Once a physical, analog process has been digitized, its usage increases exponentially. An analog process is disrupted to become digital. An analog process that is so clunky, inefficient, thick and painful. Be it Google searches replacing encyclopedias or e-mails replacing letters, growth always accompanies digitization of an analog process. Demonetization and incentivization of a product allows its usage to increase multifold, yielding greater growth.
The demonetization of mobile transactions in India, for example, saw a 435% increase in Paytm’s traffic, India’s e-commerce company. The phenomenal rise in traffic helped lurch the company forward in terms of sales. For digital transactions in Pakistan to witness similar growth, the regulatory bodies will have to remove taxation and place similar demonetization tactics. A survey conducted by the Economist Intelligence Unit stated that regulation and not FinTechs, will have the greatest influence on how banks will shape their strategies and services.
If mobile payments were spread amongst the unbanked population of Pakistan, people would make these transactions, at least 20 to 30 times more, on a daily basis. Much like a digital camera has done to traditional cameras, a virtually unlimited memory ushered in an era where people could now afford to document relatively trivial moments of their lives. Take an unlimited number of photographs in the hopes of grabbing the money shot.
Digitization removes the need for traditional gatekeepers, which in this case, is the bank, to facilitate transactions taking place between a buyer and a seller. This has the effect of reducing the overall cost of transactions. This is why the poor merchant is paying an additional 2 to 3 percent every time a transaction is taking place. The reason why FinTechs have been so popular in recent years is their relatively lower costs of transactions and ease of access to their users.
Management teams at banks need to understand that not properly assessing the potential forces of disruption in the market will upend their businesses entirely, leading to many of them having to close up shop. Wells Fargo and HSBC have closed dozens of their branches in 2016 alone, with Wells Fargo aiming to close around 400 more branches in 2018. Tim Sloans, the CEO of Well Fargo says, “They still want to come to our branches, but they’re accessing us online, on mobile, through ATMs and over the phone.” The banking giant seeks to save $2 billion a year by getting rid of some of their branches.
These changes indicate the increased preference customers have started placing on online and mobile banking, forcing established forces in the market to either adapt or become irrelevant by digitized alternatives.
Pakistan has only around 16% of banked population, the remaining populace either doesn’t feel their wallets are big enough or find banking services irrelevant. Digitization can help solve this problem of being irrelevant. By exposing proper channels of supply and demand, customers can finally find relevant products and complete their unmet demands.
More Than Banking
Uber, AirBnB, Careem and Netflix are just examples of how companies have taken advantage of the volume businesses, tapping into customer demands by providing tailored products to each individual customer. You buy what you want, use what you want, when you want it. More customer centricity is the key to being successful in this game. Banks will have to properly gauge what their customers demand and cater specifically to that demand.
The race to being the first will not make a bank winner because they are no longer hold the monopoly to offering you financial services. If banks don’t work with Fintechs, they will not be able to bring in the necessary innovations to their services a lot faster. Partnering with the fintech ecosystem is imperative moving forward. If not, they won’t shut down and succumb into rather painful stagnancy.