Introduction:
Most people have bank accounts but there are a significant number of people in society that traditional banks have not served well.
For years, the products and services built and delivered by banks have been designed to meet the banks’ criteria for profitability, even if it is at the expense of the customer. Earning a decent interest rate on one’s own savings for instance, typically requires customers to jump through numerous hoops including maintaining a minimum account balance, crediting their salary into the account or making specific types or number of transactions monthly. The plethora of terms and conditions are sometimes difficult to understand, let alone fulfil.
As a result, access to competitive interest rates on their savings remains a challenge for certain segments of the population. Similarly, these underserved communities of everyday men and women struggle to access a loan when they need one, or end up with unreasonably high interest rates even though they are entirely creditworthy borrowers.
Facts claims that digital banks can better meet the needs of customers for three reasons;
Firstly, as a digital bank, we are powered by our access to our ecosystem data, and this gives us a better understanding of our customers. These insights inform the way we design our products and services so that they are personalized and therefore a better fit for our customers’ needs.
Secondly, the same deep understanding we have of our customers enables digital banks to offer personalized and relevant financial literacy education that is effective in helping customers build good financial habits and optimize their access to financial services.
Lastly, digital banks are not burdened by legacy costs and are able to serve our customers at lower costs and hence pass on savings to our customers.
Pakistan, like many developing nations, faces challenges in ensuring economic mobility for its citizens. However, in recent years, the rise of digital banking presents a promising solution to address these challenges. Digital banks, powered by technology and innovation, have the potential to revolutionize the financial landscape in Pakistan and play a pivotal role in fostering economic mobility. In this article, we explore how digital banks can support economic mobility in Pakistan and empower individuals and communities to thrive financially.
What is a digital bank?
The main difference between a digital and a traditional bank is that the former does not have a physical presence anywhere. All transactions and interactions are done exclusively online when opening virtual bank accounts with digital banks.
Expanding Financial Inclusion:
One of the most significant contributions of digital banks is their ability to expand financial inclusion. In Pakistan, a significant portion of the population remains unbanked or underbanked, especially in rural and remote areas. Digital banks can bridge this gap by offering accessible and affordable banking services through digital channels. With just a smartphone and internet connection, individuals who were previously excluded from the formal financial system can now access a range of banking services, including savings accounts, payments, and loans.
Lowering Barriers to Access:
Traditional banks often require extensive documentation, physical visits to branches, and high account maintenance fees, which can deter many Pakistanis from accessing banking services. Digital banks, on the other hand, streamline the account opening process and reduce bureaucratic hurdles. By leveraging technology, digital banks can offer accounts with minimal documentation requirements and lower fees, making banking more accessible to low-income individuals and marginalized communities.
Facilitating Convenient Banking:
Digital banks provide unparalleled convenience and flexibility to users. With intuitive mobile applications and online banking platforms, individuals can perform a wide range of financial transactions from the comfort of their homes or workplaces. Whether it’s transferring money, paying bills, or managing investments, digital banking empowers users to take control of their finances with just a few taps on their smartphones. This convenience not only saves time but also encourages more people to actively engage with the formal financial system.
Empowering Entrepreneurs and Small Businesses:
Small and medium-sized enterprises (SMEs) are the backbone of Pakistan’s economy, yet many struggle to access the financing they need to grow and expand. Digital banks can play a vital role in supporting SMEs by offering tailored banking solutions and credit products. Through digital lending platforms, SMEs can apply for loans quickly and conveniently, without the need for extensive paperwork or collateral. Additionally, digital banks can provide tools and resources to help entrepreneurs manage their finances effectively, fueling business growth and job creation.
Promoting Financial Literacy: Ensuring Customers Remain Bankable:
Digital banks play a crucial role in serving the underserved and fostering financial inclusion. However, beyond offering accessible banking services, they must also prioritize enhancing customers’ financial literacy. By empowering customers to understand financial concepts better, they can unlock access to a wider range of banking services in the future.
Financial education is essential for empowering individuals to make informed financial decisions and build a secure future. Digital banks can integrate educational resources and tools into their platforms to enhance financial literacy among their users. From interactive budgeting tools to educational content on savings and investments, digital banks can equip individuals with the knowledge and skills they need to manage their money wisely and plan for long-term financial success.
One method of empowerment is helping customers build their credit scores. Through behavioral nudges and financial education, Digital banks can guide customers in maintaining timely repayments, thus improving their creditworthiness. A favorable credit score opens doors to various loan products, such as housing loans, enabling customers to progress further in their financial journey.
Enabling Efficient Remittances:
Pakistan receives a significant amount of remittances from overseas workers, which play a crucial role in supporting the livelihoods of millions of families. However, traditional remittance channels are often slow, expensive, and prone to inefficiencies. Digital banks can revolutionize the remittance industry by offering fast, secure, and cost-effective cross-border payment solutions. By leveraging block chain technology and digital wallets, digital banks can facilitate instant money transfers at lower fees, ensuring that remittance recipients receive more of their hard-earned money.
Digital Banks in Pakistan:
There are five digital banks that have been granted in-principle approval by the State Bank of Pakistan (SBP) to operate in the country:
- EasyPaisa DB: This is a joint venture between Telenor Microfinance Bank and Alipay, a Chinese financial services giant.
- Hugo Bank: This bank is backed by Getz Bros, Atlas Consolidated, and M&P Pakistan.
- KT Bank: This digital bank is a collaboration between Kuda Technologies, Fatima Fertilizer, and City School.
- Mashreq Bank Pakistan: This is a subsidiary of the UAE-based Mashreq Bank.
- Raqami Islamic Digital Bank: This is an Islamic digital bank backed by the Kuwait Investment Authority.
It is important to note that these banks are still in the early stages of development and have not yet launched their full range of services. However, they are expected to provide a more convenient and accessible banking experience for customers in Pakistan.
Conclusion:
Digital banks have the potential to transform the financial landscape in Pakistan and drive economic mobility for millions of individuals and businesses. By expanding financial inclusion, lowering barriers to access, promoting convenience and flexibility, empowering entrepreneurs, fostering financial literacy, and enabling efficient remittances, digital banks can create a more inclusive and prosperous economy for all Pakistanis. As Pakistan embraces the digital revolution, digital banks will undoubtedly play a key role in shaping the future of finance and unlocking new opportunities for economic growth and prosperity.
It is simple; to offer banking services to anyone with a smartphone, regardless of location. Through customer-centric financial solutions, digital banks should expand outreach, improve financial inclusion, and spur economic growth in Pakistan.
