Importance of digital transformation of conventional players in the financial inclusion landscape of Pakistan
In Pakistan formal financial services are traditionally being provided by banks and other financial institutions mandated by the State Bank of Pakistan (SBP). The Government of Pakistan adopted the National Financial Inclusion Strategy (NFIS) in 2015 with a vision to increase access and usage of transaction accounts by 50 percent of the adult population by 2020 from 10.3 percent in 2014. In order to meet the targets set out in the NFIS, active engagement and partnerships with various private and government entities will be required to maximize the collective impact of the strategy implementation. Government entities such as Pakistan Post, Pakistan’s premier postal service, and the Central Directorate of National Savings (CDNS), savings institution for the state, have extensive potential to catalyse financial inclusion in Pakistan. These entities have an extensive network throughout the country which can be leveraged to expand access to financial services, primarily to the low-income and rural populations. However, these entities face challenges in providing efficient services to their customers due to the outdated systems being used that are characterized by manual record keeping. Existence of such processes greatly restrict the entities’ ability to fully realize their potential in playing a pivotal part in achieving the target set by the NFIS.
Both entities have been providing financial services since pre-partition time and have performed an important part in extending the outreach of basic financial services to the masses. CDNS alone holds more than 7.7 million saving account customers[i]. Similarly, Pakistan Post as an agency serves 3.5 million saving product customers along with 435,000 customers to whom insurance policy is issued (during last 5 years) and 5.2 [ii]million customers for domestic remittance per year. The numbers reflect the level of trust that customers hold in these unconventional institutions, despite the fact that the products and services offered are short of the convenience and attractive features offered by other financial institutions, to achieve which, these entities will have to go through a digital transformation process. Karandaaz aims to transform such public entities by enabling them to shift to digital platforms and solutions in order to effectively forge partnerships with other key stakeholders and catalyse the market towards greater financial inclusion and financial deepening.
Digital age of today offers promising solutions but at the same time requires effort and willingness from an organization to implement such digital techniques within their systems. With the interventions of regulatory bodies and innovation of private sector the market has witnessed and continues to progress towards digitization of financial services, while conventional players like CDNS and Pakistan Post are still not on the digital map. The products and services that these entities offer hold a lot of value for customers but the offerings could not compete with more efficient and convenient digital solutions offered by banks and mobile network operators.
There are substantial opportunities that conventional players like Pakistan Post and CDNS can tap by joining the digital age. These entities work at the grass root level, opening opportunities to offer innovative products for the masses that cannot access financial services from a regular financial institutions such as Banks. There is great amount of data that is being collected and stored at these financial service providers. However, data processing is not being done yet. The data can be processed for identifying needs of the customers and making products and services that can meet those needs profitably. This brings us to utilize financial technology companies to analyse and process data that can help both conventional and unconventional financial institutions to develop products that can target the un-served and underserved segments of the market. More often, conventional players hold considerable size of real-estate. It is an underutilized asset that can be used for offering variety of products and services. For instance in case of Africa and India, the postal service offers solar energy solutions on credit, where the products are being sold on credit and the customer pays back in instalments. Postal real-estate and outreach is leveraged by solar energy suppliers for sales and distribution management that also exhibits a perfect case of public-private partnership.
Moreover, with the growing E-Commerce industry in Pakistan we can see a lot of space for financial services to grow. Currently payments for online purchases are done mostly on cash basis (Cash on delivery) whereas delivery is done using courier companies. This creates a perfect case for Pakistan Post to offer both delivery and payment service to the E-Retailers such as Daraz.pk. Additionally, Government to Person (G2P) schemes especially, the ones that have extensive outreach or door step delivery, require support from financial institutions that have presence in remote areas, with a strong trust based relationship with the customer. Moreover, liquidity is another asset that entities of similar nature hold which can be deployed for supporting the payments infrastructure by becoming Cash in and Cash Out (CI/CO) point for banks, MNOs and MFIs.
There are many success stories from different parts of the word where a traditional brick and mortar model when embarked on a digital journey achieved more and brought better results, e.g. Indian Post has transformed itself into payments bank [iii]and now connected with the national payments infrastructure of the country. It has opened numerous opportunities for Indian Post such as E-commerce role, G2P and providing alternate delivery channel for financial institutions such as Cash In and Cash out (CI/CO) point, providing credit and savings products using digital technology.
The result of transformations are naturally remarkable. However the journey for transformation is a hard, especially for such entities that are traditionally maintaining less technology savvy culture and more inclined to resist organization transformation process. There are number of challenges to achieve such a transformation and the biggest of all is to sell the idea to the organization itself. In most of the cases this challenge is usually mitigated with a group that champions the idea and belongs to the same organization. In case of Pakistan we do have such individuals and groups and there is clear intention, at least at the top level, to transform such state and non-state entities to take on the digital transformation process. We at Karandaaz are proud to partner with some of these institutions and are keen to work together on the transformation process to create a long term impact on both customers and organization