Country Outlook According to GSMA Intelligence, majority (55%) of Pakistan's 193 m population is below 25-years of age with even gender split and mostly (61%) living in rural areas. The country has around 45 m bank accounts and 90 m unique subscribers out of 135 m SIMs; implying mobile subscribers have outnumbered the bank accountholders by 2:1.
In 60-years, the banking sector has traveled a long journey from nationalization to privatization, expanded its branch footprint, provided baseline DFS infrastructure and enabled interoperability through inter-bank switches. However, today, the 46 commercial and micro-finance banks in the country are serving every 100,000 people with just 6 online branches (12,424 in total), 6 ATM (11,381 in total) and 26 POS (50,769 in total) terminals.
In contrast, since the launch of first branchless banking service, Easypaisa in 2009, nine of such of services have contributed around 210,536 active agents in just eight years. That number is approx. three times the size of online branches, ATM & POS terminals combined.
Evolution of "Digital" in Banking According to McKinsey Global Institute (MGI), the word "digital" in this context generally signifies the use of digital infrastructure, including mobile and internet, as primary means of service delivery and seamless transaction processing, with minimum to no use of cash and traditional bank branches.
In true sense, digital banking is much more than this. The widespread technology adoption in terms of access ubiquity, greater bandwidth, transparency and data-security is offering new business propositions for the banks. The opportunity to develop innovative products and services with new business models, digitally equipped sales force and end-to-end digitized processes, all resulting in greater cost-savings, unlocking of new revenue streams and therefore, increased profitability for the banks.
If we look at our industry to understand the digital journey of banks in particular, we will notice that due to prevailing market conditions, changing global landscape and vulnerability of their business to competitive forces; specially, the advent of mobile money services by Telecomsis pushing for an accelerated digital transformation need as their end.
According to MGI and EFMA, the digital transformation journey of banks can be described in three distinct yet connected paths along the digital-curve. Let us have a look at these paths in Pakistan's context.
Digital Banking 1.0 This was the era of branch-centricity and deposit banking. The sales and service delivery has fully relied on their branch network and therefore, banks invested heavily on expanding branch footprint and enhanced user-experience at branch-level. The operations have been mostly product centric and direct channels like Internet banking and ATM were used to complement the branch-centric operations. The success depended on broader customer base, size of deposits and higher price premium for value they delivered.
The banks generally took "digital" on project-by-project basis using pilots and gradual deployments.
Digital Banking 2.0 This is the era of customer-centricity and transactional banking. The branches still play a critical role but the emphasis is shifting towards Omni-channel experience leveraging the access ubiquity through widespread mobile footprint and use of sophisticated technologies. API platform is the new buzzword along with customer analytics. The sales and service have started to rely more on direct channels for customer acquisition and service delivery. This model relies more on greater share of tech-savvy customers at reduced cost, greater cross-selling opportunities but without price-change.
The banks are taking"digital" as a business with clear long-term vision, cross-functional team formation with test and learn approach supported by flexible and agile development methodologies.
Digital Banking 3.0 This will be the era of "digital" as a core, giving rise to pure digital banks. The branch might still exist to fulfillment complex service requirements of customers and for "show casing"their physical presence; however, the banks will rely completely on highly innovated, and technology enabled, self-directed service models to serve their customers. This will be least cost option for the banks to acquire new customers and extend their market reach.
The banks will take "digital" as a pure business model using subsidiaries to accelerate digital, and by dissemination of digital in the company's culture and innovation, leading to fully digital, paperless products.
TPS, "Digital" Transformation Enabler and Catalyst In past twenty years, TPS has played a pivotal role either as an enabler or as a catalyst to shape-up the banking sector of Pakistan.
In early days, TPS adopted a strategy to equip banks with direct channel management capabilities through ATM & POS acquiring, and Internet banking solutions. TPS offered card management addressing both the debit and prepaid card market needs within Pakistan and across the Middle East. TPS worked with PRI to formalize inward remittances through banking channels. TPS enabled the national-level switch interoperability in Pakistan through its switching solution deployed at 1Link.
Today, mobile is the new focus of TPS, to take advantage of always-on consumer connectivity, along with social network enabled customer acquisition and payment processing. TPS is also working with banks for customer and payments analytics solutions to enable them towards true customer-centric product offering and effective decision-making. This is complemented by Omni-channel experience through API management platform through our strategic partners.
TPS realized that; whether, the industry takes financial inclusion approach or the digital banking route, digital-wallet is going to be the anchor of digital revolution. However, it has been more of a rat race back then. Today, failing to scale is a major deterrent, ecosystem development is a survival challenge and cardless interoperability is top priority for the industry in order to solve the much bigger problem of ?nancial inclusion in Pakistan.
Faced with this challenge, TPS took a more focused approach to build surround systems,strengthening the overall financial inclusion initiatives by the industry. In parallel, TPS continued to overhaul its technology stack, enhance its core capabilities and develop its wallet management and agency banking solution on its proven, robust, and reliable Iris 5 platform.
To minimize capex and greatly reduce the TTM of the new, innovative business models and ideas of its clients, TPS is engaged in two-pronged strategy. Banks have the option to availcloud services through our cloud-ready products deployed at our partner cloud service providers or they can outsource their IT operations along with infrastructure under managed services model to Covalent, a joint venture of TPS and Access Group.
TPS is also working with select strategic accounts on a co-creation model, whereits clients have shared product-roadmapand joint development teams to fast trackthe rollout process. This in turn, is supported by agile methodologies, and sophisticated and reliable tools and technologies. The model is enabling its clients to think beyond current technological and business model constraints and realize their innovative ideas before they lose their potential value in the fast changing market dynamics.
In addition to this, TPS is heavily investing on its R&D facility and building industry alliances and partnerships in an effort to offer a complete ecosystem for sustainable business model and affordable infrastructure components to its clients.
What is Iris Money? Iris Money provides a unique opportunity to convert the mobile phones of the consumers into their personal-banks through a variety of digital payment instruments and Omni-channel experience across the web, mobile application and social media that is complemented by companion cards offering to enable completely interoperable ecosystem.
The solution enables banks to attract new customers and extend market reach by offering convenient, secure and affordable services to their customers. The solution opens doors for more intuitive products and delivery methods that not only blend but also extend the traditional financial products.
Iris Money, not only covers current use-cases prevalent in the industry, but its configurable and extensible platform allows banks to realize new customer scenarios, addressing the unique business challenges of their market and supporting a variety of business models.
The solution enables not only cost-effective customer offerings but also increases the overall profitability of their business by opening new sources of revenue.
Iris Money helpsbanks in increasing uptake of their offerings by utilizing Mobile Connect - a GSMA-backed authentication solution that provides simple, secure and convenient access to online services.
The solution also offers Open APIs in compliance with GSMA Mobile Money API initiative. These harmonized APIs were jointly designed by key stakeholders-mobile money providers, platform vendors, thirdparty service providers and industry partners-and combine best practices in the technology industry.
Iris Money also offers loyalty, fraud management, and business intelligence components through our strategic partnerships.
About the Author I am Product Leader at TPS Worldwide, formulating product strategy and roadmaps, and leading the team for Mobile Money and Merchant Acquiring product development.
With over 15-years of industry experience, I specialize in digital payment systems. My focus areas are digital wallets, agency banking and mobile money, merchant acquiring and payments interoperability.
Copyright Business Recorder, 2017