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Open Banking: Pakistan’s Call to a Digital Banking Ecosystem

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Collaboration is a seemingly simplistic yet strategic economic approach. It has cross-industry applicability, including innovative tech and financial services sectors.

In Pakistan, there is an emerging intersection between the booming tech and financial services sectors taking shape in the form of digital banking. For a statistical overview, there are 33 listed banks, 9 DFIs and 11 MFIs, with a 23% growth in the number of branchless banking accounts (2022). However, overall financial inclusion remains low at 21%, dropping to 15% for women; there are 11 bank branches and 12 ATMs per 100,000 people. Yet, 80.5% of the population are mobile users with an internet penetration rate of 36.7%, reflecting an opportunity for digital banking.

Digital banking can boost national GDP by 7%, create 4 Million jobs, result in USD 263 Billion new deposits and represent a potential market of USD 36 Billion by 2025. Additionally, in 2022, the number of mobile-phone banking transactions doubled and the transaction volume for internet banking grew by 52%.

Earlier this year, the State Bank of Pakistan issued 5 licenses to set-up digital banks, promising financial inclusion promotion, and encouraging innovation and fintech application in banking. This is clubbed with supportive measures such as outsourcing cloud services.

While these measures are essential for facilitating digital banking, the true key to unlocking the sector’s potential lies in collaboration. The answer to Pakistan’s call to a robust digital banking ecosystem is in Open Banking.

A relatively new concept for the region, open banking, simply put, is using APIs to share financial data and services with third parties, enabling them to offer innovative customer-centric solutions to a wider base using this shared data. In other words, core banking functionality is made digitally and programmatically available both inside the organization and outside to third parties. For example, banks can launch new digital products more efficiently by accessing Banking as a Service platforms offered by fintechs.

In the local context, in 2022, Meezan Bank and Finja, a leading fintech company, collaborated to support MSMEs through Shariah-compliant digital financing. To optimize sales cycles, this collaboration enabled real-time digital transactions, and instant fund disbursements to user’s digital wallet. Finja’s digital ecosystem accelerated the credit evaluation and decision-making process.

The above case exemplifies the role of open banking in furthering digital banking and pursuing a key objective of financial inclusion. There are multiple similar use-cases of open banking for Pakistan’s current circumstances.

It is now imperative to diligently develop on these to drive innovation, promote financial inclusion, and enhance customer experience based on collaboration. With key stakeholders joining forces, open banking will be all set to lay the transformative foundation of Pakistan’s digital banking ecosystem.