“Google Pay will not be entering the Pakistan market anytime soon…” These words put a damper on what was otherwise a highly vibrant Momentum 2019 Start-Up Conference held in Karachi earlier this year. The statement, made by Google’s regional representative, during a candid panel discussion with Khurram Jamshed, Head of Digital Products, Bank Alfalah, about the digital banking and payments sector of Pakistan, begs the question: Can the Pakistani consumer experience in earnest keep the promises of ‘neo-banks’, Fintechs or ‘digital-savvy’ banks through the mobile channel?

At first glance, our banking landscape is promising. Largely unscathed by the worldwide financial crisis of 2008, Pakistan has a ‘bankable population’ (i.e. adult population) of approximately 127 million as per the State Bank of Pakistan (SBP). Fifty-four million people bank with ‘traditional’ or microfinance banks and 47 million are branchless banking (BB) account holders. This seems to imply, rather incredulously, that almost 80% of our adult population is using some form of financial service! However, as forcibly argued by Mir Nejib Rahman, Senior Digital and Finance Payments Specialist, Kanji Advisory, in his article published on LinkedIn recently, SBP figures are based on the number of accounts a person has. For example, one person is reported multiple times if he/she has multiple accounts with different banks rather than on a unique customer basis. After further correlation with taxation data, Rahman argues that a more credible figure for Pakistan’s bankable population is 18 million.

Nevertheless, there is no doubt that BB is gaining popularity. BB accounts have accelerated from a little over two million in 2012 to over 47 million in 2018. Whilst Easypaisa created the market and remains the market leader at 25 million BB accounts, they are now finding strong competition from the reinvigorated JazzCash at 16 million. Among the remaining, UBL’s Omni retain their niche strength.

So, the number of digital (or app-enabled) banking accounts is undoubtedly on an upward trajectory. The contention lies in the way they are being used; or rather, not being used. Out of 47 million BB accounts in 2018, less than half were active and the activity was primarily on remittance and mobile top-ups. SBP also gives evidence that these accounts are largely transactional with little effort of a savings culture.

Fintechs in Pakistan have taken the same premise of convenience and are rapidly filling the gap that traditional banks have not been able to. They are questioning what ‘banking’ means to people today, correctly identifying the behavioral shifts towards a more mobile-centric lifestyle and delivering on the promise of convenience. And they are succeeding. Not because they offer better feature-to-feature or cost competition, but because they are REDEFINING the banking and payments industry.

Local banks, too, have tried to improve their offerings by launching or re-launching their own mobile banking apps in order to get on the digital bandwagon with mixed results. Their marketing efforts, however, are largely focused on app downloads rather than app usage. Whilst the first step is indeed to get new/existing users to download or upgrade the app, a concerted effort needs to be made by the bank’s marketing team to ensure and increase app activity so that their daily or monthly average users base can grow. A serious problem is that many apps are abandoned soon after download largely due to poorly designed and cumbersome on-boarding processes. Hence, hollow focus on increasing app download numbers is a weak digital strategy, although mobile marketing techniques such as in-app re-targeting and attribution can help overcome this.

Local banks are struggling with another weakness: user interface and design. A high number of app downloads becomes insignificant (yet again) if the user experience is poor – and in the majority of cases it unfortunately is. But there are two notable exceptions: the design teams at UBL and HBL Konnect have overcome this by taking on a design thinking approach and the result has been mobile app re-launches that are far more user-friendly and incorporate some form of gamification or rewards. HBL Konnect, for example, has an Invite & Earn feature and UBL’s mobile app lets customers open their account without the need to physically visit a bank. UBL’s app also incorporates facial ID recognition, QR code payments and makes use of augmented reality (AR) to allow customers to avail deals and discounts. In fact, UBL announced in October that it would be offering Tap and Pay – i.e. a contactless payment facility later on this year as well.

Despite these commendable gains by select forward looking digital banking teams, overall local banks are still dragging their feet with respect to going digital. Fintechs, which came into being after the 2008 financial crisis to fill the gap that outdated bank legacy systems could not, are seriously challenging the traditional banks’ digital offerings in many parts of the world. Wholly focused on customer UI design, experience and convenience, ‘neo’ banks such as Starling, Monzo and Revolut in the UK, have already on-boarded Millennial and Gen Z customers in the millions. Klarna, the Swedish bank that provides payments solutions for e-commerce stores, has 30 million weekly users! And that’s not just because of Snoop Dogg. The customers the neo banks are on-boarding are highly likely to never want to go to a traditional bank, even despite strong mobile app offerings and banking services by those banks. More significantly, traditional banking customers are switching to neo banks purely on convenience and customer experience factors, even though the neo’s offer a limited set of services.

Fintechs in Pakistan have taken the same premise of convenience and are rapidly filling the gap that traditional banks have not been able to. They are questioning what ‘banking’ means to people today, correctly identifying the behavioral shifts towards a more mobile-centric lifestyle and delivering on the promise of convenience. And they are succeeding. Not because they offer better feature-to-feature or cost competition, but because they are REDEFINING the banking and payments industry.

This does not mean that traditional banks are not needed. On the contrary, Fintechs such as Golootlo.pk, for example, have strong ties to both banks (National Bank of Pakistan, Bank Alfalah, Dubai Islamic Bank and Telenor Microfinance Bank) and payment systems such as Union Pay and the Telenor app, and have on-boarded over 10,000 registered merchants for their QR-code based discount app.

Although reported as being marginal by SBP in terms of payment transactions, QR codes are making one significant impact: customers (albeit a small number for now) love the ease and convenience and carry the payment habit through from a retailer to a food outlet, to a petrol station. Golootlo is especially worth keeping an eye on because their target market is far more inclusive and not limited to high-end shopping malls – a mistake that cost Easypaisa’s original NFC launch a few years ago quite dearly. Despite the gains, Pakistan’s banking regulatory system has been slow to act to overcome barriers to QR code usage, identified in a recent Karandaaz report, which include low awareness of QR technology among merchants, high cost perception of QR technology and little push from the banks to adopt. SBP only recently unified QR payment standards for compliance by end March 2020 to counter the lack of interoperability.

Meanwhile, Fintechs are not waiting for the regulator to come out of its slumber. The microfinance, personal finance and insurance sectors also have niches, but competent app-only players, such as Tez Financial Services, Growpaisa and Mawaazna. Digital savvy small business owners prefer the digital convenience platforms offered by SimSim and Easypaisa for salary disbursement sover cumbersome banking channels. How long will banks continue to hide behind regulatory barriers and the comfort of government bonds, I wonder?

Yasmin Malik is a Senior Partner & Consultant at Global Management Consultants.
yasmin@global-dubai.com