Banking experts call for digital transformation of economy

Speakers emphasized the importance of rapid digitization in financial inclusion
 

Summit in Karachi calls for comprehensive digital policy for economic growth  

Amid concerns over Pakistan’s cash-driven economy, banking experts at a recent summit in Karachi called for a comprehensive digital policy to complement fiscal and monetary strategies, fostering a more inclusive financial system.

Despite the banking sector’s strong profitability, largely due to heavy investments in government securities, experts stressed the urgent need to bridge the gap between the financial system and society. A significant portion of Pakistan’s population remains outside the banking net, hindering economic growth.

The Case for Digital Payments

Speakers emphasized the importance of rapid digitization in financial inclusion, highlighting that only 20% of transactions in Pakistan are digital. Naveed Sultan, a professor at Imperial College Business School, underscored the need for a new financial system for economic development. Citing successful models from China, India, Malaysia, and the UAE, he pointed out that 8% of the global population controls 76% of the world’s wealth, a disparity that digital financial inclusion could help address.

 

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A Call for a National Digital Policy

Bankers at the summit argued that digital policy should be as crucial as fiscal and monetary policies. While COVID-19 accelerated digital banking adoption, cash transactions—especially cash-on-delivery (COD)—continue to dominate.

The Pakistan Banks’ Association (PBA) remains optimistic about Pakistan’s digital transformation. It noted that:

  • Financial institutions are reducing reliance on paper documentation
  • Consumers are becoming more financially literate
  • Regulators are adopting inclusive policies
  • The public is increasingly inclined to use digital banking

“With commitment from all stakeholders, infrastructure upgrades, and government support, Pakistan is well-positioned to embrace digital banking,” the PBA stated.

Challenges in Digital Adoption

Pakistan’s slow payment system digitization has resulted in a high cash circulation of Rs9.5 trillion. According to State Bank Deputy Governor Saleem Ullah, this massive cash flow could be integrated into the banking system with digital solutions.

 

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The cash-to-GDP ratio remains high at 35%, compared to:

  • 10% in Kenya
  • 15% in Bangladesh
  • 16% in India

United Bank Limited (UBL) CEO Mohammad Jawaid Iqbal attributed Pakistan’s high cash reliance to a lack of trust in financial documentation. He emphasized that digital banking offers a solution, attracting customers through convenient and user-friendly platforms.

Pakistan’s Digital Banking Framework

In January 2022, the State Bank of Pakistan (SBP) introduced a digital banking framework, setting licensing and regulatory guidelines for digital banks. The framework offers two categories:

  1. Digital Retail Bank (DRB) – Serving individual consumers
  2. Digital Full Bank (DFB) – Catering to both retail and corporate clients

Despite these efforts, few Pakistani banks offer digital loan applications, and even fewer provide instant credit approvals.

Lessons from Global Leaders

Corey Thompson, Global Head of Digital Banking at Mashreq Bank, highlighted China’s 90% cashless transaction rate as a model for success. He noted that India and Malaysia are rapidly advancing, while the UAE has built a mature digital economy despite its smaller size.

 

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Need for an Action-Oriented Roadmap

Experts at the summit agreed that Pakistan must institutionalize a Digital Policy to accelerate financial inclusion and digitization. The SBP’s Strategic Plan (2023-28) already prioritizes making digital payments as efficient and cost-effective as cash, yet cash remains the dominant choice, restricting economic progress.

To drive change, experts called for national-level policies and an action-oriented roadmap to foster a robust digital ecosystem. Without this shift, Pakistan risks falling behind in the evolving global financial landscape.

Source: Dawn

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