Digital Financial Services (DFS) are not a new concept. At one end, there are the organisations that are leading digital transformation and at the other, those that are just kicking off their digital journey. The telecoms are leading from the front – benefitting from their technology-based business. Telenor and Jazz with Easypaisa and JazzCash were initially launched as money transfer services and later branched out to offer a host of other payment services.

However, the digital journey for the retail banking sector is proving to be a bumpy one. Despite constantly evolving consumer demands and increasing disruption from new market entrants, the industry is still struggling to formulate a cohesive strategy. This is due to legacy systems, increased costs, complex infrastructure and a lack of qualified personnel. Furthermore, with no immediate pressure to accelerate their digital transformation, financial institutions did not (until recently) feel a sense of urgency, dealing as they were with increasing regulatory and compliance reporting requirements. And then the Covid-19 crisis happened. Suddenly, initiatives that were on the backburner were pushed with a new sense of urgency. Despite this, financial institutions are still struggling to embrace true digital transformation as entrenched obstacles do not disappear overnight.

The need for digital innovation was apparent well before the pandemic hit. As technology developed, there was a rise in customer expectations in terms of instant and personalised services. Fintech has shown what is possible and the reality that all banks need a digital plan. Speed is key. Banks need to make the experience better for their customers by personalising it, creating targeted online banking communication and developing robust FAQ content. Open banking APIs (Application Programming Interfaces) powered by advanced analytics and advanced AI can provide richer real time personalisation compared to what customers are receiving today.

The benefits of the DFS ecosystem are immense. DFS take into account the financial needs of a broad range of users, including consumers, businesses and government agencies. By providing sustainable and affordable services, DFS increase efficiency in delivery, improve the quality of service and can reduce the cost for organisations and customers by reducing operational and transactional costs. They are also a relatively secure method that enables speed, transparency, flexibility, the ability to track credit histories as well as provide saving incentives through automated deposits, scheduled text reminders and more. The most common current and upcoming features under DFS entail payment services, domestic and international transfers (remittances), bulk payments, merchant payments, savings accounts (individual, group), loans (secured, unsecured, merchant).

The journey of DFS in Pakistan began in 2008 when the State Bank of Pakistan (SBP) issued a branchless banking regulatory framework to create synergy between banks and the telecom operators. This resulted in a boom in branchless banking, offering as it did alternate delivery channels for financial inclusion in far flung areas, thereby allowing customers in those areas to receive and send remittances, pay their bills and receive welfare payments within minutes.

Today, we stand on the verge of change. High cell phone penetration, high internet usage, enabling regulations by the SBP and a high percentage of the population inclined towards technology, make it so that Pakistan has all the ingredients necessary to revolutionise the economy through DFS. Despite this, the current technology for the distribution in financial services falls short due to the fact that a major portion of the population is still unbanked and a trust element still exists and which needs building up. In addition, Pakistan’s accessibility to financial services remains low. Only 21% of the population has an active bank account of which merely seven percent are women. Cash transactions heavily dominate Pakistan’s $300 billion plus economy, with salaries, merchant to distributor payments and normal day to day transactions all done in paper form. To put it into perspective, 80% of India’s population has a bank account.

Limited interoperability between branchless banking players, lack of open APIs within financial institutions, the high cost of transactions and reluctance to collaborate with start-up fintechs has held back the sector. The lack of customer awareness and the use of basic telephone devices that do not support digital channels is another factor that restrains the successful uptake of DFS. The requirement is to build innovative, need-based products and solutions using DFS technology to create a space for Pakistan on the international sphere. It is estimated that the market potential of DFS in Pakistan can cross $36 billion in 2025 (as per the SBP), providing a boost to our GDP and creating further job opportunities. However, this can only become a reality post the implementation of a robust DFS ecosystem.

The SBP is partnering with local financial institutions including retail and microfinance banks to make this vision a reality; the new digital financial inclusion strategy aims to improve the economy by seven percent and create four million jobs in the process. Private sector banks are playing their role by creating opportunities for customers to access more financial services through digital banking channels. Retail banks are striving hard to catch up and provide the services their customers need. Leading financial institutions including HBL, JS Bank and UBL have all developed extensive digital strategies aimed at easing the lives of their customers. These initiatives include educating them about the benefits of digital banking, creating digital labs, extending branchless banking to far flung areas and digitising payments (such as traffic chalaans). Examples on the JS Bank front include a WhatsApp bot to help customers access financial information at the click of a button and the introduction of digital cheques and customised products, such as ‘Freelancers Account’, which cater to the freelance community by meeting their requirements for tax certificate issuance, acceptance of global payments and much more.

This space is wide open and the potential for growth is enormous. Banks need to advance their technology and experiment with new payment mechanisms using NFC and QR codes. It is crucial to continue exploring and expanding the possibilities in the existing DFS space. There is no limit to what can be done and the sooner the financial institutions realise this, the sooner change can take place. n

Hasan Saeed Akbar is Head of Corporate Communications, JS Bank. hasan.saeed47@gmail.com