Nagad – a state run Mobile Financial Service (MFS) provider that started operation one and a half years ago – now plans on transforming into a digital bank.
The digital financial service platform of the Bangladesh Post Office, which quickly became popular by securing second position in the domestic MFS market within a short time with around 3.5 crore users, is now talking with the Bangladesh Bank to obtain a licence to commence banking operations.
"We approached the telecom minister about Nagad's transformation into a digital bank and received a positive response," said Tanvir Ahmed Mishuk, managing director of Nagad.
"We are now discussing with the regulator about getting a licence," he added.
Currently, the country's financial market is saturated with 59 banks. Nagad will be the first digital bank in the country, said Mishuk.
The world has shifted towards digital banking from branch banking as this traditional banking model is not feasible anymore. Physical branches account for a big portion of banks' expenditure.
Therefore, from this perspective, Nagad is planning on turning itself into a digital bank, he explained.
The Nagad managing director went on to say that all banking services of Nagad will be given through digital channels, and customers will not be required to go to the branches.
Nonetheless, around 10,000 branches of the Bangladesh Post Office all over the country will be used for providing services if customers need to go to branches in case of any emergency. Nagad does not need to bear any extra establishment cost as the Post Office already has all these branches.
Currently, Nagad's daily transaction is over Tk100 crore, according to the company.
Though Nagad started operation in March last year as a subsidiary of the Bangladesh Post Office, it is yet to complete the licencing process with the Bangladesh Bank.
After more than one year of operation, the service platform applied for a licence to the Bangladesh Bank in March this year, following the Bangladesh Bank's instruction to banks to stop providing salaries of garment workers under the government stimulus package to MFS accounts which are not under its surveillance.
That regulatory instruction forced Nagad to become legitimate by obtaining a licence from the Bangladesh Bank.
Later, the central bank gave Nagad an interim licence for six months.
The MFS service provider has recently requested the Bangladesh Bank to extend the time for another six months as the process for getting a full-fledged licence could not be completed during the pandemic situation, said Md Mezbaul Haque, general manager of the payment systems department of the Bangladesh Bank.
However, he is not yet aware of Nagad's application for a licence to operate as a digital bank.
On April 6 this year, the central bank asked banks to open MFS accounts for all workers and labourers who do not have such accounts by April 20 so that they could receive their wages and allowances under the government's Tk5,000 crore coronavirus stimulus package during the countrywide shutdown put in force to curb the spread of the novel coronavirus.
The wage disbursement through MFS helped Nagad gain 1.26 crore fresh users in four months from March to June, according to the company.
Until March, Nagad had enjoyed disproportionately higher transaction limits and could take lower transaction charges as it was out of the purview of the central bank, thanks to the Postal Act – a privilege that allowed it to eat away at a chunk of other MFS operators' subscribers.
This uneven privilege helped the operator gain 60 lakh customers within seven months of the start of its operation, making it the second market player overtaking Rocket – a digital wing of Dutch-Bangla Bank.
Before coming under the central bank rule, a user of Nagad could transact up to Tk2.5 lakh per day under the Postal Act, whereas the maximum daily individual transaction limit is only Tk30,000 for the other MFS providers.
Nagad has been enjoying the same transaction ceiling since it has taken Bangladesh Bank's interim licence, said Mishuk.