By Tauseef Mallick and Rabia Garib
More than 90% of Pakistan either remains unbanked or use an alternate banking channel. And the alternative isn’t necessarily a digital one. While this is a heart sinking statistic, for many, this glass is definitely only half full to challenge, innovate and disrupt.
Many banks in Pakistan boast about an extensive network of branches across the country, yet they serve only a limited number of people nationwide. Bureaucracy, red tape, literacy, lack of awareness, limited outreach and a stereotypical trust deficit. Traditional banks and the unbanked enjoy a relationship as complex as oil and water; they are just so far apart.
In rural Pakistan, the bank branch or ATM is as far as a water well. Most private banks only have a limited number of branches outside the major cities. All a third-party payment provider had to do was to express readiness to serve the unbanked and the stage was set to conquer. Over the past several years, many third-party ventures enabling payment transfers in the remote areas.
Telenor, a pioneer in mobile banking service, now has a bigger network and wider outreach than any conventional bank. The other telecom companies jumped onto the bandwagon and the disruption began. They already had a registered userbase and with regulations being created as supply and demand were finally on a path to understand each other better. The dinosaurs were finally being challenged quite literally, one transaction at a time.
Some of the larger banks sensed the change and set forward initiatives to help propel them into a century that was more relatable with their customer base. The younger, fresher recruits found place in innovation departments in some of these institutions, while the CIOs and IT Heads became more central to longterm planning and strategy building. Payment processors who had been around for decades, were given more business and opportunity to leverage their boxed and bespoke solutions. Mobile and Internet banking solutions started popping up. Innovation labs were established.
However, banks are institution who are extremely very risk-averse. Because of their size, regulation, complexity and historical baggage, they move painfully slowly, often running in the opposite direction to any change. For the institutions, risk has to be assessed from all angles and marinated upon for a really long time.
According to an estimate, there are an estimated 40 million smartphone users in Pakistan. With the gradual increase in internet outreach across the country, it is only a matter of time when the complete digital finance ecosystem will surpass the brick and mortar structures of banks. Maybe not in terms of volume at first, but certainly in terms of customers.
Technology solutions have already taken over the teller processes at banks, since ATM devices service customers 24×7. You can deposit and withdraw cash at these counters; and have the machines facilitate bill payment processes.
Software Engineer and Panacloud CEO, Zia Khan, says that soon the digital finance will take over the micro-financing process carried out by the banks as well. “Based on your payment history available with the Fintech, they will calculate a small loan amount they can lend and will send you an offer to avail loan if need be,” says Zia Khan.
He explained that there are four technological developments that will directly affect the existing banking infrastructure: Digital Finance, Cryptocurrency, Voice Computing and Intelligent Agents.
While Digital Finance is already strong in the micropayments sector, there is cause for caution and scepticism around cryptocurrency. As with most disruptive solutions, it is just a matter of time for this to gain acceptance. Work is already being done to enable voice computing in local and regional languages which will allow financial services to be more inclusive of the unbanked population. Intelligent Agents will be able to facilitate customer queries and will initially reduce and subsequently end the dependence on banking agents required to facilitate the customers.
These developments are likely to reduce the need for brick and mortar bank branches and human resource. While the mundane banking processes will become totally technology-driven, the people will be upgraded to processes that actually require critical thinking and analysis. Zia says that by 2025 the current banking infrastructure would become obsolete and if banks don’t enhance and evolve their operational capabilities many of them will fade away.
Financial services and technology are two sides of the same coin. “If banking and financial experts don’t realize the complexity and seriousness of just how backward and behind they are, they are naïve. They have the realization. Top financial experts realize the situation and need to be more open to digital finance, but the current structure of banks is too rigid to support transformation,” says the Panacloud CEO, adding that a change of approach is needed for banks to move towards digital finance.