Efforts of Digitalization of Documents in Banking in Bangladesh
(Published in the Financial Express in December 2019)
Professor Shah Ahsan Habib
By the time, technology adoption brought notable changes in the banking industry of the country in terms of improved operations, products, processes, and regulatory reporting. Banks of the country are using core banking software, and have already automated several operations. Technology has already enabled most of the banks in Bangladesh to introduce digital products to their customers in the form of ATM/POST facility, Mobile/Tele banking, Web banking, ‘Anytime’ and ‘Anywhere’ banking, etc. Online reporting of the Central Bank improved entire regulatory compliance frameworks. The technology transformation of the Central Bank and the banking industry has implications on the use of paper documents, cost and time involvement, and also on the efficiency of overall service delivery by banks. The policy driven green banking initiatives in the banking industry is also pushing for the adoption of environment friendly technology and paper saving in the banking operation and product delivery. However, several banking operations, product processes, or certain segments of product processes are yet to be digitized to escape use of paper documents for better efficiency and minimize costs.
General banking operation mainly deals with opening and operation of different types of deposit accounts, receipts & payment of cash, collection of cheques & bills, handling transfer transactions, operations of clearing house, issue and payment of DD, TT PO, handling remittances, providing various service to the account holders, etc. All these activities are mainly paper-based that requires to maintain huge amounts of documents. In spite of several improvement, the Account Opening Form of bank is paper-based and lengthy which not only requires huge information but also time by the customer and bank officials. Simply this form filling exercise involves significant cost of the banking sector and the country that include both direct and indirect costs. Direct cost components cover cost of paper, printing and storage, whereas indirect costs include cutting trees, energy consumption, production of garbage, carbon emission, pollution of water, and creation of additional water borne wastes.
As a positive move, Bangladesh Bank has decided to simplify the account opening form for the customers by reducing the pages of the account opening form and also by introducing e-KYC. Practically, there is scope of saving huge cost only by reducing the number of pages in the account opening and other paper-based forms. Bank can verify the identity of the customer through NID with the central database of election commission as part of the validation process. This effort will obviously help to simplify the account opening process and ensure the reduction of paper-based work.
A huge number of documents are required to process the credit related activities of banks. Credit operation starts with the submission of loan application along with required documents by the borrower. The branch then sends the proposal with recommendations to the business division of the head office. Business division of the bank analyze the borrowers’ credit worthiness, repayment ability, adequacy of the collateral and other related information and then pass on the proposal to the credit risk management division. After the careful scrutiny of the proposal and completing other formalities, a proposal is sent to the credit committee for approval. The loan is finally approved/rejected by credit committee/executive committee/Board. After getting the loan approved by the bank, credit administration division starts their process of completing the documentation and disbursement. In each stage of the process, the concerned authority may request the borrower to submit additional documents if required. The process described above is applicable more or less for all types of loan products. All these activities are mostly paper-based in Bangladesh which produces the highest number of documents. Some of the banks have made the process automated by their own in an attempt to reduce the paper-based work. It is the need of time to process the credit related documents electronically as much as possible. Digital transformation has the power to enhance performance and to correct various types of process lapses. It can also improve the core competence of the bank and generate opportunities for profitable new business growth.
Banking industry of Bangladesh has been facilitating payment, finance and risk management services to the traders, and thus, contributing toward growing global trade integration of Bangladesh. Banks have considerable involvement in trade facilitation by engaging in relevant legal enforcements and commercial risk minimization. The regulatory provisions for international trade facilitation in the country expedite greater involvement of the trade services departments with greater risks and greater opportunities to earn. As the trade service facilitation technique, LC is widely in use in the country. With the growing business complexities, technological changes, increased compliance requirements and financial crimes (mainly trade based money laundering), trade services are becoming increasingly challenging to the banks and financial institutions of the country, similar to the other trading countries of the globe. In regard to technology adoption and digitization efforts, the developments till date are mainly regulatory driven.
In regard to the digitization efforts at the level of product processes, while few banks start archiving their trade related data digitally; most of the banks are still doing the same in paper format. On the other front, digital transformation has really taken place through integration of customs, BB and commercial banks; and core trade finance business is still on traditional paper based. There are also huge scopes to reduce cost on the use of paper and other associated activities in the local letter of credit operations and transactions in the country. There are scattered initiatives; however, banks and the stakeholders are yet to start piloting on any upcoming digital solutions.
The major human resource activities of a bank are recruitment, promotion, retention, payroll, performance appraisal, HR development etc. Some of these activities are now accomplishing through digital platform. For example, online recruitment is the use of technology or the web based tools to assist the recruitment process. The tool can be either a job website or the organization’s corporate web site. Banks are now using both the techniques as a source of recruitment. Even the interview card is issued electronically now-a-days. In case of providing salaries, most of the banks are now using payroll software in an attempt to minimize the paper-based activities. Annual performance appraisal of the employees are also conducted electronically in many banks. Even some banks are using e-learning platform for providing necessary training in order to ensure the knowledge development of their staffs.
In response to the policy initiatives, banks of the country are having customized green banking policies; a sustainable banking unit to take care of green ventures; and an office guide to promote resource saving and paper consumption in in-house banking operation. In spite of some notable improvements, a very limited number of banks are found to have provision of maintaining inventory of the resource use or consumption of energy, power or paper. Banks commonly maintain the data on energy and power on expenditure amount. To make it meaningful, it is important that data on consumption of resources including paper use should be maintained in terms of the use of units and should be expressed in relation to the attributes like number of employees, number of branches etc. Growing popularity and the use of mobile, agent and booth banking have also been contributing remarkably in the process of digitization of banking is the country.
Complete digitization by leaving paper documents are still struggling in most countries. Though a number of financial institutions are already digitizing their documents but have yet to make the decision to destroy their hard copies. While there is a real business for digitizing documents, there is still a need for a greater shift in the general mind-set of both individuals and businesses for destroying or archiving documents.
Certain challenges cannot be avoided while moving towards digitization. Practically, these opportunities and risks or challenges are expected to move hand in hand. Security issues are critical challenges. Especially, awareness and changing mindset of the clients, bankers and major stakeholders is the key. It is important to get the gears rolling across by narrating about how going paperless or reducing the use of papers can benefit a bank. All stakeholders require to feel that digitalization of documents can work for them. The narration of global cases on technology adoption and digitization efforts might be very fruitful. Information on the negative impact of excessive paper use should get focus in awareness events. There is no doubt that technology brought in ample opportunities along with several technology and environment related risks. Practically, the bottom line is, adopting technology for better banking and attempting to minimize all associated risks.