Digitalisation landscape in Pakistan – a tech view

“Universal access to financial services is within reach – thanks to new technologies, transformative business models and ambitious reforms… As early as 2020, such instruments as e-money accounts, along with debit cards and low-cost regular bank accounts, can significantly increase financial access for those who are now excluded.”
Jim Yong Kim, ex-president, World Bank Group, 2014

In the wake of extremely unforeseeable circumstances that the human race has ever experienced, the economies of the entire world are exponentially going down while the health and human tolls grows yet to reach higher numbers in most of the countries. Taking a look back at the history of global crisis, of the last century post World War II, launch of technological systems, extensive “industrialisation”, “manufacturing” and “production” were the words of survival and hence represented the mainstay of the present-day world economy, also known as the “Golden Age of Technologies”.

Come 2008, another crisis resulting upheaval in the global economic conditions across millions being affected financially due to the downfall in the financial sector with deindustrialisation of leading economies. Technology once again was the tool for reconstruction and restarting the economic growth. Tech firms brought major overhauling in their platforms, moving from legacy to somewhat modern style and hence the rebirth of “innovation”.

Finally, as we are in 2020 and the pandemic has brought the nations to the verge of acute deteriorating health and economic conditions. A glimpse of which can be seen in this World Bank statistical representation of the recessions starting from 1871 to-date. Pakistan being a part of 2.7% contraction as per stats, will face a reversal of the progress in the past few years.

Once again, we do witness the surge in the technological comparative advantage to such precarious economic recessions, where the new word of survival is “digital”. Organisations in Pakistan while struggling with their slow economic growth in the past, yet embraced the technological revolution in the recent past few years. The telecoms and financial sectors being
amongst the top most in the race. Starting from branchless banking, financial inclusion, enhanced payment systems, adoption of financial tools by almost 75% of the unbanked population, emerging fintech disruption of old incumbents, mobilisation and inclusion of very few women entrepreneurs in the economic cycle.

While the nation is trying to overcome the post COVID-19 impacts on its health and living, technology has assisted millions to endure the long lasting effects of the pandemic. Local banks have been able to provide timely aid to the underprivileged masses of the country through the “Ehsaas” programme while using digital platforms and means. Historically country-wide swift and safe financial disbursement programmes to IDPs and calamity stricken masses have also been enabled through technology platforms.

The COVID-19 slogan of “Stay Home, Stay Safe” was possible due to the digitally enabled financial channels and interfaces while providing various financial services to the banked and branchless customers. We also see the ascending usage of online banking, payments, supporting the locked down businesses that took off with the online orders on channels like Facebook, Amazon, Daraz, FoodPanda etc. while banks being the financial arm for the digital payments.

The financial institutions were already gearing up for technological enhancements and overhauls due to the post 2008 crisis and government-backed regulatory reforms to curb corruption and money laundering. Pakistan’s Prime Minister, in his speech to the 75th United Nations General Assembly, also expressed great concerns on the prevention of money laundering from the underdeveloped countries back to the developed countries through mafia of powerful lawyers to whom the entire financial and economic cycle falls prey and collapses.

Regtech, security and regulatory controls have played a vital role to minimise the money laundering acts and ease of legitimate cross-border money transfers and payments. With the extended use of state-of-the-art compliance and regulatory control tools and systems, it has become possible for screening, monitoring and combat fraudulent and illegal money transfers and money laundering to and from the country. This has facilitated the growth inflow of foreign remittances and execute trade transactions thus boosting the country’s economy.

The country is yet to experience a few more intense digital transformations, while learning lessons from other nations who have attempted to perform digital transformation and failed fast to revive the spirits of technological advancement in multiple sectors. Pakistan is still heavily reliant on cash transactions as customers prefer to use cash on delivery (COD) options rather than digital financial services.

However, the ratio of digital financial services versus the 95% of internet users in the country as compared to peer countries, shows a promising future for the digital financial services propagation. While the banks need to work on the pricing and fee structures for all government-to-person (G2P) and person-to-government (P2G) payments to include more people to be banked. The intrinsic complex processes and regulations inhibit the fluent foreign investments, fintech and start-ups incubation and funding, that need to change with the help of process re-engineering and technology.

Statically, as per Pakistan’s Digital 2020 Report published in February 2020, there were 76.38 million internet users in Pakistan in January 2020 which illustrates that the number of internet users has increased by 11 million (+17%) between 2019 and 2020 and internet penetration in Pakistan stood at 35%. As far as the social media users in Pakistan are concerned, the number has increased by 2.4 million (+7.0%) between April 2019 and January 2020 which shows that there were 37.00 million social media users in Pakistan in January 2020 and the penetration rate stood at 17%. The number of mobile connections increased by 9.6 million (+6.2%) between January 2019 and January 2020. Surprisingly, the number of mobile connections in Pakistan was equivalent to 75% of the total population in January 2020.

Aiming towards more picturesque “digital ecosystem”, financial institutions need to concentrate on the following areas to cope up with the above statistics that are constantly on the rise:

• Digitalisation of banking models

Evaluate and re-engineer the aged processes within the organisations while improvising the relationship with third parties. Banks need to work on pragmatic digital banking models and build more effective business continuity plans for sustainability.

Reposition and optimise branch network while providing more self-services to customers as intimidating branch environment keeps the customers off from the branches, hence to provide them with more self-service digital channels and secure banking at their fingertips.

Not to be surprised as Russia’s largest bank, Sberbank, is embarking on what it calls the biggest transformation in its history, as it unveils a suite of new technology products in an aggressive drive to enter the lucrative Big Tech sector and has dropped the word “bank” from its corporate building and is now called “Sber” while replacing its tellers with super ATMs and offering online taxi and food services.

• Build platforms, not just products and services

Let go of “legacy” technology and gradually move towards secure green banking adoption while providing financial services to customers anytime, anywhere and on any device. The banks are still clinging to their legacies and need a two-pronged strategy to rip-and-replace the legacy and adopt new technology and tools to thrive.

Open banking with fintech firms is the sustainable model for banks as today quite a few banks are also divesting some of their capital into other businesses. Digital platforms are the answer to such experiments while initiating new services or collaborating with other businesses.

• Data as a value generator tool

Create and promote “data driven” financial services based on artificial intelligence (AI) algorithms defined with the regulatory guidelines working with structured and unstructured data to provide clear and in-depth insight of your customer from both behavioural and compliance perspective. This domain is still untapped in almost all the local banks, while only a few have embarked this journey.

Data works as fuel to the business and financial services that take the banks to the next level. This is the differentiating factor that is inhibiting the local banks from innovation as compared to peer countries who have worked hard on their data strategies and programmes and are reaping the fruit today.

• Enter the cloud and managed services evolution

Using on-demand cloud computing to reduce operating costs while increase the availability to 99.XX% as many banks already have steered their staff collaboration over the cloud during COVID-19 work from home (WFH) safety measure. Investments in cloud infrastructure and Software-as-a-Service (SaaS) are visible in the past few years, however, more conducive regulatory guidelines are to be formulated for such ventures.

• Security by design

Cybersecurity comes a part and parcel of all processes based and data driven technology. Essentially, customer do desire fast and secure financial services. Security spends will remain on the rise with the increase in the ransomware attacks. While WFH and online transactions will keep rising as per experts, the dark side of the digital and online banking will remain to be active more than ever.

The combat against phishing scams and schemes, security breaches, illegitimate transactions, has taken a paradigm shift in the banking sector as treasure trove of data is readily available to the hackers to activate their goals. Effective implementation of DDoS, intrusion, threat and malware detection tools, multi-factor authentication (MFA), restricted WiFi usage would somewhat secure.

• To B or not to B

The controversies of blockchain technology and cryptocurrency have blemished the true essence and value of blockchain, hence still being subject to skepticism, carries a huge potential for non-financial transactions between the financial institutions and other stakeholders. As per Statista, the blockchain market value share of banks is 29.7% in 2020.

The non-financial avenues for blockchain revolve around asset management, trade finance, supply chain finance, anti-money laundering (AML), combatting the financing of terrorism (CFT), know your transaction (KYT) tracking etc.

European Commission is to launch its blockchain regulatory sandbox in 2022. Countries across all regions are already using blockchain in multiple areas and segments of their public sector.

• Up your skills to scale up

Traits like critical thinking, ideation, innovation are a must-have in the upcoming builders of the nation, especially those contributing towards recuperating the country’s economy. The digital and tech teams of the banks need to “think out of the bank” to create more financial synergies with the outside world.

The future for Pakistani banks is quite lucrative and auspicious to thrive and serve in the vast digital landscape of the country and beyond as the people are now financially quite literate, the regulators are also inclusive and adaptive and masses have mostly adopted the digitalisation aspects of life.

About the author

Samina Rizwan is a veteran IT professional, having been working for the past 25 years across various industries and organisations as a technologist. Her current role is enterprise architect at United Bank Ltd.

Keen observer on the current and future states of “digital transformation” needs and corresponding “technology ecosystems and responses”. Candidly shares her insights via articles and views on LinkedIn and the FinTech Futures website.

The article was originally published on LinkedIn