In September 2021, the State Bank of Pakistan (SBP) issued a comprehensive set of instructions called the Customers’ Digital Onboarding Framework (CDOF), to encourage commercial and microfinance banks to offer account opening services online and promote branchless banking by ‘digitally onboarding’ consumers.

 According to the CDOF, banks must ensure that the digital account opening process does not take more than two working days after the relevant documents and requirements have been submitted. Banks must also provide customer support 24/7.

Existing brick-and-mortar commercial banks rushed to meet the regulatory guidelines listed in the CDOF as they hoped that by digitally onboarding customers, their customer base would increase and include people previously unreachable and untapped while keeping operational costs at the lower end since all services are managed online.

Then, in April 2022, the CDOF was revised. Abid Qamar, Chief Spokesperson, SBP, explains that “the revision took place after we engaged with the banking industry and it was noted that many banks/MFBs (microfinance banks) were collecting unnecessary information and documents from customers, especially as far as the opening of Asaan Digital Accounts (ADAs), Asaan Digital Remittances Accounts (ADRAs) and Freelancer Digital Accounts (FDAs) – three out of the four account categories offered under the digital onboarding framework were concerned. As a result, unnecessary delays in the account opening processes were taking place and customers’ digital onboarding experiences were being hampered.” 

The SBP’s Annual Payment Systems Review for FY 2021-22 reveals that mobile phone banking more than doubled (it increased by 100.4%) to 387.5 million transactions, while the use of internet banking grew by 51.7% and amounted to 141.7 million transactions during FY 2021-22. The number of branchless banking accounts grew by nearly 20% – from 74.6 million to 88.5 million in the same period – showing the potential of digital banking in the Pakistani market. 

Given the above, perhaps it is safe to say that within its first year of implementation, the digital onboarding framework has shown immense promise as far as digital accounts and transactions are concerned, especially when it comes to the unbanked.

Digital onboarding implies a banking system that offers a seamless way to sign up online for a bank account and related services without having to visit a bank physically. The backend operations for such services are similar to a physical account opening process, with the addition of online biometric verifications and automated systems that verify the customer’s identity as well as government databases, to prevent fraud or signing up a customer with a criminal record. The process occurs remotely, usually through the customer’s mobile device, and thus requires a degree of technological sophistication. The SBP has listed several digital platforms for the process and these include a bank’s website or portal, mobile applications, and digital kiosks (touchscreens installed at malls that allow access to digital banking services).

The aim is to not only offer convenience to existing customers but also offer easy financial solutions with minimum documentation requirements to the unbanked population. These include, but are not limited to, freelancers, self-employed or unemployed women, and recipients of overseas remittances. This will help the SBP to work on its ‘Banking on Equality’ initiative which aims to bring more women into the financial system and is in line with their broader aim to increase financial inclusion.

Speaking about the challenges of digital onboarding, Qamar says “the speed and agility of this regulatory initiative are important for the SBP. Nevertheless, a few industry players may not be able to deliver due to a lack of technological robustness. The level of tech savviness among customers is another important factor.”

Other examples of financial inclusion initiatives by the SBP include National Payment System Strategy (NPSS), instant payment system (Raast), Electronic Money Institutions (EMIs), and Roshan Digital Accounts (RDAs) for non-resident Pakistanis (NRPs). These initiatives have helped to improve the comfort level among banking institutions in terms of digital channels and technological challenges. However, the dilemma remains a tech-shy population that does not trust digital financial transactions. Therefore, educating the public about the ease and cost-effectiveness of these digital financial solutions remains an uphill task.

 While the SBP’s CDOF has been designed in line with international financial standards, it will be a while before branchless banking in Pakistan reaches international penetration levels. A major pull factor that developed countries have for the young population is offering attractive savings accounts rate. However, a robust economy is required to offer attractive savings rates and convince young people to bank more and save more in the process.

On the brighter side, the CDOF has ensured that the digital onboarding journey of Pakistani customers is seamless. For context, in the US, for example, branchless banks witness a high customer abandonment rate due to lengthy account opening procedures and document requirements.

It is also worth mentioning that the recent digital initiatives by the SBP have not just shown rapid growth in mobile phone and internet banking transactions, but have possibly brought Pakistani banking up to par with counterparts in neighbouring countries. As a Times of India article states, although India and its neighbouring developing countries are far behind the developed countries due to a lack of technology and uneven financial systems, they are experiencing a parallel growth pattern as well as promising growth rates as far as the use of digital financial systems is concerned.

Sadia Kamran is Marketing Manager and an English language instructor at Anees Hussain. sadiaazam@yahoo.com