Interview with Mr. Jahanzeb Khan — Chief Executive Officer, FINCA Microfinance Bank Ltd.
Mr. Khan has over 25 years of global experience in financial services and is a recognized leader with history, experience and track record of success in large global organizations. His vast experience with one of the largest financial services institutions (JPMorgan Chase & Co.), blue chip Management Consulting firm (Deloitte Consulting), and Telenor Microfinance Bank (Easypaisa) have enabled him to be successful at leading financial services and fintech institutions to success.
Mr. Khan holds a Bachelor of Science in Electrical Engineering from the University of Texas at Austin, Masters in Business Administration from University of Delaware, Program for Working Professionals at Wharton Business School, followed by Executive leadership programs at Wharton and Harvard Business School, USA.[/box]
PAGE: Please tell us something about yourself & what financial inclusion means to you?
Jahanzeb Khan:Â I have been in the Financial Services industry for over 25 years, garnering learning experiences across the globe from organizations like JPMorgan Chase & Co. and Deloitte Consulting to Easypaisa (Telenor Microfinance Bank) and now here at FINCA Pakistan. My experience traverses across multiple facets of the industry with a focus on transformation and enabling digitization of financial needs of customers while working with the largest FinTechs in Asia as well as established global institutions operating at scale.
Financial inclusion has been defined as access to and use of financial services by individuals. I believe financial inclusion goes beyond that. It empowers individuals to save for their well-being against economic shocks, invest to improve their livelihood, pay securely and with ease, borrow to expand their businesses and to be able to meet their needs whenever required. Thereby, financial inclusion leads to a stronger socio-economic fabric where citizens can manage and control their everyday life more affectively.
PAGE: An industry which is not very used to change, the banking sector is currently undergoing a radical transformation — in terms of digitization, personalization, going mobile etc. What are the key promising areas where digital advances could revolutionize the banking industry while advancing financial inclusion?
Jahanzeb Khan: Banking is an important sector of Pakistan’s economy. We face not only a moral obligation, but also a business imperative, to make the economy work better for more people. With the rapid growth in adoption of digital banking channels, the expectations of banking sector and their customers for contactless interactions have increased manifold.
Digital banking has acquired increasing popularity in Pakistan since the emergence of the coronavirus pandemic. As quoted by SBP, the country witnessed ~362 million electronic transactions worth PKR. ~27 trillion during Q1FY-2022 as compared to ~254 million electronic transactions worth PKR ~19 trillion in Q1FY-2021. The most promising uptake was seen in internet banking and mobile banking transactions as the number of registered mobile phone banking users reached ~11 million in Q1FY-2022 showing an increase of 26% vs. Q1FY-2021 and the number of internet banking users touched ~7Million with a growth of 61% over the same period. During Q1FY-2022, mobile banking transactions increased to ~79 million worth Rs. ~ 2 trillion. This implied an increase of 117% in terms of volume and 138% in terms of value when compared with the same period last year. Similarly, internet-banking transactions increased to ~30 million or Rs. ~2 trillion, registering a growth of 57% in volume and 74% in value.
As banks begin to place the focus more firmly on what customers want from mobile, banking will evolve into a very different business model from what exists today. The banks that become the earlier adopters of this new technology will, undoubtedly, be best positioned to lead the industry forward. The State Bank of Pakistan has set the stage for the dawn of a new era for banking in Pakistan, with the introduction of a framework to grant licenses for setting up wholly digital banks that will provide all the banking services. From account opening to deposit and lending through digital means, customers will not need to visit any branch physically.
If executed properly, the idea of a digital bank, can change the customer journey by reducing paperwork, providing services remotely and leveraging customer data. This is a significant opportunity for license takers to focus on segments previously not catered to successfully by the financial and banking industry.
PAGE: It’s the first-time digital banks will set up shop in Pakistan, but they’ve been active for several years elsewhere. What lessons have you learned from similar ventures overseas?
Jahanzeb Khan: There are around 250 neobanks in the world. The most valued independent neobank being Brazilian Nubank, at 45 billion U.S. dollars, followed by Chime – the highest valued independent digital bank. China’s first digital bank – Mybank, revolutionized the SME financing in China by creating an intelligent loan application process. It built a “3-1-0” model, where a customer takes 3 minutes to apply for a loan on mobile, algorithms based on data science takes 1 second to approve, with 0 human intervention. Mybank’s customer base till June 2020, was made of 30 million small and micro businesses. Inspired by Mybank’s model, I commercially launched country’s first completely Digital Nano Loan product in 2018, which leveraged telco and payment-based data to offer loans to customers in need. The loan was processed and transferred to the customer’s mobile wallet account within two minutes, without the need to visit a branch or fill-out paperwork.
It is critical for digital banks to not only enable a digital channel for the customer but also focus on automating back-end processes that should require no human intervention. Use of blockchain technology can also enable multiple use cases to bring efficiencies to internal operations and enable seamless handshakes between multiple stakeholders in complex transactions. I was able to launch the first international remittance product in Pakistan leveraging blockchain in 2018 and I believe digital banks can partner with blockchain solution providers to secure some of the internal transactions followed by complex value chain based transactions.
A platform-based ecosystem will need to be developed by aspirant digital banks to gather insights on the unbanked population in Pakistan. Digital banks can then use data science to offer financial service products that are embedded in everyday jobs that customers need to do. At JPMorgan Chase & Co., customers insights from data on payment behaviors were leveraged to cross-sell products, offer enhanced services at Point of Sale and to reduce fraudulent activity for over 50 Million consumer households. Machine learning and the use of artificial intelligence on customer data will be critical for digital banks in a country like Pakistan with a high percentage of unbanked population.
PAGE: What are the key digital initiatives FINCA is looking for to scale in the next 2-3 years?
Jahanzeb Khan: At FINCA, we will be revamping our technology foundation over the next couple of years. This will include digitization and automation of back-end processes coupled with enhanced use cases in the front-end mobile channel as well. We will be onboarding new tech partners to enable us in this journey while strengthening our internal teams. This journey will evolve into a platform-based ecosystem where we will partner with startups and other tech-players in multiple industries to offer embedded financial services to the end customers.
Our theme of empowering the underprivileged via tech-touch strategy will evolve with a greater focus on customer and employee experience. Initiatives will include revamping of our mobile app with an improved design-thinking based interface and experience while also improving retention of clients by providing in-class services. FINCA is also proud to be one of the participating 13 banks to launch Asaan Mobile Account (AMA), one of the initiatives taken by the regulator, to facilitate general masses, especially low-income segments, to digitally open their accounts and use the available financial services in a swift, easy and affordable manner.
We have also initiated digital onboarding pilot for our customers whereby they can open their banking accounts from anywhere at any time, without needing to visit the branch. A diversified product suite that can help meet our customers’ unmet financial needs will be another key initiative for us. We will partner with players in the platform-based ecosystem to provide embedded products in their relevant customer journeys. We are piloting value-chain based Agri lending for enhanced productivity of our farmers. We will also partner with other SMEs to provide lending services to their clients enabling expansion of micro and small businesses.
On the employee side, recent initiatives around enhanced benefits; insurance for employees parents, personal loan facility at highly discounted rates, extended maternity and paternity leaves etc, are some examples of steps already taken.
PAGE: What are the industry shifts which are favorable to these digital banks?
Jahanzeb Khan: Global success stories of digital banks like Monzo, Revolut and Atom indicate that the principal service that these banks started with was the ability to open an account remotely, followed by the ease of payments and personal finance management.And that is exactly what SBP’s recent directive is about – digital onboarding of customers which FINCA is also currently piloting, amongst other microfinance and commercial banks.The framework provides a convenient way for residents of Pakistan, especially enables freelancers, self-employed or unemployed women and recipient of remittances from abroad to open bank account digitally with minimum documentation requirements.
Other recent digitalization initiatives introduced by the SBP, which are gaining traction and have opened new avenues for introducing innovative solutions, include Roshan Digital Account, Raast — instant payment system, electronic money institution licenses and Asaan Mobile Accounts.
Raast is Pakistan’s first instant payment system that will enable end-to-end digital payments amongst individuals, businesses and government entities instantaneously. This nationwide payment gateway will reduce the entry barrier for international players to enter the Pakistani market and offer their solutions quickly and easily with standardized integration. A similar service called the Unified Payment Interface (UPI) is the single largest retail payment system in India, in terms of volume of transactions, indicating its wide acceptance. UPI ended calendar year 2021 (CY21) with record high transactions of 4.56 billion transactions, worth Rs 8.27 trillion. 50% of transactions through UPI were below Rs 200, as per a survey. Similar growth may be expected in Pakistan because of enhanced digital financial inclusion.
PAGE: What are the pros of digital banks? And what are some of the things we can look forward to?
Jahanzeb Khan: Experience in other countries demonstrates the ability of digital banks to penetrate certain segments more successfully than the incumbent banks—in the UK 18–21-year-olds constitute 26% of the customer age mix, compared to 12% for traditional banks; in India it is 31% compared to 7%. Similarly, Hello Bank by BNP Paribas, Ila Bank in Bahrain and TNEX in Vietnam have penetrated non-core client segments of banks including the youth, low-income individuals and Micro Small and Medium Enterprises (MSMEs). This is a vital consideration in Pakistan given that Agri lending is 3-4%, SME financing is 6-7% and consumer loans 5-6% of overall private sector lending.
According to research by Price Waterhouse Coopers, Pakistan, the average cost of customer acquisition and servicing for digital banks is 5-15% that of traditional banks. This will enable digital banks to reduce the end price for consumers, and use artificial intelligence and big data analysis to offer products that fulfil millions of unbanked customers’ unmet financial needs. During my time at JP Morgan, machine learning, big data and artificial intelligence, was constantly used to deliver best in class digital solutions, improve customer experience, servicing almost 50 million digitally active customers, roughly 40 million mobile active customers, and over 90 million credit cards digitally. I am optimistic that international players with experience in other geographies can enter local market and offer their financial services solutions to scale in Pakistan that is the 5th most populous country with 60% youth, more than 80% mobile phone penetration and estimated 100 million adults that are underbanked.