Enticed by disruptive and yet innovative technology, the
financial system is reorganising itself to regain its robust health,
reduce costs and make its services more efficient and affordable after
the 2008 crisis. Fintech is ushering in a silent revolution.
Its
outreach is expanding and it now embraces activities that can be
broadly categorised into: Lending tech, Payments tech
(billing/remittance), Crypto currencies (bitcoin), Wealth Management
(Robo advisors), Crowd funding, Insurance and Regtech (regulations).
Pakistan’s
financial sector has responded to the challenges of applying these new
technologies by strengthening its human resource and developing customer
interface platforms. Most banks now have Chief Innovation Officers or
Digital Initiative departments.
Various online Payment Systems and Mobile Apps have been developed to encourage footfall in branches.
The
demand for a swift payment mechanism is evident from the quick adaption
of digitisation efforts and rising e-commerce platforms. The latest
State Bank’s Annual Performance Review states that “e-Commerce is
picking up with 571 merchants offering their products online. During
FY2017, 1.2 million transactions valued at Rs9.4 billion were processed
through e-commerce”.
The SBP report further states that
“25 financial Institutions provide internet banking and 18 have mobile
apps. During FY17, 25.2m internet banking transactions were processed
valuing at Rs969bn. Mobile banking accounted for 7.4m transactions
valuing Rs141bn, representing an annual volume growth of 32 per cent and
12pc respectively”.
Pakistan’s financial sector has responded to challenges by strengthening its human resource and developing customer interface platforms
The slower uptake of mobile banking may be attributed to
frequent technical errors. High speed internet connectivity is a much
desired pre-requisite for internet and mobile banking.
Moreover, concerns of data hacking through misplaced/snatched phones are barriers in the mind of consumers.
To
counter some of these issues, HBL is among the first to offer a
biometrically enabled mobile app. Bank Islami has also recently launched
its own biometric app.
To further tap this market,
social advisory is also on the cards. Apps using location will be able
to advise the user of the closest ATM, and the discounts that the banks
provides. Currently, a tech start up is providing proximity discount
alerts on HBL’s mobile app.
The other aspect gaining
traction is the process re-engineering to increase efficiency. For
example, a Letter of Credit can soon be opened electronically, reducing
the time from three days to four hours.
Similarly, FIs
are also simplifying the process of getting a basic, low transaction
volume account through biometric verification in just an hour or so.
This is the first step towards financial inclusion.
Bank
Islami has recently launched its biometric banking, enabling opening
accounts with biometric impressions. Given the large segment of the
population seeking Shariah-compliant financial services, the product may
have better penetration.
However, globally the discussion isn’t about process reengineering, it’s about change in the model itself.
Conversations
on tapping digital stamp on trading goods and services and cash
management terminal access to clients are some of the examples. For
large international customers, cash management and foreign exchange
swaps are now being traded through the company’s own terminals — making
them the most affected revenue streams for financial institutions. The
gurus in the field are hinting at digital platforms, making the current
model redundant.
In the context of Islamic financial
institutions, this presents a tremendous opportunity as they don’t have a
legacy problem. Islamic banks can develop Shariah compliant products
more in line with their way of doing business.
One such
low hanging fruit is auto and housing finance, if digitisation efforts
for quicker turnaround and greater reach are introduced.
Crowd
funding, which is perhaps closest to Islamic financial institutions’
mode of doing things, is not encouraged by the regulator as various
Modaraba scams have burnt consumers’ fingers. Little work has been done
and, even in better regulated jurisdictions like Singapore, Malaysia and
the UK, there are only a few Islamic Crowd funding platforms.
A
challenge faced by Islamic banks is the increased spending on research
and development which is already high due to cost of training personnel
and product development needs.
The harbingers of
innovation in the financial sector are the non-financial telecoms with
huge data of biometrically verified customer base and their payment
history. Telecoms are already offering payment services and telebanks
micro-credit services.
The use of m-wallets (over 27m as
of June 2017) for microfinance lending is also being experimented with.
However, given the upper limit of Rs 50,000 for SMEs, telco banks may be
entering into traditional bank’s space and may give them a tough
competition.
On the collection side, there is a need for
the financial sector to develop products so as not to lose out to some
unconventional sectors. In China, for example, Alipay (a company of
Alibaba) has created a money market fund from the change left in the
accounts after payments. Perhaps companies like Careem can do the same,
given the scale and regulatory support in due course.
Beyond
banks, Al Meezan Investment’s app lets you draw funds out of your
mutual funds account and credit to your Meezan bank account which can be
withdrawn at the ATM within half an hour. This in principle serves as
an alternate to keeping ready cash/deposit with the banks.
On
the technology side, there are several Fintech startup firms in
Pakistan. However, according to Mr Rehan Akhtar, Director Digital
Financial Services, Karandaz, a lot of Fintech start-ups need to build
deeper understanding of financial system to be able to disrupt them
adequately with their solutions.
Data is another aspect
of technological development. Some large financial institutions are
hiring Data Analytics teams and software specialists to assess, innovate
and design new product offerings. Needless to mention, collaboration is
the buzz word here.
With estimated ownership of 40
million smart phone users and 120 million millennials as per various
press reports, the growth in this field is unprecedented. Dynamic
changes in the job environment and skill set demands that educational
institutions also respond and upgrade curriculums. Synthesising the
subject matter with technology driven programmes may give students a
competitive edge in exciting times to come.
