By Iffat Naseem
Going by the trends in global financial markets, Pakistan is also following an upward trajectory toward developing digital financial market infrastructures. Since the financial sector in Pakistan is regulated by the State Bank of Pakistan (SBP), the central bank of the country, the regulations for and activities of this sector are developed, implemented and monitored by SBP. The landscape of digital financial services (DFS) as defined by SBP includes banks, EMIs (Electronic Money Institutions), digital banks, payment system operators and providers whereas the market players consist of government, financial institutions, EMIs and PSOs/PSPs.
As of now, the payment system which comprises RTGS, retail payments and digital instruments is contributing most to the digitisation of financial services. In this regard, a national payments system strategy has also been developed by SBP which aims to make recommendations for designing a strategy that complies with the international standards and best practice as well as keeping into consideration the local environment and circumstances of Pakistan.
Apart from commercial banks, five payment system operators (PSOs) and payment service providers (PSPs) are live in the country whereas two have been granted approval by SBP for pilot tests and operations. As for electronic money institutions (EMIs), non-banking financial institutions, two EMIs are live, four have been granted pilot approval and three have been granted in-principle approval.
With unprecedented growth in using digital delivery channels globally, banks are also digitizing their delivery model and operations at individual level. The number of ATMs and Point of Sale (POS) terminals in the country has reached to 16,175 and 67,099 respectively. During 3rd quarter 2021 alone, the industry reported 309.5 million transactions of value Rs. 22.5 trillion which were made using e-banking channels i.e., ATMs, POS, call center, mobile and internet banking. ATMs have the largest share in e-banking transactions as well as cash withdrawals. The COVID-19, which restricted the free movement of people, also played a significant role in the increase in internet and mobile banking transactions as these channels provided an easy alternative to make retail payments e.g., fund transfers, fee payments, utility bill payments round-the-clock with just a few clicks and touches on the screen.
It is evident from the above data that a major portion of digital financial services is concentrated in payment systems where the users whether it is the government, corporations or retail customers are using the digital channels to make or receive payments. Indeed, the efforts and growth in payment system is also contributing to financial inclusion but the two ends of financial intermediation i.e., liabilities/assets side or lending/borrowing side have not been much disrupted or impacted by digitization. Speaking of account opening services, one of the major challenges in mobilizing deposits and brining more customers into financial net, is awareness. A vast majority of the population who is unwilling to open a bank account are unaware of the banking products offered by a bank. Most of the banks, small or big, have a long list of deposit accounts with different features. The average number of deposit products offered by banks in Pakistan is not less than ten so one can estimate the extent of confusion a customer may face when looking at this much long list of product offering. Although these deposit products have been tailored keeping in view the needs of different segments of the targeted customer class (youth, kids, women, business enterprises etc.) but the stacks of these products lining up on the product rack, has become the source of confusion for customers and they are not sure as to which product they should choose. It has also been observed in some cases that even the relationship officer or financial consultant sitting at the front desk is not him/herself fully aware of different products offered by his/her employer and is thus unable to properly guide a walk-in customer.
In a country and in an age, where even kids have the flexibility to use digital platforms when deciding to dine out at a pizza outlet, it is hard to digest that adult customers willing to purchase financial services don`t have such facility at their disposal. At food panda, for example, you may find the food and menu of your own choice but it is hard to find a single platform where you can choose a banking account that is suitable for you. This is where open banking comes in.
In open banking system, a user shall have access to nature and features of all the banking accounts offered by all the banks in Pakistan at a single platform and the system shall be recommending you the bank and account/product type keeping in view your investment and risk profile.
Financial institutions, particularly the banks, possess a wealth of data with them. As per current statistics, there are 4.9 million internet banking users and 9.8 mobile phone banking users among the total population of depositors in Pakistan so one can imagine the volume of data these institutions have on these millions of customers who are already connected to internet and mobile phones. Pursuant to inking agreements to outline the mechanism for acquiring and processing the data, the banks shall be seamlessly integrated with such platforms and these wells of data shall be handed from the banks to these plat forms. After acquiring, cleaning and mining the data, these platforms shall be able to recommend hyper-personalized bank accounts using business intelligence and data analytics tools for data exploration and discovery. The end product of this entire process is that choosing a bank account in Pakistan shall become as easy as choosing a chicken burger on a food panda. The consent from the customers shall be taken and it should also be ensured that data is stored, recorded, processed and used in a legal way and enough security and privacy controls are in place for safety and privacy of the data. Like any other digital portals, open banking plat forms should also revolve around safety, speed and ease of use for customers.
Some of the potential benefits brought by open banking platforms include the following:
- It shall save the time and cost of visiting branches of different branches
- Insights from data shall help banks in designing the products that are most required by the customers. The data analytics tools shall be answering the questions of, for example, which age group of the customers is interested in opening a savings account with a maturity of six months, what segments of the customers need a regular savings account, what percentage of the customers require long-term saving deposits etc. Such discoveries shall also be helpful in devising and implementing successful strategies in a competitive environment.
- It shall not only accelerate the growth of financial inclusion but shall also open a new world of competition for financial institutions which shall be competing with each other to roll out the best product to their customers and this competition shall lead to reduced costs and service charges for customers.
- The open banking model of offering digital financial services shall enable small banks to offer their products at par with large banks and reach a larger population of prospective customers through technology.
- It shall also provide flexibility and extensibility for the account opening environment in Pakistan.