Fintech collaboration: Catalysing Bangladesh’s digital finance renaissance

Fintech collaboration will significantly impact Bangladesh’s customer lifecycle, recovery processes, and long-term engagement strategies, says Md Mahmudul Hasan

The global financial ecosystem is undergoing a rapid transformation, driven by fintech collaborations, open banking frameworks, and AI-powered innovations. As economies transition from traditional banking models to tech-driven financial systems, Bangladesh stands at a critical crossroads. Despite positive macroeconomic indicators, the finance sector remains heavily reliant on cash transactions and legacy banking infrastructure.

While mobile financial services (MFS) and fintech players have made significant strides in improving financial inclusion, their impact remains limited due to a lack of structured collaboration between banks, fintech startups, and regulators.

According to the Bangladesh Institute of Bank Management (BIBM, 2024), over 70 percent of banking institutions in Bangladesh still operate on outdated IT systems. This inefficiency results in high operational costs, slow transaction processing, and limited access to credit for individuals and SMEs.

The urgency for digital transformation is undeniable, and the question is no longer whether Bangladesh should embrace fintech collaboration, but how quickly it can implement an integrated open finance framework.

By adopting open banking, regulatory-driven digital lending, AI-powered credit scoring, and interoperable payment systems, Bangladesh can usher in a new era of financial accessibility, efficiency, and security.

THE POWER OF FINTECH-BANKING COLLABORATION

India’s Unified Payments Interface (UPI) has revolutionised the nation’s payment ecosystem. According to the National Payments Corporation of India (NPCI, 2024), UPI facilitated over 10 billion transactions per month in 2023, becoming one of the most successful real-time digital payment systems globally.

Several key factors are key to UPI’s success:

• Regulatory support: The Reserve Bank of India (RBI) mandated banks to integrate UPI, ensuring seamless adoption.
• Open API infrastructure: Standardised APIs allowed fintech companies to build services on top of existing banking infrastructure with ease.
• Cost reduction: UPI transactions cost approximately 95% less compared to traditional card-based payments, making digital payments more accessible for all.

The UAE has also leveraged open finance regulations to boost digital banking adoption and expand financial inclusion. The Central Bank of the UAE (CBUAE, 2024) introduced an Open Finance framework, facilitating collaboration between banks, fintech companies, and regulators.

The key benefits of this system are:

• Faster SME loan processing: AI-powered credit scoring models analyse alternative data, reducing SME loan processing times by 60% (CBUAE, 2024).
• Increased digital banking adoption: Cloud-based integration of fintech services led to a rise in digital banking, especially among young consumers and SMEs (CBUAE, 2024).
• Enhanced cybersecurity: Stringent cybersecurity measures, such as multi-factor authentication and AI-powered fraud detection, have improved trust in digital financial services.

These two examples can serve as guidelines for Bangladesh. We should develop regulatory sandboxes for fintech innovations, introduce fintech licensing frameworks, and standardise digital KYC processes to enhance financial inclusion.

THE NEED FOR A DIGITAL OVERHAUL IN BANKING

Bangladesh’s banking sector remains dependent on traditional, manual processes, which hinder efficiency and innovation. According to a study by Bangladesh Bank (2023), many institutions still use manual underwriting, batch processing, and fragmented payment infrastructures. This results in slow service delivery and limited financial inclusion.

The key challenges for the system are:

1. High operational costs: Legacy core banking systems are costly to maintain and lack real-time processing capabilities.
2. Slow credit approvals: Manual underwriting leads to delays in loan approvals, particularly affecting SMEs.
3. Limited financial inclusion: Collateral-based lending excludes many potential borrowers, including micro-entrepreneurs and gig workers.

Fintech integration can solve these challenges through:

• API-driven banking: Open APIs enable seamless integration between banks, fintech platforms, and MFS, leading to faster loan approvals and improved financial services.
• AI-powered risk assessment: Alternative data, such as mobile transactions and social media activity, can help assess creditworthiness more accurately.
• Cloud-based core banking systems: Cloud-native platforms lower IT costs, enable faster innovation, and ensure scalability.

QR: A GAME-CHANGER FOR DIGITAL PAYMENTS

Bangladesh Bank’s Bangla QR initiative aims to drive financial inclusion and reduce cash dependency by offering a standardised QR payment system that improves interoperability across banks, MFS, and fintech apps.

This system allows:

• Enhancing interoperability: The QR payment system enables customers to make transactions across various platforms, increasing the adoption of digital payments.
• Reducing cash dependency: It is projected that Bangla QR will reduce cash usage by 50% within five years, contributing to a transition to a cashless economy.
• Increasing government revenues: Formalising digital transactions improves transparency and reduces tax evasion.

In order to make this initiative successful, it is necessary to mandate QR adoption across all sectors, introduce merchant incentives to boost adoption, and integrate QR payments with digital lending platforms.

IS AI-POWERED CREDIT SCORING THE FUTURE OF LENDING?

AI-based credit scoring models are transforming the lending landscape globally by reducing default rates and speeding up loan processing. In Bangladesh, traditional credit scoring methods often exclude many people from accessing financial services.

The problems with Bangladesh’s current credit assessment model are:

• Manual credit risk evaluation: Slows down loan processing.
• Lack of credit history: Many individuals and SMEs lack formal credit records, making them ineligible for loans.
• Siloed data: Fragmented data limits fintech and alternative lending services.

How could this be improved?

• AI-powered credit assessments: Credit scores can be dynamically updated based on customer behaviour, enabling personalised financial products and proactive recovery solutions.
• CIB API: A real-time credit information bureau API managed by Bangladesh Bank could expand access to credit by incorporating alternative data sources like utility bill payments, mobile wallet transactions, and e-commerce earnings.

STRENGTHENING CYBERSECURITY TO PROTECT BANGLADESH’S DIGITAL FUTURE

As fintech collaboration increases, so do cybersecurity concerns. To build trust and ensure the long-term success of digital financial services, robust security measures must be implemented.

The key cybersecurity threats are:

• Phishing and social engineering attacks
• Weak data protection policies
• Lack of real-time fraud detection systems

In order to combat this, Bangladesh needs to implement:

• Implement multi-factor authentication (MFA) and end-to-end encryption.
• Use AI-powered fraud detection to prevent real-time threats.
• Adopt GDPR-like data privacy standards.

A STRATEGIC IMPERATIVE FOR BANGLADESH’S FINANCIAL ECOSYSTEM

Fintech collaboration will significantly impact Bangladesh’s customer lifecycle, recovery processes, and long-term engagement strategies. With AI-driven tools, cloud-based systems, and interoperable payment platforms, banks can offer more personalised services, boosting customer retention and satisfaction.

To unlock its full potential, Bangladesh must integrate real-time payment solutions to enable personalised financial products, improve recovery strategies with AI-powered models for overdue payment management, foster long-term relationships by personalising services based on customer data and enhancing cybersecurity.

These steps will pave the way for a more inclusive, secure, and efficient digital finance ecosystem in Bangladesh.

[Md Mahmudul Hasan is a digital banking and fintech specialist]

Bibliography:

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