As the global financial landscape is undergoing a profound transformation, Pakistan, often described as a country with great potential in the financial sector, is not immune to these changes. Even with a large segment of the population not a part of the country’s banking database, they still enjoy fast payments and funds transfer due to digital services such as wallets and microfinance banks. With the integration of digital technologies, Pakistan’s payments landscape is experiencing a seismic shift, revolutionising how financial services are accessed and utilised.
The traditional brick-and-mortar banking model is gradually being eclipsed by digital banking in Pakistan. As the demand for digital banking services soars, Pakistan is inching closer to a new era of financial inclusion. Digital banks, operating entirely online, are at the forefront of this transformation. They provide customers with a wide range of financial services accessible through mobile apps or websites, eliminating the need for physical branch visits. This shift is a boon for the unbanked and underbanked population, offering 24/7 accessibility to financial services.
Digital banks leverage cutting-edge technologies such as artificial intelligence (AI) and blockchain to deliver a host of benefits to customers. These include personalised financial advice, expedited loan approvals, and seamless payment experiences. However, the advantages extend beyond mere convenience. Digital banks can help address critical challenges faced by Pakistan’s banking sector, including financial inclusion, high transaction costs, and limited access to credit.
One of the most pressing issues in Pakistan has been financial inclusion. The majority of the population has been excluded from the formal banking sector. Here, digital banks, armed with advanced analytics and machine learning algorithms, are making a significant impact. They can accurately assess the creditworthiness of borrowers, extending loans to underserved communities that traditional banks often overlook. This approach has the potential to stimulate economic growth and alleviate poverty in the country.
Digital banks are also contributing to the reduction of transaction costs. By eliminating the need for physical branches and reducing paperwork, they make financial services more affordable and accessible, particularly to low-income households and small businesses. This affordability enhances the ease with which financial transactions can be conducted.
In addition to the rise of digital banking, digital payments are gaining immense popularity in Pakistan. The COVID-19 pandemic acted as a catalyst for this trend, with more people staying at home and businesses resorting to online transactions. The growth in online payments has enabled consumers to shop and support businesses during lockdowns. However, this surge in digital payments also poses security risks, necessitating stringent security measures in fintech.
As online transactions become the norm, cybersecurity has taken centre stage. With the increased use of state-of-the-art compliance and regulatory control tools and systems, Pakistan has managed to combat fraudulent and illegal money transfers effectively. These measures are essential for ensuring fast and secure financial services. As more people work from home and online transactions rise, cybersecurity becomes more critical than ever.
Multi-factor authentication (MFA) is becoming a staple in securing financial transactions. MFA adds an additional layer of security by requiring users to provide two or more separate authentication factors before gaining access to accounts or apps. For instance, a user may receive a one-time code on their mobile device, which they must enter correctly. This significantly reduces the risk of unauthorised access.
Pakistan’s digital transformation is further propelled by a growing internet user base. Reports from Pakistan’s Digital 2020 highlight significant increases in internet users and mobile connections. This surge is a testament to the importance of providing mobile and social payment options to customers. As more people come online, the demand for digital financial services is expected to continue its upward trajectory.
To create an ideal digital ecosystem and succeed in the fintech sector, experts emphasise several critical areas:
Fintech companies are working towards providing fast online payments on an international scale, reshaping the way money is transferred globally.
Fintechs are building cloud-based platforms to offer a wide range of services, focusing on comprehensive solutions rather than standalone products.
Harnessing data and artificial intelligence is seen as a competitive advantage, allowing companies to offer more personalised services and make data-driven decisions.
With the increasing importance of cybersecurity, financial institutions are shifting towards “secure by design” principles to ensure safe and reliable services.
Blockchain is emerging as a technology with transformative potential. Fintech companies are exploring its applications, especially in creating secure and transparent financial systems.
The fintech sector is continually evolving, and addressing talent gaps is essential to keep up with the rapid pace of innovation.
In conclusion, Pakistan’s payments landscape is evolving at an unprecedented pace due to digital transformation. Digital banks and online payments are reshaping how financial services are accessed and delivered. These changes have the potential to drive financial inclusion, reduce transaction costs, and spur economic growth in Pakistan. As the country embraces digital financial services, ensuring cybersecurity and fostering talent in the fintech sector will be critical for its continued success.
Take a look at how Loop is digitising payments in Pakistan.