Bangladesh’s retail banking industry is currently facing a pivotal moment. The sector has long been characterized by standardized services, with traditional methods like expanding branches, mobile financial services, and agent networks driving growth over the years. However, there is now a pressing need to revolutionize how financial services are offered to a population that prioritizes digital interactions. Embedded finance and banking-as-a-service (BaaS) are emerging as transformative solutions that deviate significantly from traditional banking, promising to render finance seamless, intuitive, and inclusive.
Embedded finance involves the full integration of banking services, such as payments, loans, insurance, and savings, into non-financial digital platforms. Rather than requiring customers to visit a bank or open a banking app, these services are seamlessly incorporated into everyday digital activities on platforms like e-commerce sites, ride-sharing apps, food delivery apps, or gig work platforms.
Consider a scenario where a small shop owner in Dhaka is offered a microloan through their digital point-of-sale system based on real-time sales data, or a regular e-commerce shopper is provided instant credit based on their background information. These are not just theoretical concepts; the infrastructure for such services already exists through over 90 million active mobile financial services (MFS) users in the country and the expanding gig economy platforms.
While embedded finance focuses on the user experience, BaaS serves as the underlying infrastructure enabling it. Through BaaS, licensed banks expose various services like eKYC, account setup, payments, and loans through APIs to third parties, allowing fintech startups and large enterprises to integrate tailored financial products into their customer ecosystems. This presents an opportunity for major conglomerates in Bangladesh to leverage their customer base and create mutually beneficial partnerships.
With a young, tech-savvy population and widespread use of mobile devices and digital wallets, Bangladesh is well-positioned to leapfrog traditional banking models and provide credit access to micro, small, and medium enterprises (MSMEs) that often lack collateral and formal credit histories. Platforms like ShopUp or digital wholesalers can utilize embedded lending by leveraging sales or supply chain data to offer instant microcredit.
Additionally, banks can cater to gig workers by offering financial products through platforms like Pathao or Foodpanda, integrating real-time payments, insurance, or micro-savings options directly within their applications. Similar successful implementations have been seen in Southeast Asian markets. Micro-insurance products, such as travel insurance during bus ticket booking or crop insurance through agricultural technology apps, can enhance insurance penetration, which has been historically low.
To promote financial inclusion, fintech and payroll platforms can embed automated micro-savings during salary disbursement, fostering financial discipline among underserved populations. Banks can also target the young demographic by partnering with educational or lifestyle apps to offer tuition-linked microloans or savings features for individuals managing university expenses.
Despite the immense potential of embedded finance in Bangladesh, its adoption is still in its early stages, largely due to the traditional banking mindset prevailing in the industry. Most banks operate within a product-centric model, lacking modularity and API readiness. There is a need for a shift towards collaborating with tech platforms and embracing third-party ecosystems to drive innovation and broaden financial services access.
The central bank, Bangladesh Bank (BB), plays a crucial role in enabling this transition. While BB has made strides in digital banking frameworks, including API banking and digital KYC, further collaboration between fintech and banks is essential. Legacy banking systems must evolve to support real-time APIs and efficient embedded transactions, necessitating investments in cloud-native, API-first infrastructure. Building trust between consumers, banks, and tech platforms is key to successful implementation.
By creating sandbox environments for testing embedded finance models and modernizing core systems to support APIs and cloud integration, banks can pave the way for seamless integration with third-party apps. Shared digital infrastructure through credit scoring APIs, eKYC utilities, and consent management systems will enhance security and encourage more players to participate in the ecosystem. Establishing dedicated embedded finance teams and adopting a user-centric approach focused on trust and data privacy will expedite adoption and ensure a seamless user experience.
Embedded finance and BaaS signify a shift in banking philosophy, transforming banking from a destination to an integrated experience in people’s daily lives. This invisible revolution holds the potential to drive financial inclusion, foster innovation, and enhance competitiveness in Bangladesh. The question now is not whether Bangladesh will embrace embedded finance, but rather when and to what extent it will embrace this transformative evolution.