Fintech has been one of Pakistan’s brightest spots of late, with not only triple-digit growth but progressive regulatory initiatives such as Raast. Another example is the five upcoming digital retail banks, which recently got their in-principle approvals and have the entire community pretty optimistic. But before we get there, shouldn’t we ask how digital the existing banks are?

If the criteria for that is based on the number of memoranda of understanding signed or the random awards won, then the industry certainly has some serious competition. Don’t take my word for it, just check your LinkedIn feed, where suited-booted uncles pose for their (un)characteristic pictures and boilerplate press releases.

But in case the goal is to truly assess their performance, we need to have a more meaningful proxy. While digital readiness incorporates a number of factors, perhaps the single most useful indicator is the transaction mix since payments are effectively all that Pakistani banks do anyway. Unfortunately, our financial institutions don’t really believe in disclosing such information and face no pressure from the shareholders or regulator to do so either.

To get some sense, we compiled the numbers for four banks — Meezan, Habib Bank Limited (HBL), United Bank Limited (UBL) and Alfalah — which rank the highest on the Data Darbar Digital Banking Readiness Index. We used multiple sources, including investor presentations, requests to management, and third-party tools, among others.

Meezan leads in mobile and internet banking with over a quarter of the industry’s total transactions in the first half of 2023

In line with last year, Meezan was well ahead of others with mobile and internet banking throughput of Rs5.36 trillion and 122.9 million transactions during the first half of 2023 — accounting for more than a quarter of the industry total. With 2.3m customers active across the two channels, it also had the highest digital penetration.

Despite more mobile active users than the rest, HBL’s throughput was Rs2tr, which UBL surpassed by processing Rs2.1tr. However, by number of transactions, it retained second place with a volume of 88m across mobile banking and internet banking. Alfalah was fourth by both metrics, with values of Rs1tr and 29m in 1H2023.

We also examined how well these banks do on their digital channels. In terms of website traffic, Meezan steers clear of others with 7.3m visits during the first half, according to digital intelligence platform Similarweb. HBL is second with 3.6m, while UBL and Alfalah follow behind at 3.2m and 3.1m, respectively.

On the other hand, HBL had the highest app downloads of 805,000 during 1H2023, per analytics and optimisation platform Appfigures’ estimates. Meezan is a distant second at 490,000, followed by UBL at 395,000 and Alfalah at 256,000.

Another trend to keep track of is how much banks spend on tech, and here, there’s literally no match for HBL. Its information technology expenditure of Rs8.5 billion was no match for others and accounted for a fifth of the industry total during 1H2023. Second-place UBL at Rs3.8bn didn’t incur even half of that, though, at 11.8 per cent, its total operating expenses on information technology was the highest.

However, there are two ways to look at it. First, it is obvious that more technology spending means that banks are investing in their systems, and higher values should be viewed positively. But the competing argument is about efficiency: how much value you are extracting for every rupee incurred as cost.

While we didn’t do any regressions, Meezan’s case lends credibility to the latter. Despite spending just Rs1.98bn and with one of the lowest IT/opex ratios of 6.65pc, it still managed to record the most transactions by far. So, at least on the surface, their operations seem far more efficient than the rest.

That takes us to the second part. In order to go beyond the surface level, we need to look at a lot more data, which is currently not just available. Except for a few, most banks don’t even bother to disclose a single number related to their digital operations. And the ones that do are not bound by any coherent reporting standards.

For example, in the investor presentations, some banks add throughput from payments and collections for their transactions and employee banking, which pumps up numbers and goes against the existing reporting convention.

Similarly, all of them combine mobile and internet numbers despite an increasingly unique use case for the two channels. The former is heavily peer-to-peer, while the latter is believed to be tilting towards business-to-consumer, where average transaction sizes tend to be higher. Given the current data reporting format, it’s not even possible to classify by the customer segments, let alone by city or gender.

We haven’t yet talked about other digital channels, such as e-commerce or point of sale, where data closures are more scarce. This is just payments, let’s just forget what’s happening with regard to other financial services, such as consumer lending or investments. It’s not like banks are familiar with them anyway.

The writer is the co-founder of Data Darbar

Published in Dawn, The Business and Finance Weekly, November 20th, 2023