicious actors attempt to trick them into
revealing sensitive information such as passwords or account details.
14. Limited Cash Transactions: E-banking systems are primarily focused on
digital transactions, and users may face limitations when it comes to handling
physical cash. This can be a drawback in regions where cash transactions are
prevalent. It's essential for both users and financial institutions to be aware of
these weaknesses and actively work to address and mitigate potential risks
associated with e-banking. Regular security awareness training, robust
cybersecurity measures, and continuous improvements in technology can help
enhance the overall resilience of e-banking systems.
3.5 WHY THE E-BANKING SYSTEM IS BETTER THAN THE
TRADITIONAL BANKING SYSTEM
Electronic banking presents significant advantages over traditional banking.
This modern approach to banking offers greater accessibility and convenience
to account holders, enabling them to access their accounts and services round-
the-clock from any location with an internet connection. This convenience is
coupled with cost-effectiveness, as digital banks usually feature lower fees and
more competitive interest rates on savings accounts. Furthermore, electronic
banking is more eco-friendly by reducing the need for physical paperwork,
thereby promoting a sustainable and eco-conscious approach to financial
activities.
Transactions are processed swiftly, and customer support is readily available
through online channels, providing account holders with prompt and efficient
assistance. While both traditional and electronic banking prioritizes security,
digital banking requires robust cybersecurity measures, making it an
exceptionally secure option. These benefits make digital banking the preferred
choice for those seeking efficiency, accessibility, and cost savings in their
financial activities, aligning well with the modern, technology-driven lifestyle.
3.6 SUMMARY OF THE E-BANKING SYSTEM
E-banking, or electronic banking, is a modern financial system characterized by
digital platforms that offer 24/7 access to banking services via the Internet and
mobile apps. Customers can easily manage accounts, transfer funds, pay bills,
apply for loans, and invest online. While its strengths include convenience,
speed, and cost savings, it also faces security challenges, potential digital
25
exclusion of those without internet access, and a reduced level of personal
interaction compared to traditional banking. Despite these weaknesses, e-
banking is an integral part of the modern financial landscape, providing
flexibility, accessibility, and the potential for global financial transactions.
Now we move to the next stage where the e-banking system has been integrated
with the internet, making banking easier for those who found it difficult to
understand these two stages. Banking has now reached people's doorsteps.

Chapter-4

26
4.1 INTERNET BANKING OR ONLINE BANKING SYSTEM
Online banking, also known as Internet banking, is a digital service that
provides customers with the ability to conduct various financial transactions and
manage their bank accounts over the Internet. This service enables individuals
and businesses to access their accounts, check balances, view transaction
history, transfer funds, pay bills, apply for loans, and perform other banking
activities through a secure and convenient online platform. Typically, online
banking operates through a bank's official website or a dedicated mobile app,
providing customers with 24/7 access to their financial information and
services, without the need to visit a physical bank branch. It offers efficiency
and flexibility, making it a popular choice for modern banking needs.
4.2 THE MAIN CHARACTERISTICS OF INTERNET BANKING:
Internet banking, also known as online banking or e-banking, refers to the use
of the internet for conducting various banking activities. The main
characteristics of internet banking include:
1. Accessibility: Internet banking allows customers to access their bank
accounts and conduct financial transactions anytime, anywhere, as long as they
have an internet connection. This provides a high level of convenience and
flexibility.

27
2. Account Management: Users can view their account balances, transaction
history, and account details online. This real-time access to account information
helps customers stay informed about their financial status.
3. Transaction Services: Internet banking enables users to perform a variety of
transactions, such as fund transfers between accounts, bill payments, and setting
up standing orders. Customers can initiate these transactions without visiting a
physical bank branch.
4. Electronic Statements: Instead of receiving paper statements, users can opt
for electronic statements, which are accessible online. This contributes to
reducing paper usage and is more environmentally friendly.
5. Mobile Banking Integration: Many internet banking services are integrated
with mobile applications, providing users with the option to perform banking
activities on their smartphones or tablets. This enhances the overall accessibility
and user experience.
6. Security Features: Internet banking platforms incorporate various security
measures to protect user data and transactions. This may include encryption,
multi-factor authentication, and secure login protocols to ensure the
confidentiality and integrity of financial information.
7. Customer Support: Online banking platforms typically provide customer
support through various channels, such as live chat, email, or phone. This helps
users get assistance and resolve issues without visiting a physical branch.
8. Alerts and Notifications: Users can set up alerts and notifications for
various account activities, such as low balance warnings, large transactions, or
account login attempts. This adds an extra layer of security and helps users stay
informed about their accounts.
9. Integration with Other Financial Services: Internet banking often
integrates with other financial services, such as online investment platforms,
insurance services, and loan applications, providing customers with a
comprehensive financial management experience.
10. User-Friendly Interfaces: Internet banking platforms are designed with
user-friendly interfaces to make navigation and transaction processes intuitive.
This enhances the overall user experience and encourages more people to use
online banking services.
11. 24/7 Availability: Internet banking services are available 24/7, allowing
users to perform transactions and manage their accounts at any time, including
outside regular banking hours.
28
It's important to note that specific features and characteristics may vary among
different banks and financial institutions, and technological advancements
continue to shape the landscape of internet banking.
4.3 THE KEY STRENGTHS OF INTERNET BANKING:
Internet banking offers several key strengths that contribute to its popularity and
widespread adoption. Some of these strengths include:
1. Convenience: One of the primary strengths of internet banking is the
convenience it provides to customers. Users can access their accounts, check
balances, and perform transactions from the comfort of their homes or anywhere
with an internet connection, eliminating the need to visit a physical bank
branch.
2. 24/7 Access: Internet banking services are available 24 hours a day, seven
days a week. This around-the-clock accessibility allows users to manage their
finances at any time, even outside regular banking hours.
3. Cost Savings: Internet banking can lead to cost savings for both banks and
customers. Banks can reduce operational costs associated with maintaining
physical branches, and customers can save on transportation and time by
conducting transactions online.
4. Efficiency: Online banking transactions are typically faster than traditional
in-person transactions. Fund transfers, bill payments, and other financial
activities can be completed with just a few clicks, reducing the time and effort
required.
5. Real-Time Information: Internet banking provides real-time access to
account information. Users can instantly view transactions, check balances, and
monitor their financial activities, promoting better financial management.
6. Accessibility for Diverse Services: Internet banking often integrates with a
wide range of financial services, including investment accounts, loan
applications, insurance services, and more. This integrated approach offers
customers a comprehensive platform for managing various aspects of their
financial lives
7. Security Measures: While security challenges exist, internet banking
platforms incorporate robust security measures such as encryption, multi-factor
authentication, and secure login protocols. These measures help protect user
data and ensure the safety of online transactions.

29
8. Paperless Transactions: Internet banking promotes environmental
sustainability by reducing the need for paper transactions. Users can opt for
electronic statements and conduct most transactions online, contributing to a
paperless banking experience.
9. User-Friendly Interfaces: Internet banking platforms are designed with
user-friendly interfaces, making it easy for customers to navigate and perform
transactions. This contributes to a positive user experience and encourages more
people to embrace online banking.
10. Mobile Banking Integration: The integration of internet banking with
mobile applications further enhances accessibility. Users can perform banking
activities on their smartphones or tablets, adding an extra layer of convenience.
11. Customization and Personalization: Internet banking platforms often
allow users to customize their preferences and set up alerts or notifications for
specific account activities. This level of personalization enhances user control
and engagement.
12. Remote Account Management: Users can manage their accounts remotely,
making it particularly advantageous for individuals who travel frequently or live
in locations where physical bank branches are not easily accessible. These
strengths collectively contribute to the popularity and continued growth of
internet banking as a preferred method for managing financial transactions and
services.
4.4 THE WEAKNESSES OF INTERNET BANKING:
While internet banking offers numerous advantages, it also comes with certain
weaknesses and challenges. Users need to be aware of these potential
drawbacks:
1. Security Concerns: One of the primary weaknesses of internet banking is
the potential for security breaches. Cyber threats, phishing attacks, and other
forms of online fraud can compromise the security of user accounts and
sensitive financial information.
2. Identity Theft: Internet banking users are at risk of identity theft, where
unauthorized individuals may gain access to personal information and use it for
fraudulent activities.
3. Technical Issues: Online banking services can be susceptible to technical
glitches, outages, or system failures. These issues may temporarily disrupt
access to accounts or cause delays in transactions.

30
4. Limited Access for Some Customers: Not everyone has equal access to the
internet or is comfortable using online platforms. This can exclude certain
demographics, such as the elderly or those in remote areas, from fully benefiting
from internet banking.
5. Dependency on Technology: Internet banking is highly dependent on
technology, and users may face challenges if they are not familiar with or do not
have access to the required devices or internet connectivity.
6. Phishing and Social Engineering: Users may be targeted by phishing emails
or social engineering attempts that aim to trick them into revealing sensitive
information such as passwords or account details.
7. Lack of Physical Presence: Some users prefer the reassurance of dealing
with a physical bank branch and having face-to-face interactions with bank
representatives. Internet banking lacks this personal touch and physical
presence.
8. Limited Cash Transactions: While online banking supports various
transactions, handling physical cash transactions (like depositing or
withdrawing cash) may still require a visit to a physical branch or ATM.
9. Learning Curve for Some Users: Older individuals or those less familiar with
technology may find it challenging to adapt to internet banking platforms,
leading to potential usability issues.
10. Potential for Overreliance on Automation: Automated processes in online
banking can lead to issues if there are errors or if customers face difficulties in
resolving problems without human intervention.
11. Privacy Concerns: Users may have concerns about the privacy of their
financial information when conducting transactions online. This is especially
relevant given the increasing frequency of data breaches.
12. Regulatory Compliance and Legal Issues: Internet banking is subject to
various regulations, and compliance can be challenging for banks. Legal issues
may arise, affecting both the financial institution and its customers.
It's essential for users to stay informed about these weaknesses and take
measures to mitigate associated risks. Banks, in turn, continually invest in
improving security measures and user education to address these challenges and
enhance the overall safety of internet banking.
4.5 DISTINGUISH BETWEEN ELECTRONIC BANKING SYSTEMS
AND THE INTERNET OR ONLINE BANKING SYSTEM.

31
Certainly! Here's an expanded table with more than 10 points comparing
Electronic Banking Systems and Internet (Online) Banking Systems:
Feature Electronic Feature Electronic Feature Electronic
Banking Systems Banking Systems Banking Systems
Internet (Online) Internet (Online) Internet (Online)
Banking Banking Banking
Systems Systems Systems
Definition Use of Definition Use of Definition Use of
electronic channels for electronic channels for electronic channels for
banking activities. banking activities. banking activities.
Specifically involves the Specifically involves the Specifically involves the
use of use of use of
the internet for banking the internet for banking the internet for banking
specific channel (e.g., specific channel (e.g.,
ATMs ATMs
Transaction Speed Transaction Speed Transaction Speed
Transaction speed may Transaction speed may Transaction speed may
vary vary vary
based on the specific based on the specific based on the specific
channel channel channel
(e.g., real-time mobile (e.g., real-time mobile (e.g., real-time mobile
transactions). transactions). transactions).
Generally faster due to Generally faster due to Generally faster due to
real-time real-time real-time
processing, especially processing, especially processing, especially
for online for online for online
transactions. Transactions. Transactions.
User Interface User User Interface User User Interface User
interfaces can vary interfaces can vary interfaces can vary
across across across
Channels (e.g., mobile Channels (e.g., mobile channels (e.g., mobile
apps vs. apps vs. apps vs.
ATM interfaces). ATM interfaces). ATM interfaces).

This expanded table provides a more in-depth comparison between electronic

banking systems and internet (online) banking systems, considering various
features and aspects of their functionality.
4.6 SUMMARY OF THE INTERNET OR ONLINE BANKING SYSTEM.

32
Internet banking, also known as online banking, is a modern and convenient
approach to managing one's finances. This system is characterized by the ability
to access and conduct various financial transactions through the Internet,
offering numerous advantages. Online banking provides accessibility and
convenience, enabling customers to manage their accounts and perform
transactions anytime and anywhere. It offers a wide range of services, from
checking balances to paying bills and even investing.
Security measures, like encryption and two-factor authentication, provide robust
protection for sensitive information. Furthermore, online banks tend to have
lower operating costs, translating into higher interest rates for savings accounts
and lower fees. Additionally, online banking has evolved to incorporate
innovative features and adapt to changing customer preferences, such as mobile
banking apps and chat support.
Despite its many strengths, online banking also presents certain weaknesses to
consider. A primary concern revolves around cybersecurity, as online platforms
are susceptible to hacking and data breaches, potentially compromising
customers' financial security. Some customers may feel uncomfortable with the
absence of face-to-face interactions and personalized guidance often provided
by traditional banks. Additionally, online banking may not be accessible to
individuals with limited internet connectivity, potentially excluding segments of
the population. The absence of physical branches can hinder customers who
require in-person services or have urgent banking needs. Overall, online
banking's strengths, such as accessibility, convenience, and lower costs, are
balanced by weaknesses related to cybersecurity, customer service, and
accessibility for all. Users need to weigh these factors when deciding whether to
adopt online banking as their primary financial management method.
In the final stage, the traditional banking system, e-banking system, and online
banking system converge to introduce a groundbreaking phenomenon known as
digital banking. At the core of digital banking is the elimination of physical
materials, as digital devices or machines are the sole requisite tools. This
innovation has the potential to transform customer experiences and
revolutionize the banking industry.

33
34
Chapter-5

5.1 DIGITAL BANKING SYSTEM:

Digital banking allows customers to access financial services and products
through electronic channels and online platforms, such as Internet banking and
mobile applications. Customers can perform various financial transactions,
check account balances, transfer funds, pay bills, and access other banking
services remotely, without the need for in-person interactions. This provides a
convenient, efficient, and flexible way for individuals and businesses to manage
their finances using computers, smartphones, or other internet-connected
devices. Digital banking is becoming increasingly popular because it offers a
diverse range of financial solutions and tools to meet the evolving needs of
customers in the digital age.

35
5.2 CHARACTERISTICS OF DIGITAL BANKING:
Digital banking refers to the use of digital technology, including the internet and
mobile devices, to provide and manage financial services. The characteristics of
digital banking include:
1. Online Account Management: Digital banking enables users to manage
their bank accounts online. This includes checking balances, reviewing
transaction history, and monitoring account activities through web interfaces or
mobile applications.
2. 24/7 Accessibility: Digital banking services are available 24 hours a day,
seven days a week, providing customers with round-the-clock access to their
financial accounts and services.
3. Mobile Banking Integration: Digital banking often includes mobile banking
applications, allowing users to perform various banking activities using
smartphones or tablets. This enhances accessibility and convenience,
particularly for users on the go.
4. Digital Payments: Digital banking facilitates various forms of digital
payments, including online bill payments, fund transfers, and peer-to-peer
payments. It reduces reliance on physical checks and cash transactions.
5. Automated Transactions: Many digital banking platforms offer automated
features for recurring transactions, such as scheduled bill payments, fund
transfers, and standing orders. This automation enhances efficiency and reduces
the need for manual intervention.
6. Digital Wallets: Digital banking often integrates with digital wallets,
allowing users to store payment information securely and make contactless
transactions using mobile devices or wearable technology.
7. Enhanced Security Measures: Digital banking platforms prioritize security
with features like multi-factor authentication, encryption, and real-time
transaction monitoring to protect customer data and financial information.
8. Personal Financial Management Tools: Digital banking services may include
tools and features to help users manage their finances better. This could involve
budgeting tools, spending analysis, and financial goal tracking.
9. Customer Support through Digital Channels: Digital banking platforms
offer customer support through various digital channels, such as live chat,
email, or in-app messaging. This enables users to seek assistance without
visiting a physical branch.

36
10. Integration with Fintech Services: Digital banks often collaborate with or
integrate services from financial technology (fintech) companies. This can
include robo-advisors, investment platforms, and other innovative financial
services.
11. Real-Time Alerts and Notifications: Users can set up alerts and
notifications for specific account activities, such as low balance alerts, large
transactions, or account login attempts. Real-time notifications enhance security
and keep users informed.
12. Biometric Authentication: Some digital banking platforms incorporate
biometric authentication methods, such as fingerprint or facial recognition,
adding an extra layer of security to account access.
13. Paperless Transactions: Digital banking reduces the reliance on paper for
transactions and communication. Users can opt for electronic statements and
documents, contributing to environmental sustainability.
14. Cross-Border Transactions: Digital banking facilitates cross-border
transactions and international transfers, often at competitive rates, making it
convenient for users with global financial needs.
15. Continuous Innovation: Digital banks frequently introduce new features
and innovations to enhance the user experience. This includes adopting
emerging technologies such as artificial intelligence, machine learning, and
blockchain.
As technology continues to evolve, the characteristics of digital banking will
likely undergo further advancements to meet the changing needs and
expectations of customers.

5.3 The key strengths of the digital banking system:

Digital banking systems have several key strengths that contribute to their
popularity and effectiveness in the modern financial landscape. Here are some
of the main strengths:
1. Convenience and Accessibility: Digital banking provides unparalleled
convenience by allowing users to access their accounts and conduct transactions
from anywhere with an internet connection. This 24/7 accessibility eliminates
the need for physical branch visits.

37
2. Mobile Banking: Integration with mobile devices enhances accessibility,
allowing users to manage their finances on the go. Mobile banking apps provide
a user-friendly interface for various transactions, notifications, and account
management.
3. Cost-Effectiveness: Digital banking reduces operational costs for financial
institutions by minimizing the need for physical branches and associated
infrastructure. This can lead to cost savings that are often passed on to
customers.
4. Enhanced Security Measures: Digital banking platforms prioritize security
with advanced features such as encryption, multi-factor authentication, and real-
time transaction monitoring. These measures help protect customer data and
guard against fraudulent activities.
5. Efficient Transactions: Digital banking streamlines various financial
transactions, such as fund transfers, bill payments, and account management.
Automated processes reduce the time and effort required for these activities
compared to traditional methods.
6. Paperless Transactions: Digital banking reduces the reliance on paper, as
users can opt for electronic statements and documents. This contributes to
environmental sustainability and reduces the environmental impact of banking
activities.
7. Personalization and Analytics: Digital banking systems often use data
analytics to provide personalized insights and recommendations to users. This
helps customers make informed financial decisions and manage their money
more effectively.
8. Real-Time Information: Users have real-time access to their account
information, including balances, transactions, and pending activities. This
immediacy allows for better financial monitoring and decision-making.
9. Integration with Fintech Services: Digital banking platforms often integrate
with fintech services, offering users access to a broader range of financial
products and tools, such as robo-advisors, peer- to-peer lending, and budgeting
apps.
10. Cross-Border Transactions: Digital banking facilitates cross-border
transactions and international transfers with improved speed and often at
competitive exchange rates. This is particularly advantageous for users with
global financial needs.

38
11. Customer Support through Digital Channels: Digital banking systems
offer customer support through various digital channels, such as live chat,
email, or in-app messaging. This provides users with quick and convenient
assistance.
12. Innovative Features and Continuous Improvement: Digital banks
regularly introduce new features and innovations to stay competitive. This
commitment to innovation ensures that users benefit from the latest
technologies and improvements in the digital banking experience.
13. Financial Inclusion: Digital banking has the potential to bring banking
services to underserved populations. It allows individuals without access to
traditional banking infrastructure to participate in the financial system.
14. Flexibility and Customization: Digital banking platforms often allow users
to customize their preferences and set up alerts or notifications for specific
account activities. This flexibility enhances the user experience.
15. Adaptability to Emerging Technologies: Digital banking systems are
adaptable to emerging technologies, such as artificial intelligence, blockchain,
and biometric authentication. This adaptability positions them to incorporate
future advancements in the financial industry.
These strengths collectively make digital banking a powerful and convenient
solution for individuals and businesses, driving its widespread adoption in the
modern era
5.4 The weaknesses of the digital banking system:
While digital banking systems offer numerous benefits, they also come with
certain weaknesses and challenges. It's important for users to be aware of these
potential drawbacks:
1. Security Concerns: One of the primary weaknesses is the potential for
security breaches. Cyber threats, hacking attempts, phishing attacks, and
malware pose risks to user accounts and sensitive financial information.
2. Identity Theft: Digital banking users are at risk of identity theft, where
unauthorized individuals may gain access to personal information and use it for
fraudulent activities.
3. Technology Reliance and Downtime: Digital banking is heavily reliant on
technology, and technical issues or system outages can temporarily disrupt
access to accounts or cause delays in transactions. This downtime can be
frustrating for users.

39
4. Limited Accessibility for Some Users: Not everyone has equal access to
digital technology. Elderly individuals, those in remote areas, or those with
limited digital literacy may face challenges in fully utilizing digital banking
services.
5. Fraudulent Activities: Online platforms are susceptible to various fraudulent
activities, such as phishing, social engineering, and account takeovers. Users
need to be vigilant to avoid falling victim to scams.
6. Depersonalization of Customer Service: While digital banking platforms
offer customer support through digital channels, some users may miss the
personal touch and immediate assistance provided by in-person interactions at
physical branches.
7. Potential for Overreliance on Automation: Automated processes in digital
banking can lead to issues if there are errors or if customers face difficulties in
resolving problems without human intervention.
8. Regulatory Compliance and Legal Issues: Digital banking is subject to
various regulations, and compliance can be challenging for banks. Legal issues
may arise, affecting both the financial institution and its customers.
9. Data Privacy Concerns: Users may have concerns about the privacy of their
financial information when conducting transactions online, especially in light of
increasing data breaches and privacy issues.
10. Dependency on Mobile Devices: While mobile banking is a strength, it can
be a weakness if users depend solely on mobile devices for all banking
activities. Loss or theft of a mobile device could compromise sensitive
information.
11. Customer Trust Issues: Some users may be hesitant to fully trust digital
banking platforms with their financial information, especially if they are not
familiar with the security measures in place.
12. Complexity for Older Users: Older individuals may find digital banking
platforms complex or challenging to navigate. This demographic may face
difficulties adapting to the rapid changes in technology.
13. Limited Cash Transactions: While digital banking supports various
transactions, handling physical cash transactions (like depositing or
withdrawing cash) may still require a visit to a physical branch or ATM.
14. Potential for Disconnection from Financial Health: The ease of digital
transactions might lead some users to detach from their financial health,

40
overlooking budgeting and overspending due to the simplicity of digital
transactions.
15. Lack of Physical Presence for Problem Resolution: Some users prefer
having a physical bank branch to visit for problem resolution or face-to-face
interactions, which may be lacking in purely digital banking systems.
To mitigate these weaknesses, it's crucial for both users and financial
institutions to prioritize cybersecurity, user education, and the development of
user-friendly interfaces. Additionally, regulatory bodies play a role in ensuring
that digital banking services comply with relevant laws and security standards.
5.5 Misconceptions among people about e-banking, internet banking or
online banking & digital banking.
Electronic banking, online banking, and digital banking are three terms that are
often used interchangeably, albeit with subtle differences in their meanings.
1. Electronic banking is a comprehensive term that encompasses all forms of
banking conducted electronically. It includes not only online and digital
banking but also telephone banking, mobile banking, and even ATM-based
transactions. Electronic banking refers to the use of electronic channels to
perform various banking activities, such as transferring funds, checking account
balances, and paying bills. It is a broad term that covers all electronic banking
services.
2. Online banking, on the other hand, refers specifically to the use of the
Internet to access and manage bank accounts. Customers can use a bank's
website to check balances, transfer money, pay bills, and perform other
transactions. Online banking is a subset of electronic banking because it
operates exclusively through Internet-based platforms.
3. Digital banking is a more comprehensive term that encompasses both
electronic and online banking. It involves using digital technology and
platforms to provide banking services to customers. Digital banking goes
beyond just Internet banking and includes mobile banking apps, digital wallets,
and other forms of fintech solutions. It focuses on delivering a seamless, user-
friendly banking experience across various digital channels.
In summary, electronic banking is the most general term, encompassing all
banking activities conducted electronically, while online banking is specifically
internet-based. Digital banking incorporates all electronic and online banking
services, as well as additional digital technologies to offer a comprehensive and
integrated banking experience across various digital channels.

41
5.6 How will digital banking systems replace all types of banking systems in
the future?
The ongoing debate on whether digital banking will eventually upend traditional
banking systems has emerged as a topic of considerable interest. While digital
banking has witnessed a significant surge in growth with expectations of
continued expansion, it is essential to consider several factors that may dampen
its complete replacement of traditional banking systems.
It is worth noting that customer preferences vary considerably, and many
individuals and businesses still value in-person interactions, personalized
advice, and physical branches. Consequently, traditional banking systems will
continue to cater to these preferences.
Financial inclusion is a critical aspect to consider as not everyone has access to
digital technology or stable internet connections, which can impede the
adoption of digital banking. Traditional banking remains vital for financial
inclusion, ensuring that everyone has access to banking services.
Regulatory changes and compliance requirements can significantly impact the
types of services banks offer and how they deliver them. Traditional banks may
continue to serve specific functions to meet regulatory needs.
Some complex financial transactions, such as large international business deals
or intricate commercial lending, may require specialized services that digital
banking may not easily replace. Therefore, traditional banking systems may
remain relevant in these specific areas.
Furthermore, traditional banks often have a long history and a reputation for
stability and trustworthiness. This legacy can be a crucial factor for customers
when considering where to place their assets. Many banks are adopting hybrid
models that combine digital services with physical branches to offer the best of
both worlds. This approach enables customers to choose how they want to
interact with their bank.
Moreover, traditional banks may play an essential role in risk management and
financial stability. Digital banking does not inherently address these issues, and
governments may rely on traditional banking systems to fulfill these functions.
The complete replacement of traditional banking systems can have economic
and regulatory challenges that need to be addressed, including issues related to
job displacement, infrastructure, and regulatory adaptations.
In conclusion, while digital banking is transforming the industry and providing
convenience and efficiency, it is unlikely to entirely replace all traditional
42
banking systems in the foreseeable future. Instead, we may expect to witness a
coexistence of traditional, digital, and hybrid banking models, with each serving
specific customer segments and needs. The banking industry will continue to
evolve to offer a broad spectrum of services to meet the diverse requirements of
customers.
5.7 Digital Banking during the Pandemic:
The advent of the pandemic has illuminated the significance of digital banking
for individuals and businesses. The promising future of this sector warrants a
closer examination of its impact during the pandemic and its growth potential.
Digital banking enabled customers to conduct transactions without physical
contact, thus curtailing the risk of transmitting the virus. This was particularly
vital during the periods of lockdowns and social distancing.
Remote account access allowed customers to manage their accounts, check
balances, and pay bills from the convenience of their homes, reducing the need
for physical visits to branches, which may have been closed or constrained.
Mobile check deposit provided an avenue for customers to deposit checks
remotely, thus avoiding physical visits to banks or ATMs. Online loan
applications streamlined the loan process and provided access to vital financial
support during economic disruptions. Digital banking platforms offered
financial tools and budgeting apps that helped customers track their spending
and manage their finances effectively, especially during uncertain times.
5.8 Prospects for the Future in Digital Banking:
The pandemic accelerated the adoption of digital banking, and this trend is
expected to continue. More individuals and businesses will rely on digital
banking as their primary financial management method. Digital banks are
projected to continue innovating by offering new services and features.
Advancements in artificial intelligence, machine learning, and automation are
expected to enhance the customer experience. Digital banking has the potential
to improve financial inclusion, as more people gain access to banking services
through smartphones, even in remote areas. Traditional banks are likely to adopt
hybrid models, combining physical branches with digital services to cater to a
broader range of customer preferences.
Regulatory frameworks are likely to adapt to the changing banking landscape,
encompassing issues such as data privacy, consumer protection, and
cybersecurity. More partnerships between traditional financial institutions and
fintech companies are expected to provide a broader array of services and
improve the digital banking experience. As digital banking grows, there will be
43
a greater emphasis on enhancing security measures to protect customer data and
financial transactions. Furthermore, digital banks will continue to expand their
services globally, making it easier for individuals and businesses to engage in
cross-border financial activities.
In summary, digital banking has demonstrated its resilience and adaptability
during challenging times, and its potential for growth and innovation in the
future is indisputable. It will play a central role in shaping the way people
manage their finances and access banking services, offering greater
convenience, efficiency, and accessibility.
5.9 What challenges will the digital banking system face in the future?
The digital banking system in Bangladesh, like in many other countries, is
poised to face several challenges in the future. Some of the issues that may
impede the growth of digital banking in Bangladesh are as follows:
1. Regulatory Framework: Establishing a robust regulatory framework is a
significant challenge that is crucial for the security of digital transactions and
consumer protection. Striking a balance between promoting innovation and
safeguarding the interests of the public is paramount.
2. Cybersecurity: With the rising adoption of digital banking, the risk of
cyberattacks and data breaches becomes more significant. Hence, ensuring
robust cybersecurity measures is imperative to protect the financial system and
customers' personal information.
3. Financial Inclusion: While digital banking has the potential to be a powerful
tool for financial inclusion, ensuring that all segments of the population have
access to and can effectively use these services remains a challenge.
Overcoming issues related to digital literacy, connectivity, and access to
smartphones or computers will be crucial.
4. Trust and Awareness: Building trust in digital banking systems is essential.
Many people in Bangladesh may still be sceptical about the security and
reliability of these systems. Hence, awareness campaigns and education will be
necessary to address these concerns.
5. Infrastructure: The quality of digital infrastructure, including internet
connectivity and mobile networks, can be a challenge in some parts of
Bangladesh. Expanding and improving this infrastructure will be crucial for the
growth of digital banking.
6. Competition: As more banks and fintech companies enter the digital banking
space, competition will increase. Traditional banks will have to compete with
44
these new entrants while also cooperating with them to provide a seamless
digital banking experience.
7. Data Privacy: Ensuring the privacy of customer data is a top concern.
Compliance with data protection laws and regulations will be vital. This is not
only a regulatory challenge but also a matter of earning and maintaining
customer trust.
8. Customer Support: Providing effective and efficient customer support in a
digital banking environment can be challenging. Many customers may still
prefer in-person assistance, so balancing digital channels with human support
will be essential.
9. Fraud Prevention: As digital transactions increase, the potential for fraud
also grows. Implementing robust fraud prevention and detection mechanisms is
crucial to protect both the banks and their customers.
10. Technological Advancements: Staying up-to-date with rapidly evolving
technology and consumer preferences is an ongoing challenge. Banks will need
to invest in technology and adapt quickly to remain competitive.
11. Infrastructure Vulnerabilities: Natural disasters and other events can
disrupt digital infrastructure. Therefore, banks need to have robust backup
systems and disaster recovery plans in place.
12. Cross-Border Regulations: If digital banking services in Bangladesh are
used for cross-border transactions, they must comply with international
regulations, which can be complex and require coordination with other
countries.
To overcome these challenges, collaboration between banks, regulators, and
technology providers is paramount, as is ongoing investment in technology and
infrastructure. Additionally, a strong focus on customer education and trust-
building will be essential to ensure the continued growth of the digital banking
system in Bangladesh.
5.10 Latest update about digital banks in Bangladesh
On a recent occasion, the central bank of Bangladesh granted preliminary
approval to two financial organizations, namely NAGAD and KORI. In
particular, a letter of intent (LoI) was provided to these two entities, while eight
other banks or organizations are still waiting for approval. It is noteworthy that
the LoI signifies a critical milestone in the application process for becoming a
payment service provider in the country. The successful issuance of preliminary
approval is a significant accomplishment for these two financial institutions,
45
and it is indicative of their financial stability, operational excellence, and strong
commitment to regulatory compliance.
 Kori Digital Bank: Kori Digital Bank has a diverse group of stakeholders,
including ACI and Square Group, Rubana Huq, the Chairman of Mohammadi
Group, Kamran T Rahman, the Chairman of Kapna Tea Company and former
President of the Bangladesh Employers' Federation, as well as the Ispahani
Group, the Transcom Group, and the Paragon Group.
 Nagad: Muhammad Farid Khan, a director of Summit International and the
brother of Awami League presidium member Faruk Khan, has invested in
Nagad Digital Bank. The bank has recently received preliminary approval for its
digital banking services, which will put an end to its quest for the appropriate
licensing required for its operations. Currently, Nagad is running its MFS
operations without a full-fledged license from the central bank as it was unable
to fulfill all the licensing criteria. Initially, the bank sought to run its MFS
operations with an NBFI license, which it obtained in May.
However, in August, Nagad relinquished the NBFI license and applied for a
digital bank license. Nagad's digital bank will become a powerhouse for
fulfilling the dreams of the Bangladeshi people, digitally orchestrating every
facet of their financial journey.
In the context of digital banking, there exist several noteworthy candidates
vying for approval. Amongst these, we find Bkash Digital Bank, an
organization with partnerships established with Brac Bank and other notable
financial institutions. Another noteworthy candidate is Digi Ten, which has
successfully partnered with City Bank, Dutch Bangla Bank, Standard Bank,
Mercantile Bank, Midland Bank, Mutual Trust Bank, NCC Bank, Prime Bank,
Pubali Bank, and Trust Bank. Additionally, there are also digital banking
associates linked with Bank Asia and other banks. It is worth noting that the
aforementioned financial institutions have been granted permission to open
digital banking windows

46
47
Chapter-6

6.1 Conclusion:
The advent of digital banks in Bangladesh embodies a significant milestone in
the country's financial sector, offering both opportunities and challenges.
Foremost, digital banking offers a convenient, accessible, and innovative
financial solution to the masses, with the potential to promote financial
inclusion and reduce reliance on traditional banking methods. In particular,
these banks hold the promise of empowering individuals in remote areas by
providing greater control over their finances and the ability to access essential
banking services through their mobile devices. However, the path to success is

48
not without challenges. Crucially, cybersecurity threats, data privacy concerns,
and the need for customer education represent significant challenges that must
be addressed to ensure trust and security in the digital banking sector.
Furthermore, regulatory adaptation and the promotion of economic inclusion are
crucial to guarantee that the benefits of digital banking are accessible to all
segments of the population. By navigating these challenges and capitalizing on
the opportunities, digital banks possess the potential to transform the financial
landscape in Bangladesh, resulting in a more effective and comprehensive
banking experience for all citizens.

6.2 Recommendations:
The following are some recommendations for the government, banks, and other
stakeholders to promote the growth and development of digital banking in
Bangladesh:
Government
Launch awareness campaigns to educate people about the benefits of digital
banking and how to use digital banking services effectively. (Bangladesh Bank,
2023)

49
Invest in expanding and improving internet access and digital infrastructure.
(Ministry of Posts, Telecommunications and Information Technology, 2023)
Develop a comprehensive digital banking law that provides a clear and
supportive regulatory environment for digital banks. (Bangladesh Bank, 2023)
Banks
Implement robust cybersecurity measures and educate their customers about
cybersecurity best practices. (Bangladesh Bank, 2021)
Focus on developing innovative business models and investing in training and
development programs for their employees. (Bangladesh Institute of Bank
Management, 2023)
Partner with other stakeholders, such as fintech companies and mobile network
operators, to develop and offer new digital banking products and services.
(Bangladesh Fintech Association, 2023) Other stakeholders
Fintech companies should develop innovative digital banking products and
services that meet the needs of Bangladeshi customers. (Bangladesh Fintech
Association, 2023) Mobile network operators should partner with banks and
fintech companies to offer digital banking services through their mobile
networks. (Bangladesh Association of Mobile Telephone Operators, 2023)
Academic institutions should offer courses on digital banking and train
students in the skills needed to work in the digital banking sector. (University
Grants Commission of Bangladesh, 2023)

6.3 References:
Bangladesh Bank. (2023). Digital banking guidelines.
https://www.bb.org.bd/mediaroom/notice/advertisement_digitalbank.pdf
Bangladesh Fintech Association. (2023). About BFSA.
https://bbf.digital/category/events-
initiatives/bangladesh-fintech-forum
Bangladesh Institute of Bank Management. (2023). Training programs.

50
https://www.bibm.org.bd/training_course.php
Ministry of Posts, Telecommunications and Information Technology. (2023).
ICT sector policy.
https://www.ca.go.ke/ict-sector-policy
University Grants Commission of Bangladesh. (2023). Curriculum guidelines.
https://ugc.gov.bd/site/view/policies/-
By working together, the government, banks, and other stakeholders can
address the challenges facing the
digital banking sector and position Bangladesh to become a leader in the global
digital banking revolution

51