The much-anticipated wait for the coveted digital banking licenses from the State Bank of Pakistan (SBP) is finally over. The five recipients (out of 20) must now lead the way and showcase how effective digitally enabled banking can be in solving the financial inclusion conundrum (digital and otherwise) of the unserved and underserved segments of Pakistan. 

They will also be expected to possess/create better digital strategies, architectures and approaches to benefit the financial services industry, and given that no local bank got the go-ahead (at least in this round), it will be interesting to see how many of those revert to applying again or opting for Plan B and protect their market share by digitally enhancing themselves, re-evaluating their HR strategies, aligning the right percentage points for the right products and services, taking a deeper look at their digital architecture, and renewing their go-to market approach.

Traditionally, leading digital outlets are mapped internally and externally and have the right processes and tools to make digital channels available for bank customers and their various divisions. They also will have to learn from fintechs (or partner with them) to enable new digital customer journeys and user experiences by leveraging automated/paperless workflows and environments for better acquisition, retention and growth. Unfortunately, in the Pakistani context, success in digital banking (thus far and for most) equates to their banking apps on mobiles, where one can pay bills or another. Beyond this, for all other banking needs, the parameters of real digital banking success are still hard to define, given that the public still relies on hard cash rather than digits on a screen.

So, who are these digital banking leaders? In my view, out of 33 operating banks, six have demonstrated at the very least a decent digital vision and the ability to lead, if not total prowess on their strategies, customer focus, and the value of their services through innovative channels. Bank Alfalah, HBL and Meezan Bank seem to be the clear market leaders, followed by Allied Bank, Standard Chartered Pakistan and United Bank. Another three to four are trying to up their game to stay digitally relevant. Time will tell if they succeed. 

The top ones are better placed than the others in terms of digital capability, governance structures, and professional decision-making (as opposed to seth or state-driven) and have an overarching ‘doer’ attitude that is reflected in their products/services. They also have stronger working digital partnerships with the SBP; they try out new, technologically advanced techniques and comply with the requisite investments in digital and hire on mandated appointments to advise on, and lead, IT initiatives. Their leveraging of the Covid-19 pandemic as an opportunity to explore new digital methods, address customer needs and focus on banking initiatives such as Raast and Roshan Digital Accounts are also commendable. 

The remaining digital laggards seem to have their own reasons for doing the bare minimum on this front. For them, going digital (in the true sense) is time-consuming, expensive and the ROI of effort versus the reward does not make strategic sense given their lack of experience in monetising digital channels. Their best option will be to opt for profitability through traditional branch deposits, knowing fully well that cost centre models that typically flow down from branch banking are the most expensive, followed by ATMs – digital channels being the cheapest.

In their quest to go completely digital, banks are also struggling in the following areas. 

Customer Ownership: In the digital sense, customer journeys stemming from apps/digital channels that leverage the banking services and products available to them will be a challenge. And since HR structuring is done in an old-fashioned way, the back-end reconciliation is often not only an operational challenge, it becomes an office politics one.

Parallel Digital Structures: Many banks have opted for a parallel albeit small(er) digital infrastructure to test the digital waters (perhaps they were advised to do this). The jury is still out on this approach because many of them preferred to digitally transform themselves completely and achieve overall digital excellence, rather than do it for one division and then connect others to it. This often creates a caste system within banks, which can also be a cultural challenge to solve for the leadership.

Skill Sets and Talent: Digital thinking at banks is often led by a tech-savvy board member, a digital banking leader and a CIO – all of whom are not always in sync, partly because they rose in different working environments and sectors. CIOs have risen in the ‘networking’ or ‘application’ route and are a non-business-savvy tech resource at best. Digital banking leaders are typically non-bankers and the board member is a foreigner (no formal board-level technology governance education exists in Pakistan) and is not, therefore, always up to speed in terms of Pakistan knowledge. This challenge exists across the board, especially because digital talent is still being cultivated (including junior ranks) and it often opts for start-ups and freelancing so that banks are even more challenged when it comes to attracting/retaining top talent.

Tech Architecture: Digital prowess requires stellar digital architectures, and to my knowledge, none of the banks has conducted a deep forensic audit of their existing tech stacks in order to uncover vulnerabilities and test the strengths on which the digital architecture is to stand. Untested architectures can be exposed and insecure and as dimensions of digital apps/tools/security are added to the volumes of transactions and data that a modern digital bank enables, they can fall (and fail).

Tech Tools: T24 by Temenos seems to be a core banking darling among CIOs. Enterprise Resource Planning exists for accounting and finance mechanisms, and CRM is widely missing as they don’t see the value somehow (shocking). Furthermore, internet banking architectures are different from those of mobile banking and back-end integration on a single connected stack for efficiency is missing. The SBP’s latest framework to outsource to cloud service providers is a welcome gesture, but to leverage it, banks will have to rethink their architecture and stop relying on band-aid approaches.

What next? Regardless of how the new digital licensees do, local banks should transform customer journeys at the branch level by digitising end-to-end digital loan disbursements/underwriting and all human/paper-intensive areas. This will involve constant upgrading of their digital vision, automating processes/workflows, focusing on customer centricity, upgrading the tech stacks, and integrating and mimicking digital channels with traditional branches. There will also have to be a meticulous focus on employee training in new-era banking, data gathering, intelligent decision-making and coming up with out-of-the-box customer and culturally relevant products that Pakistanis need to survive and grow. 

Javaid Iqbal is CCO (and Member and Executive Director), Special Technology Zones Authority, Cabinet Division, Government of Pakistan. The thoughts reflected in this article are entirely his own and do not represent the views of the government. He can be followed on http://linkedin.com/in/jiqbal and @jdiq