KARACHI: In a recent interview with The News, Muhammad Yahya Khan, Group Head of Digital Banking at Bank Alfalah, said digitisation is the future of banking in Pakistan.
Following are some excerpts of that interview.
Q. What are the challenges that digital banking faces, and how are banks overcoming them?
A. Along with the growth in digital business, there are some challenges that digital financial services providers are addressing, such as guaranteeing cybersecurity in light of a rise in social engineering hoax and the limited availability of qualified professionals with experience in digital banking.
Banks in Pakistan have made significant investments in cybersecurity, so they are prepared to handle these attacks on their systems. Banks are not subject to significant cyberattacks because of their proactive cyber resilience measures. However, banks are still dealing with is the rise in social engineering attacks that target unsuspecting consumers’ by calling them and obtaining sensitive data and confidential information from the customers. It is incumbent upon the banks to adopt cutting-edge technologies that make it harder for social engineering hoax to do anything with sensitive information. We are also investing heavily in customer awareness campaigns to counter this challenge.
The constantly evolving environment in which banks, financial technology companies and emerging Digital Retail Banks (DRBs) operate leads to consistent improvement in user interface and user design in the providers’ apps.
The availability and retention of digital talents, such as programmers and coders, is another challenge. In Pakistan, we still need good quality coders and programmers, and our competition is not just with brain drain but also with dollar-denominated earnings from freelancing platforms.
Q. What is Bank Alfalah’s digitisation policy focused on?
A. Bank Alfalah’s digitisation policy focuses on constantly innovating in its mobile banking apps, offering digital payment solutions, and investing in new technologies such as blockchain and artificial intelligence.
As can be seen, both globally and in Pakistan, the pandemic spurred a shift to digital financial services. Over 75 percent of Bank Alfalah’s counter transactions are now online, and 70 percent of bank accounts are opened using digital channels. In 2022, Bank Alfalah saw an exponential growth of over 95 percent in digital banking transactions with an annualised volume of over Rs3.5 trillion. Seventy seven percent of new-to-bank account holders prefer digital transactions over conventional methods.
With such significant adoption by bank’s customers to digital, we undertook significant research as to what the future of branches in Pakistan may look like. Through a meticulous process, we learnt that branches, in fact, may continue to grow, but their DNA may change from being a service centre to a sales and advisory centre.
Q. What motivated you to open Pakistan’s first digital lifestyle branch in Karachi this month?
A. Having extensively researched the various global models of branches of the future; tailor-made to local customers when presented to the regulator, the regulator was very supportive of the whole concept of the digital lifestyle branch, supported by data and customer research. There were certain customer protection deliberations that were added to the concept which made it secure and appropriate. As a result, we got permission to open our concept digital lifestyle branch. We are grateful to the regulator for their very forth-coming and futuristic approach.
The branch features a 24-hour digital self-service banking area. It has a virtual service machine enabling quick account opening, quick issuance of debit cards, and quick printing of statements, aided by a video teller. It contains two cash deposit machines that can transfer money into any bank account as well as easy-to-use and secure digital lockers that may be used at any time, day or night, without the need for staff involvement. Customers can withdraw one million in a single day and up to Rs200,000 in a single transaction. Through the branch’s conventional and Islamic Buy Now Pay Later stores, tech products are instantly available for purchase via a touchscreen at zero percent instalments for up to 12 months. We considered the country’s deteriorating economy, higher inflation, increased interest rates, and the people’s declining purchasing power while providing this service.
Q. What edge do digital license banks have over banks that are performing digital banking services?
A. Commercial banks with digital operations are a force to be reckoned with when it comes to digitisation in Pakistan; we have had a lasting impact and brought global trends like none. And there are many reasons for it. We have high street strength of deposits with a network of 900 branches spanning all over Pakistan. Being listed on Pakistan Stock Exchange as a commercial bank, we can raise capital from the primary market. As an established bank, we are working closely with multiple stakeholders to offer the best digital solution to the different customer segments. DRBs face the challenge of attracting and retaining digital talent in a competitive market. As a relatively new financial institution, DRBs will have difficulty attracting long-term investors’ interest.
DRBs are subject to a different set of regulations than traditional commercial banks, and it might be complex and time-consuming for them to comply; however, DRBs can have a valuation for themselves as a digital organisation (unlike a commercial bank) and raise equity capital from investors willing to invest in digital. Because they are far smaller entities, they are more agile.
Q. Will recently approved digital banks pose a threat to Pakistan’s conventional banks in terms of digitisation?
A. The scope for financial inclusion and digitisation is vast, and they will have to play more like collaborators. Banks have deposits and customers; even if they download a neo-Bank app, they will continue to keep their funds at a branch, albeit they may like to borrow from a DRB.
Without deposits, the cost of funds of a DRB may be prohibitive to lend at sustainable, cost-effective rates. Both players (banks and fintechs) will have to work collaboratively for the industry to succeed. Open banking should be a two-way stream with depositors’ protection ensured and market pricing to be determined.
Q. How can the payment process be made simpler and easier for buyers and sellers?
A. Consumers want payment options that are easy to use and require minimal effort, such as mobile payment apps or online payment portals. They also expect their personal and financial data to be kept safe and secure. Businesses, on the other hand, require payment options that are reliable and efficient, allowing for quick and easy processing of transactions.
To make it simple for buyers and sellers to make payments, banks and payment services need to offer a range of payment options tailored to their customer’s specific needs.
This can include mobile payment apps, online payment portals, contactless payments, and more traditional payment methods such as cheques or wire transfers. These payment options must be user-friendly and accessible across various devices and platforms. In addition, payment service providers should prioritise security measures to ensure that transactions are secure and protected against fraud. This can include two-factor authentication, encryption, and fraud detection software. Ultimately, the success of fintech in Pakistan will come down to who can offer the best customer experience through digitisation.
