A financial system for everyone except the illicit – Journal

IN November 2019, World Bank President David Malpass visited the State Bank of Pakistan to launch the SBPs National Payments Strategy. A key part of this strategy is to move Pakistan away from cash by providing cheaper and easier digital alternatives for making payments. This week, Prime Minister Imran Khan marked a milestone in SBP’s digital payments journey by launching RaastPakistan’s first instant payment system that is fast, free and secure and puts us alongside some of the most advanced payment systems in the world. Raast, along with other SBP digitization initiatives, aims to harness technology to transform our financial system from one that currently caters to a select few to one that caters to all but the illicit. What are the persistent problems in our banking system that need to be overcome? How are recent SBP digitization initiatives helping? And what are the first results?

The problem: A few statistics starkly illustrate the unmet financial needs of our employees and businesses. Pakistan has about 82 million unique bank accounts. At 132 million adults, our account penetration rate of 62% is one of the lowest in the world. Moreover, there is a glaring gender gap: for every three men who have a bank account, only one woman has one. Another largely excluded segment is that of SMEs: banks currently meet the financing needs of only three out of 100 SMEs. Our financial system also neglects mortgages, agriculture, and the list goes on. It’s no wonder that in surveys conducted by banks, customers equate a visit to a bank branch with a visit to a dentist or a police station. And no wonder most people prefer cash.

As technology enables financial inclusion, people must trust digital financial services.

Operating Solutions: These problems seem daunting because they have persisted for what seems like an eternity. This status quo is not acceptable to the State Bank. As a result, the SBP has embarked on several recent initiatives to finance the unbanked and underbanked. To illustrate the emerging changes in our financial landscape, it helps to start with a proof-of-concept that technology can actually bank the unbanked. In September 2020, SBP took on the challenge of banking a particularly excluded community of our fellow citizens: our overseas Pakistanis who earn – and send back to Pakistan – more foreign exchange than all of our exporters combined. In collaboration with some of the leading banks in Pakistan, SBP has introduced Roshan Digital Accounts. Harnessing technology to perform customer due diligence remotely, SBP enabled, for the first time in our history, a Pakistani abroad to remotely open an account in a Pakistani bank within 48 hours, without having to to go to a bank branch in Pakistan.

Since its introduction, more than 350,000 Pakistanis abroad have opened these digital accounts – with around 1,000 accounts opened every day – and sent over $3.5 billion in these accounts in Pakistan. This exceeds the total foreign direct investment in Pakistan during this period. It also exceeds the total amount the IMF has extended to Pakistan under its current lending program.

If overseas Pakistanis can be banked, it is certainly possible to bank resident Pakistanis. Therefore, the SBP has been working on a series of initiatives using technology to bring banking services to all Pakistanis except illegal immigrants. In September last year, SBP launched a frame for banks to open accounts without the need to visit branches using remote biometric verification using digital channels. A related initiative to bank the unbanked is Asaan mobile accounts. These accounts can be opened by anyone using low cost feature phones by dialing *2262#. These initiatives make it possible to respond to the first problem identified above: to make banking operations possible, the first step of which is to have an account.

To take digital integration a step further, SBP’s first circular this year announced the launch of digital banks. These new banks that operate primarily through digital channels will make it easier for customers to access financial services, such as savings, borrowing and payment products, at competitive rates and customer service. Our goal is to return control of financial needs to the client. In our license framework, a special category, digital retail banking, is for banks to cater only to SME and retail customers. This will solve the second problem mentioned above: access to credit. Focusing solely on individuals and SMEs, digital retail banks will need to make it easier for customers to apply for loans and access personalized banking services. It would be a game changer.

To make the financial system even more accessible, SBP is working on an Open Banking initiative, the clearest illustration of customer focus. Under the proposed framework, if the customer agrees, their bank could share authorized customer data with other banks or fintechs so that they can create and offer better customer-centric products. Another SBP initiative is a common know-your-customer framework where an existing bank account holder would not need to re-provide account opening forms if they wish to switch banks to seek better customer service. . The aim is to have banks compete for customer business rather than the other way around.

As technology enables financial inclusion, people must trust digital financial services. Such trust can only be established by protecting the information and money of the people who use these services. To this effect, SBP has a three-pronged strategy to strengthen the security of banking systems, protect customer payment channels and strengthen collaboration between market players to protect customer data and funds.

Outlook: The aforementioned initiatives have a common theme: to use technology to bring banking services to all but illegal Pakistanis. There are signs that a digital evolution is emerging. In the past fiscal year, our total online banking transactions grew by 30% to around $500 billion, a figure that exceeds Pakistan’s GDP. The State Bank is committed to bringing this new journey to its destination of a financial ecosystem that enables all Pakistanis, except illegal immigrants, to have easy access to attractive, low-cost banking and payment services. cost.

The author is Governor of the State Bank of Pakistan.

Posted in Dawn, February 19, 2022

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Don F. Davis