If there’s one thing that symbolises the banking sector in Pakistan, it’s mediocrity. They are slow, painful, rent-seeking and, most importantly, minnows. Sure, not so much if we look at the stock exchange, but definitely if financial inclusion is the metric — as it rightly should be.

Nonetheless, the past few years have seen almost all banks in the country jump on the digitisation bandwagon and launch internet and mobile banking, likely out of the fear of missing out. That obviously hasn’t eliminated the fundamental inefficiencies in the system: those of agonising bureaucracy and needless paperwork, which still often come on top of the online channels. The chief technology officers (CTOs) can then give talks on being tech companies with a banking licence all they want but in the end, for the customer it is more or less the status quo. But that’s for another time. For now, let’s focus on banking technology and its players.

Understanding the technology, and its many layers, powering these financial institutions is as difficult, if not more, as a customer getting any product from the banks. First, there is the core banking system, which you can think of as a ledger with much more complications, of course. As you can guess, what it basically does is reconcile liabilities and assets, meaning deposits and lending.

All major players offer an overlapping suite of products and solutions, but each has developed a niche of sorts

It’s the master software connecting the many branches and processing transactions. Some of the basic features and modules include account opening or cheque clearing. Increasingly, the list is expanding. Currently, this space is mostly served by international players, such as Temenos from Switzerland, System Access from Singapore or Autosoft Dynamics among the local ones.

Beneath that core are the middleware that bring interoperability. The switch, coupled with the card management system, allows multi-channel payments from any type of financial transaction after authenticating it and can route wherever required. Finally comes e-banking — mobile, internet, phone and call centre — which can be classified as alternate distribution channels.

It’s these two, especially the latter, where the bulk of the digitisation — particularly related to end-users — efforts are emerging, led by foreign and local companies alike, with most being in the business for decades and having their own specialties. The former includes the likes of US-headquartered Euronet and the recent addition Swiss BPC while the latter has names such as Avanza, TPS Worldwide and even the much younger Paysys Labs.

To better understand the different layers, let’s take a journey. Say you get your car’s fuel tank filled and decide to pay by a debit card, in this case issued by Visa. When you swipe it on the point-of-sale machine, provided by Keenu for instance, which in turn uses Euronet’s merchant management system, the latter will read the request and forward it to Visa that routes it to the bank’s switch system, let’s assume from TPS. Iris, as it is called, will match card details with the corresponding account number and seek approval from the core for that amount to be put on hold (since settlement leg takes place later on). Once that green light is given, the same steps are followed back to the PoS terminal and the transaction is completed.

With the advent of branchless banking, another complexity has been added to the system as its core can be (and often is) different from that of the conventional network and runs in parallel. Naturally, this has been defined by the way telco-owned wallets, Jazzcash and Easypaisa, did business. Then comes the mobile or internet banking applications, which are merely frontends and generally built upon third-party services like wallet platforms such as OpenConnect or Fundamo.

While all players offer an overlapping suite of products and solutions, each has developed a niche of sorts. For example, Iris from TPS is popular for its switch and card management system and boasts a clientele that includes HBL and UBL. Meanwhile, Euronet is the undisputed leader when it comes to PoS acquiring and merchant network while lacking in other areas.

Avanza, on the other hand, has its mobile and internet banking, among other solutions, deployed at a number of entities but can’t really be considered a leader in any respect. A security breach in the past at a client probably didn’t help either. Another local player, Paysys Labs, has entered the space in the last few years and got itself placed at some financial institutions already, such as National Bank’s mobile app. However, its team is still fairly small, especially compared with the human (and financial) resources available to others, which in turn has an impact on research and development,

The newest addition to the market is BPC, which brings with it a much more advanced product suite and a tried-and-tested capacity of processing more volume and value than the entire local industry combined. Given a much higher top line, it is able to invest more and that reflects in the more advanced solutions, such as fraud or dispute management that other players can’t really match. Over the past two years or so, the Swiss company has been hiring local resources for sales, marketing, implementation and support-related functions.

In comparison with other markets, this space is still not quite developed, but that obviously is a function of the banking sector’s performance. And as far as that is concerned, does anyone even expect them to do things better?

Published in Dawn, The Business and Finance Weekly, , March 1st, 2021