Financial inclusion

The most recent update in digital banking shows that Pakistan is growing digitally at a rapid pace. The State Bank of Pakistan (SBP) has released the Licensing and Regulatory Framework for Establishing Digital Banks. Over time, there has been the growth of digital insurance, digital economy, paperless payments, cryptocurrency, and other digital forms.

This licensing and regulatory framework will play a major role in the growth of the digital economy and help establish digital banks as separate entities in Pakistan. Financial inclusion has always been a major issue in the country, and this framework is likely to lead to affordable digital financial services.

Under this framework, the SBP is supposed to grant two types of digital banking licenses under certain conditions. One is digital retail banks which will focus on retail customers and the other is digital comprehensive banks which will focus on retail customers, businesses and corporate entities. Through the licenses, up to five digital banking licenses will be issued to attract different financial players who must have a strong value proposition, powerful technological infrastructure, financial strength, skills, technical expertise and effective risk management strategies. risks.

Digital banks will offer financial products and services through remarkable digital platforms and electronic channels. The main objective of the framework will be to promote financial inclusion, provide easy access to credit and affordable digital financial services to people, encourage financial technology applications, foster better customer experience and develop the digital ecosystem.

Globally, people are turning to different digital forms of payment, making the world a “global village”. With the emergence of e-commerce stores, drop shipping, and print-on-demand businesses, people are using different forms to make payments. The digital banking system will play a major role in facilitating money exchanges and cash flow.

Various technological advances have helped to revolutionize the banking industry considerably. Digital banking services will ultimately help provide better customer service to their target customers. Mobile banking has been widely adopted in different parts of the world due to the high number of mobile phone owners. Asia is one of the regions that has embraced the shift to digital banking, especially in countries like China and Singapore.

Seventy percent of global customers use digital payment methods. For example, China has widely implemented QR payments on a large scale. The evolution of digital banks will lead to strong technological capabilities with reduced operating costs and expenses. A digital architecture is being created to improve the banking sector. Some regions, such as Hong Kong and Malaysia, use this digital banking approach.

Most digital banking regulations impose restrictions on the physical presence of banks, in order to encourage innovation in the financial sector. Ideally, digital banks should still comply with basic requirements to ensure that all rules are followed. The regulations also expect new innovators/start-ups to benefit from financial inclusion for all. Regulators are also based on ownership and control.

There are some cases, like in Korea, where a non-financial institution/organization has to afford up to a maximum of 34% of digital banks. When this requirement is met, it guarantees their inclusion. In contrast, in Taiwan, non-financial companies with strong financial technology or communication capabilities are allowed to form a digital bank. However, they must hold at least 10% of the capital.

Additionally, countries like Brazil, Germany, and South Africa have allowed digital banks under their licensing regimes. However, to drive the growth of digital banks, regulators need to be more accommodating. To do this, they must be innovative, more open to risk, flexible and adaptable to new solutions, and adapt to open communication channels. According to global statistics, more and more people prefer to make mobile transactions without necessarily having to go to the bank to make small transactions. This shows how people are embracing digital currency and digital banks.

Digital banking also leads to secure mobile and online banking. Indeed, some mobile banking applications require the use of biometric authentication to log in. This may include fingerprint, voiceprint or facial recognition. Digital payment and e-wallets tend to offer more security than a physical card. Thanks to digital and mobile banking, people have more control over their money.

The digital banking license will be a magic wand for financial inclusion as digital banks will help fill the void as there are many unbanked people. Hence, they will have easy access to financial services. According to the World Bank, more than 32% of adults worldwide are unbanked, which is why digital banks will help keep them happy. Digital banks will also help serve the unbanked and underbanked by providing quality financial services at their convenience. They will lead to cheaper transactions, personalized financial services and security. For example, those who don’t have access to traditional banks can create a digital asset wallet and start transferring funds at a lower cost.

The digital banking license will be a bit different from the existing commercial banking license. In effect, there will be an ‘Electronic Know Your Customer’ which will enable full digital integration by verifying customer identities and anti-money laundering checks. Ideally, the electronic signature will allow customers to validate most transactions remotely. Open banking will facilitate data sharing and provide better opportunities for the ecosystem. Cloud hosting in digital banks will help solve infrastructure scaling and more. This means that digital banking will be essential not only for customers but also for owners.

According to the World Bank, digital financial services have been launched in more than 80 countries. More and more underserved customers are switching from cash transactions to formal financial services. This involves payments, transfers, savings credit, insurance and security. This has led to the introduction of non-financial businesses deploying new technologies, new contractual relationships, different regulatory treatment and the use of a new type of data. Moreover, for the State Bank of Pakistan, it must have great secure policies that will include all stakeholders. There is also the importance of raising awareness among Pakistani residents so that they can embrace digital banking.

The author is CTO and Director, Information Technology Center at IoBM.

He tweets @imranbatada and can be reached at: [email protected] Web: https://imranbatada.com

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