The document discusses the opportunities for digital banking in Pakistan. It notes that Pakistan has a growing population of smartphone and internet users, presenting opportunities for digital financial services. However, digital banking penetration remains relatively low in Pakistan compared to other Asian countries. The document outlines key trends like growing cellular networks and e-commerce that can enable digital banking. It also analyzes customer demographics and banking statistics to identify priority segments for digital onboarding and cross-selling of products. Finally, it discusses challenges for banks in developing digital strategies and identifies focus areas like regulations, infrastructure, data analytics and customer experience.

1. Journey to Bank
Digitisation in
Pakistan
Banking in the Digital Age 1

2. Current
landscape in
Pakistan
presents a vast
scope for an
enabling digital
banking
environment
Pakistan Mobile Smartphone Traffic by OS (%)
0%
10%
20%
30%
40%
50%
60%
70%
Nokia Android IOS Windows
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
2013 2014 2015 2016 2017 2018 2019
Cellular Phone Subscriber 3G & 4G Phone Subscriber
Broadband Internet
Industry Trends – Internet ‘000 (2012 – 2019f)
• Pakistan has a promising digital banking future – We are expecting a
further rise in the use of online channels by the tech-savvy
Generation X and Millennials and in just the next 5 years, Generation
Z which represents 33% of Pakistan’s population will be the most
online generation in our history
• The mass-affluent - no matter what the age is – will look towards
faster, easier and more secure financial services
• Cellular phone subscription has reached 140 million users and
continues to grow steadily. 3G and 4G mobile subscriber usage is
expected to experience phenomenal growth and reach 8o million
users by 2019 from 25 million in 2015; while annual smartphone
sales are believed to reach 20 million by 2019
Banking in the Digital Age 2
19%
13%
41%
36%
18%
10%
Thailand IndiaMalaysiaPhilippines Indonesia Pakistan
Digital Banking Penetration in Emerging
Asia
Age Composition in Pakistan (≈)
0-14 years 32.65%
15-24 years 21.44%
25-54 years 36.28
55-64 years 5.28%
65 years and
over
4.35%
Near Future
Potential
Current Potential

3. Digitally complementing
operational efficiencies
• Digitisation will provide significant
room for rationalisation of
expensive branch models
wherever there is little incremental
value and limited space for cross
selling
• Aggressive ADC drives are being
undertaken by banks to divert branch
traffic. Mobile apps are being
launched and service menus in
alternate channels are constantly
undergoing expansion and refinement
• Notable increase in payment system
infrastructure, number of users of;
and transactions executed through
ADCs
• ADC menus generally cover limited
range of services with few vanilla
products in some cases, providing
immense opportunities for both
product and service digitisation
• e-Commerce (On-line retailers,
entities’ on-line business etc.) and
payment solutions are on the rise
• Quantum leap can be expected in
alternate channel transactions
through more aggressive and targeted
marketing and awareness campaigns
• Regulations/ initiatives pertaining to
e-Government and payment platform
enhancements are underway
• Heightened focus on consumer
protection and cyber security
Digitally complementing financial
inclusion
• Over 15 million customers hold
branchless banking accounts as of
December 2015
• Over 75% of Pakistanis remain
unbanked indicating room for
significant digital banking penetration
• There is a need for more coordinated
effort among all stakeholders
including Government, regulators and
financial institutions for financial and
digital literacy and awareness
• Banks can capitalise on this
opportunity by taking swift action to
develop omni-channels and offer
products and services
• The above, in conjunction with the
bank’s financial inclusion strategy,
can help improve the strategic
positioning for early movers
Fundamental
banking
statistics
indicate the
space for
digitisation and
its far reaching
impacts…
-30%
20%
70%
120%
170%
220%
270%
2012 2013 2014 2015
Change in the Number of Transactions Since 2011
Over the last five
years, the volume of
e-banking
transactions has
increased by
almost 100% from
235 million to 469.1
million
Payment Transactions through Branches
ATM Transactions
Internet Payments
Mobile Payments
POS Transactions
Call Centre Transactions
Banking in the Digital Age 3
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4. Space for
Digitisation
Particulars 2011 (≈) 2015 (≈)
No. of bank branches 9,400 12,000
No. of ATMs 5,200 9,600
No. of PoS machines 37,232 41,000
No. of deposit accounts - individuals (000) 19,787.1 31,357.6
No. of deposit accounts - entities (000) 8,954.8 10,422.1
Total No. of deposit accounts (000) 28,741.9 41,779.7
No. of ATM/ debit cards (000) 14,116.0 25,924.5
Total number of cards (000) 15,500 27,294.5
No. of registered users – internet banking (000) 839.9 1,811.7
No. of registered users – mobile banking (000) 916.8 2,267.7
No. of transactions through branches (000) 418,491 476,161
No. of ATM transactions (000) 137,659 300,231
No. of e-transactions (internet, mobile, PoS) – 000 22,009 54,173
No. of POS transactions (000) 14,287 32,035
Proportion of e-transactions in total payments (%) 3.7 6.3
No. of ATM/ debit cards per account 0.71 0.83
No. of cards per PoS machine 379 632
No. of e-transactions per registered user 24 24
No. of ATM transactions per card 10 12
No. of e-transactions per card 1 2
No. of POS transactions per POS machine 384 781
• Card issuance has gradually increased from
0.71 per account in 2011 to 0.83 in 2015.
Analysis depicts that this may be mainly
attributable to cards issued to new account-
holders
• Analysis also indicates an average of around 2
to 3 transactions executed per day per POS
machine. Card usage needs to be enhanced in
all channels
• Share of e-transactions has gradually
increased due to enrolments for e-Banking,
still just approx. 6%. Hence, there is a
significant room for further enrolments as
well as improved usage. Customer awareness
of and trust in such channels needs to be
further strengthened through structured
campaigns
Source: Annual Statistics – SBP’s Statistical Bulletin on Banking Systems and SBP’s Payment Systems Review FY 2015
Segment
Deposits (≈)
Advances
(≈)
No. of
Accounts
(000)
Amount
in Rs.
Billion
Amount in
Rs. Billion
Government 296.3 985.4 575.4
Public Sector
Enterprises
28.4 480.8 531.1
Private Sector
Enterprises
9,260.8 2,511.5 2,859.5
Others 836.6 547.2 76.7
Sub-Total 10,422.1 4,524.9 4,042.7
Individuals 31,357.6 4,628.1 381.7
Total 41,779.7 9,153 4,424.4 Other Key Demographics (≈) - USD billion
Imports 41.1
Exports 24.1
Home remittances (via banks & other
institutions)
18.5
Digital on-boarding,
cross sell and delivery
opportunities
Loan portfolio of micro finance banks
increased in FY 2015 by 36% to Rs 46
billion
Loans to SMEs grew by 3.2% to Rs 261
billion. Number of SME borrowers
registered a strong growth of 14%
during FY 2015
Indicative Distribution of Deposits and
Advances
Banking in the Digital Age 4
Potential Opportunity
31.36 m
25.92 m
1.81 m
2.27 mNo. of Registered Mobile Banking Users
No. of Registered Internet Banking Users
No. of ATM/ Debit Cards
No. of Deposit Accounts - Individuals

5. Digital on-boarding,
cross sell and delivery
opportunities
Size of Accounts
Held by Individuals
(in Rupees)
No. of
Accounts
(000) (≈)
Amount in
Rs. Billion
(≈)
Less than 50,000 13,026 301.5
50,000 to 100,000 7,482 540.3
100,001 to 300,000 8,411 1,379.0
300,001 to 500,000 1,343 508.3
500,001 to 1,000,000 657 443.5
1,000,001 to 5,000,000 393 742.3
5,000,001 to 10,000,000 27 180.6
10,000,000 and over 19 532.7
Total 31,358 4,628.1
Consumer Lending
Amount in Rs.
Billion (≈)
Credit cards 23.9
Personal loans 126.5
Auto loans 83.4
Home loans 41.3
Consumer durable 0.2
Space for
Digitisation
These indicate the number of accounts in each
value band. We are aware that multiple accounts
are held by customers and hence total wealth may
be distributed across different bands. As an
illustration, if we assume that these numbers
largely represent individual household customer
statistics, the band representing Rs 1 million to Rs
5 million can be considered to portray behaviours
of an emerging affluent segment which presents a
huge potential for digitisation through specific
bundles of value propositions. Some guidance has
been provided on page 28 of this document.
Source:AnnualStatistics–SBP’sStatisticalBulletinonBankingSystemsFY2015
Banking in the Digital Age 5

6. Banks in Pakistan may face many
significant challenges while designing
and implementing a sustainable digital
banking strategy
• Inadequate, inaccurate, unstructured and fragmented customer, product and transactional
data collection without any robust data mining and analytics
• Branch vs. digital traffic flow
Data & Analytics
• Cross system integration - a challenge with many existing stand-alone systems + the
future digital add-ons
• Frequent system downtime and unplanned outages with restricted back-end support
• Being Digital is much more than just having digital branches and equipment, branchless
banking, payment systems and eco-system partnerships for payments
Infrastructure
• Deepening relationships in diversified customer segments has become far more
important than traditional NTB strategy through branch models
• Nature and extent of the customers’ overall financial services interaction via social media
• Language barriers when moving to digital considering multiple languages spoken in
different parts of the country
• Restricted use of digital customer communication
• Significant improvements required in customer segmentation and tagging
• Voice of Customer, Voice of Process and Voice of Employee to be made key ingredients of
service quality
Customer Relationship Management
…And a few focus areas that can help
banks in addressing such challenges
• Need for an enabling digital regulatory framework (with cross stakeholder involvement)
Regulations
• Digital as a bank-wide programme with Board and CEO drive, innovation leadership,
business, IT, operations, risk and compliance participation
• Sales enablement technological platform such as CRM, one window solution and
structural transformation, capacity building, data, technological and credit risk rating/
modelling enhancements
• Interactive, business enabling social media strategy backed by right people and tools
• Straight Through Processing (STP) to provide faster and effective solutions
• Coherent integrated IT strategy and architecture with cross system, cross entity integration
(including financial services and other eco-system partners)
• Traffic flow through various channels via technological enhancements
• Ecosystem partnerships aligned with digital strategy and business positioning
• Rationalisation of expensive branch models
Strategy & Infrastructure
• Making service quality more insightful and impactful
• Customer segmentation and strategisation supported by centralised loyalty
• Strong digital platform catalysing cross sell and up sell in each customer segment
• Incentivisation to branches and contact centers for encouraging traffic diversion to digital
platforms
• Wide range of products and electronic customer communications through multi-channels
• Cost economy pass-through via customer incentivisation
Customer Relationship Management
Product Development
• Customer engagement during product development, testing, marketing and personalisation
• Product diversification, innovation and personalisation
• Broadly homogenous products and services regardless of customer segmentation
Products & Services
• Non-traditional players may be permitted fundamentally disrupting the banking landscape
Digital Disruptors
Banking in the Digital Age 6

7. How the
regulatory
agenda on
digital
banking is
designed and
implemented
will be the key
to success of
the digital
ecosystem
Seek cross stakeholder assistance (e.g. GoP,
FBR, etc.) in creating a conducive digital
ecosystem through legislation development
and related support in the form of financial
and digital literacy programmes
Develop a framework for granting licenses
and providing regulatory support necessary
to launch a digital business/ brand/ bank
Engage with FinTech drivers to understand
the innovation they bring; introduce them to
our banks and enable an environment for
both to synergise and develop a diverse
range of products and services
Develop regulations for digital currency
exchanges to support innovation but at the
same time prevent criminal use
Enhance cybersecurity regulations;
requirements may include aspects such as to
report the loss of consumer data, etc.
Liaise with industry participants to review the
validity of new digital technologies which present
huge opportunities for the banking sector and
factor those into existing regulations
Develop guidance to facilitate banks for the
development of innovative solutions that highlight
the benefits of specific financial decisions based on a
customer’s profile e.g. robo-advice
Develop guidance for banks to consider
e-signature solutions
Collaborate with counterparts across the region to
ensure there is harmonised development of global
standards in fields of KYC, legal contexts, security,
and liability
Develop a framework for oversight of non-banks to
ensure they are subject to more or less similar
scrutiny as banks for a level playing field
Banking in the Digital Age 7
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