Digital financial services (DFS) have gained momentum in Pakistan since the Covid pandemic. Mobile app and internet banking have grown phenomenally, and branchless banking accounts have surged to 103.1 million.

The State Bank (SBP) has launched Pakistan’s first fully interoperable instant payment gateway — RAAST — and recently introduced a merchant payment module. Thus, the country’s digital financial services ecosystem is ready for yet another major disruption: open banking solutions.

Open banking is the practice of consumer-initiated, secured and explicitly approved data sharing among financial institutions, investment companies, and third-party financial service providers (which are typically fintechs) to access their customers’ financial information through secure application programming interfaces (APIs).

In simpler terms, it enables the sharing of financial data, with the account holder’s consent, between different financial service providers.

Open banking enables the sharing of data between different financial service providers with the account holder’s consent

In an open banking ecosystem, third-party providers (TPPs) facilitate and add value to the interactions between financial institutions and users by providing a suite of innovative and tailored services that can be grouped into two core categories: providing users with account information and initiating payments on behalf of the users.

The BenchMatrix Deputy Group CEO, Nabeel Qadeer, believes that open banking is becoming a major source of innovation and has the potential to reshape the competitive landscape and consumer experience of the banking industry.

The basic premise behind open banking is to enable the users of financial services to access, manage, and leverage their financial data through open banking-enabled applications in order to take advantage of better products, price offerings and services.

Therefore, open banking fundamentally rebalances the power between financial institutions and users of financial services while making the experience of transacting money digitally more convenient and intuitive. It establishes an interconnected market where diverse stakeholders collaborate, placing users at the forefront of this transformation.

At an ecosystem level, open banking not only creates opportunities for consumers and digital businesses but also disrupts the conventional banking regime. On the consumer side, open banking enables consumers to manage and track their financial data and empowers them to access a wide range of financial tools and non-financial digital consumer services.

Consumers can access a wider range of financial tools and non-financial digital consumer services through open banking

For businesses, open banking-enabled applications can offer a comprehensive set of financial management services while also making business-related data accessible to financial institutions.

“By using Open Banking APIs, fintechs or TPPs, that are typically in lending, leasing or investment business, can automatically determine the creditworthiness of a user by accessing their account history. Moreover, strategic partnerships among banks, fintechs, and non-financial technology companies can facilitate increasing market share,” explains Mr Qadeer during an interview with Dawn.

“The introduction of open banking will boost the growth of fintechs, including digital banks, promote financial inclusion and accelerate the transition to cashless transactions. The SBP has established a regulatory sandbox for building open banking solutions,” he elaborates.

Mr Qadeer expects the SBP to roll out the regulatory regime for open banking and invite applications from TPPs by April. The State Bank says they are going to issue the licenses for open banking in a matter of a few months, if not in weeks. “We aspire to be the first, or at least among the first few companies to enter into open banking space in Pakistan,” he adds.

“We are recognised by SAMA, the Saudi central bank, and our firm is a mix of IT specialists and bankers,” says Mr Qadeer, who has been roped in recently to brand and position BenchMatrix as a Pakistani company around the world as a major player in the tech services space.

In the next two to three years, he says, “Our company is going to create fintechs ourselves to push open banking solutions and have been working on different use cases. We have global knowledge and we want to branch out in different segments, rather than being recognised just as a software company, to scale up our services.

“We have tested and implemented open banking solutions in Bahrain and are venturing into Pakistani and Saudi Arabian markets with global knowledge and experience. We want to become the top players in the open banking segment in Pakistan.”

BenchMatrix is defined as much by its 250 employees — 190 of whom work in Pakistan — as by its senior management. “Now, we are poised for another phase of growth and innovation, and hiring AI and blockchain engineers and talent not just from Pakistan but also other countries.

“Our team has honed our products to align with efficiency and customer-centricity,” notes Mr Qadeer who has spent 19 years in the Information Technology (IT) industry, and during his stint at Punjab IT Board had helped establish one of Pakistan’s first tech incubators, Plan9, accelerator (PlanX), and co-working space TechHub Connect.

Mr Qadeer candidly admits the presence of the public’s trust gap on digital platforms and on online transactions, as well as preferences for cash.

“We are well aware of that. But rather than let it impede us, we have decided to invest in creating this market (for open banking) and public trust in online transactions. We want to invite other players to join us and spread awareness about open banking.

“We will make the market just like Careem, which invested and made a market for ride-hailing app-based taxi services in the country,” argues the BenchMatrix executive, who intends to use his links with foreign and local investors for massive fundraising both in Pakistan and Saudi Arabia, where the company is planning to expand to take advantage of growing IT business opportunities by registering a fintech entity there. “Let me share this with you we are planning to go for an IPO over the next couple of years to raise funds for our business growth.”

Mr Qadeer is convinced that open banking will have a massive impact on the fintech landscape in the country and push the growth of digital banks, which are yet to take off despite the issuance of licenses to the investors.

“At present, we have few fintechs, and most of them are startups solving one-use payment cases. We need more fintechs solving more use cases, say, buy-now-pay-later. The introduction of open banking will create new space for fintechs and digital banks to grow. They will be an important part of the whole ecosystem, linking their customers to the marketplace through their platforms and APIs.

“With our experience and work in other markets in different regions, we hope to be the top player in accelerating Pakistan’s digital transformation. The hardware exists; we are waiting only for the regulatory regime to exploit the enormous opportunities the future presents us,” Mr Qadeer concludes.

Published in Dawn, The Business and Finance Weekly, January 29th, 2024