- Digital banks increasing financial inclusion, offering innovative services
Interview with Mr. Saad Hassan — Assistant Vice President, National Bank of Pakistan
Profile:
Saad Hassan is a highly qualified and experienced banker, currently serving at the National Bank of Pakistan. With a strong background in Audit & Inspection, Regulatory Compliance, Employee Banking, Service Quality, and Training & Development, Saad has proven his expertise in managing various aspects of banking operations.
He holds an MBA from IBA Karachi and has also completed a Master in Economics and Masters in Islamic Banking & Finance, in addition to being an Associate of the Institute of Bankers, Pakistan (IBP). With his extensive knowledge and skills, Saad is committed to delivering exceptional results and contributing to the growth and success of the banking industry in Pakistan.
PAGE: Could you give your perspective on digital banks in Pakistan?
Saad Hassan: Recently, the State Bank of Pakistan issued licenses for digital banks, which are expected to bring transformative change to the banking industry. Digital banks will operate exclusively online, increasing financial inclusion and offering innovative financial services. Currently, there are 269 fintech companies in Pakistan, with the industry expected to reach $35 million by 2025 and create an additional 4 million jobs.
Five companies have obtained NOCs to become digital banks, one of which is Easypaisa, a current player in the market. The migration to electronic means is expected to increase GDP by 7%, generate 04 million jobs, and add $263 billion in new deposits. However, all banks must address cybersecurity concerns. The new digital banks have a large untapped market to potentially tap into, particularly among underserved people without bank accounts, especially women.
PAGE: What is your standpoint on the technological progress of the financial services industry in Pakistan?
Saad Hassan: The technological progress of the financial services industry in Pakistan has been significant since the last few years. Digital banking has become increasingly popular in Pakistan, with a growing number of banks offering online and mobile banking services. In 2022, the State Bank of Pakistan (SBP) reported that over 90% of banks in Pakistan offered mobile banking services, and over 60% offered Internet banking services. This has made it easier for customers to access their accounts and conduct financial transactions from anywhere.
As you know, FinTech, or financial technology, is a rapidly growing sector in Pakistan. FinTech companies are using technology to disrupt traditional financial services, offering new and innovative products and services. For example, FinTech companies are providing microloans to small businesses, offering peer-to-peer lending, and developing mobile payment solutions. It is worth mentioning that financial institutions in Pakistan are increasingly adopting big data and analytics to improve their decision-making. This technology can be used to analyze customer data, identify trends, and predict future behavior. This information can then be used to develop new products and services, improve customer service, and reduce related risks.
It is an encouraging fact that the State Bank of Pakistan (SBP) has been working to develop new payment systems in Pakistan. These new systems will make it easier and faster for people to make payments, both domestically and internationally. These are just some of the key developments that have taken place in the financial services industry in Pakistan since 2020. These developments are having a significant impact on the way that people access and use financial services. They are also helping to promote financial inclusion in Pakistan, making it easier for people to participate in the formal financial system.
In addition to the ongoing technological and digital progress, there are some other technological and digital trends that are expected to have a significant impact on the financial services industry in Pakistan in the coming years which include the rise of artificial intelligence (AI) to be used in a variety of ways in the financial services industry, such as fraud detection, customer service, and investment management. As AI technology continues to develop, it is likely to have an even greater impact on the industry in the future.
In the future, the growth of Blockchain is also expected in the financial service industry. Blockchain is a distributed ledger technology that has the potential to revolutionize the financial services industry. Blockchain can be used to create secure and transparent financial transactions, and it is also being used to develop new financial products and services to cater the financial needs in the backdrop of changing financial landscape internationally.
Besides, the development of Open Banking is also expected in the future. Open Banking is a new paradigm in the financial services industry that allows third-party developers to access customer data from banks (considering and following the customer data secrecy laws). This data can then be used to develop new financial products and services that are tailored to individual needs.
In the future, the development of cloud computing is also expected in the financial service industry. Cloud computing is becoming increasingly popular in the banking sector. This is because it can help to reduce costs, improve scalability, and increase security. These are just some of the technological trends that are expected to have a significant impact on the financial services industry in Pakistan in the coming years. These trends are likely to lead to even greater innovation in the industry, and they will help to make financial services more accessible and affordable for people in Pakistan.
PAGE: Has branchless banking altered the financial landscape of Pakistan?
Saad Hassan: Yes, branchless banking has significantly altered the financial landscape of Pakistan. As per the State Bank of Pakistan’s second-quarter report for FY2023, there are over 97 million branchless banking accounts in Pakistan, indicating the widespread adoption of digital payment methods.
It is evident that branchless banking in Pakistan has impacted the financial industry in a number of ways, which include increased access to financial services making it possible for people in rural and remote areas of Pakistan to access financial services that were previously unavailable to them. This has helped to improve financial inclusion in Pakistan, which is the percentage of adults who have access to a formal financial account.
Besides, reduced costs and improved efficiency for financial institutions is also an outcome of branchless banking because it does not require banks to build and maintain physical branches and allows banks to process transactions more quickly and easily. Further, branchless banking has increased competition in the financial sector leading to lower prices and better services for customers.
Furthermore, branchless banking has helped to promote financial literacy in Pakistan. This is because it has made it easier for people to learn about financial products and services. There are some specific examples of how branchless banking has altered the financial landscape of Pakistan:
- The number of branchless banking accounts in Pakistan has increased from 2 million in 2008 to over 100 million in 2023.
- The number of adults with access to formal financial services increased from 18% in 2008 to 42% in 2022.
- The share of branchless banking transactions in total retail payments in Pakistan has increased from 1% in 2008 to over 30% in 2023.
- The cost of providing a branchless banking account in Pakistan is estimated to be 50% lower than the cost of providing a traditional bank account.
- The average transaction time for a branchless banking transaction in Pakistan is 2 minutes, compared to 15 minutes for a traditional bank transaction.
These are just a few examples of how branchless banking has altered the financial landscape of Pakistan. As technology continues to develop, it is likely that we will see even more changes in the way that people access financial services in Pakistan. In my opinion, branchless banking is still a relatively new phenomenon in Pakistan, but it has the potential to revolutionize the way that people access financial services. As branchless banking continues to grow in Pakistan, it is likely to have an even greater impact on the financial landscape of the country. Overall, branchless banking has had a positive impact on the financial landscape of Pakistan. It has increased access to financial services, reduced costs, improved efficiency, increased financial literacy and increased competition.
PAGE: Could you give your views about technological advancements in the banking sector?
Saad Hassan: Pakistan has made significant strides in the technological progress of the financial services industry since 2020. The introduction of digital banks in 2023 has brought transformative change by operating exclusively online, increasing financial inclusion, and offering innovative services Pakistan’s IT industry is also flourishing, with exports to 169 countries, reflecting the growth of the industry.
However, cybersecurity concerns must be addressed to ensure the safety of digital banking. Despite the challenges, digital banks have the potential to tap into an untapped market, particularly among underserved individuals without bank accounts, including women. Overall, Pakistan’s financial services industry has made significant progress in adopting new technologies and expanding its reach to previously underserved individuals.
The future of Pakistan’s financial services industry is bright. With continued investment in technology and innovation, the industry has the potential to become a major driver of economic growth. However, there are a number of challenges that need to be addressed in order to realize this potential. One of the key challenges is cybersecurity. As more and more financial transactions move online, the risk of cyberattacks increases. The industry needs to invest in robust cybersecurity measures to protect customer data and prevent fraud.
Another challenge is financial inclusion. While there has been significant progress in recent years, there are still millions of Pakistanis who do not have access to basic financial services. The industry needs to find ways to reach these underserved communities and provide them with the financial services they need.
Pakistan’s financial services industry is at a crossroads. With the right investments and policies, the industry can become a major driver of economic growth. However, there are a number of challenges that need to be addressed in order to realize this potential. The industry needs to invest in technology and innovation, address cybersecurity concerns, and work to increase financial inclusion. By addressing these challenges, Pakistan’s financial services industry can reach its full potential and contribute to the country’s economic prosperity.