Sehrish Butt
University of Central Punjab, Pakistan
E-mail: Sehrish.butt786@gmail.com
Zeeshan Ahmad Khan
University of Central Punjab, Pakistan
E-mail: Zeeshan.khan687@gmail.com
Submission: 12/28/2018
Revision: 2/8/2019
Accept: 3/13/2019
ABSTRACT
The purpose of this study is to explore
the strategic considerations in the process of searching for Fin-Tech
investment targets and what challenges are faced by banks while its
implementation. This study has examined the problems faced by banking sectors
in investing in Fin-Tech. This study used a case study methodology of 5 banks
in Pakistan on convenience based sampling. The major data sources include the
field notes, recording and transcription of interviews collected from branch
managers. The results relate to: (1) Fin-Tech in banking sector of Pakistan (2)
Banks planning for the adoption of new financial technology, (3) Criteria for
selecting Fin-Tech company, (4) Technology as banking career,(5) Barriers in
the implementation of Fintech in Pakistan. It is suggested that Pakistan must
upgrade its Fin-Tech infrastructure besides doing other things. The government
is also needed to concentrate more efforts to overcome these problems.
Keywords:
Fin-Tech, Banking Sector, Barriers, Pakistan
1. INTRODUCTION
Traditional
banks are playing key role in the financial industry and the rapid
technological development in financial sector has evolved the world economic to
shift to the digital channels gradually. Over the last decade, the financial
industry is rapidly been transformed by the financial technology (Fin-Tech)
companies (SKAN; DICKERSON; MASOOD, 2015).
Fin-Tech is also categorized as a new type financial industry that combines
information technology and financial services like payments, remittances and
asset management (LEE; KIM, 2015).
The
Fin-Tech has generated various business models and customer requirements. It
has a great impact on various aspects of the economics i.e. payment services,
financial markets and banking sector (SALMONY,
2014). Many innovated electronic
services have been introduced in market to fill the financial market gap. This
new technology is easy to use, fast transaction speed and a wide choice of service
providers. After the introduction of PayPal, digital currency etc the financial
sector has become digitalized (GONZÁLEZ, 2004).
According to recent survey, global Fin-Tech investment
growth is accelerated in Asia and Europe in 2016. The global investment
increased to $5.3 billion in first quarter of 2016 and approximately 62%
investment is going to Fin-Tech companies in Europe & Asia-Pacific.
However, collaborative and disruptive Fin-Tech companies have different
investment patterns. Some of the challenges while adopting Fin-Tech company
i.e. I.T security issues, adoption of business model, regulation matters,
managerial, cultural, operational, I.T skills & compatibility differences
and many other aspects (SHUTTLEWOOD; VOLIN;
WOZNIAK, 2016).
1.1.
Fin-Tech
in Pakistan
In Pakistan, banking sector is first
adopter of Fin-Tech and increasing its financial services rapidly. Effective
utilization of Fin-Tech helps to save time, promote new products & services
and compete in international markets. Fin-Tech comprises of internet banking,
mobile banking, ATM and many other banking facilities relevant to technology (KAZMI, 2003).
Traditional Fin-Tech works together with financial service providers in
capacity of their technology providers by traditional pricing models. Whereas,
Emergent Fin-Tech refers to the new category of Fin-Tech that partner with
financial service provider through new engagement modes. The Table 1 below
shows the traditional and emergent Fin-Tech providers in Pakistan
Table
1: Traditional & Emergent Fin-Tech Providers
|
Traditional
Fin-Tech |
Location |
Vertical |
Emergent
Fin-Tech |
Location |
Vertical |
|
MONET |
Karachi |
Payments |
ONELOAD |
Lahore |
Payments |
|
INNOV8 |
Lahore |
Branchless banking, MFI |
RED
BUFFER |
Islamabad |
Big Data Analytics |
|
TPS |
Karachi |
Payment |
BATWA |
Karachi |
Payments |
|
AUTOSOFT |
Lahore |
Paymnets, MFI |
PAYLOAD |
Karachi |
Payments |
|
ABACS |
Lahore |
MFI |
FINJA |
Karachi |
Payments |
In
Pakistan, industries are not aware of Fin-Tech and according to report, 72% of
organizations are not aware of Fin-Tech.
In Pakistan, there are number of challenges and barriers in development of Fin-Tech. Very few
Fin-Tech companies are operating in Pakistan and a major portion of Fin-Tech
investment is in banking sector (KANWAL, 2017).
The introduction of
e-banking has revolutionized the banking sector and contribution of technology
is now considered as the main reason for success of banking sector. There are
many products of Fin-Tech that includes internet banking, telephone banking, mobile
banking and many more. Internet banking is the main route to enhance the
financial transactions and maintain long run relations with clients.
Due to advance services
of Fin-Tech, a strong relation is created between clients and banks i.e. it has
provided multiple reliable and convenient ways of communication between banks
and clients. Now, it is the responsibility of head office to train their branch
employees about innovative Fin-Tech products (AKHLAQ , 2011).
1.2.
Problem Statement:
The fusion of technology and banking sector has played a
very vital role in development of banking sector. Globally, Fin-Tech investment
is accelerating very drastically. However, involvement of Fin-Tech in banking
sector is very much limited. The purpose of this study is to identify the
importance of Fin-Tech and to figure out the challenges and barriers in the
adoption of Fin-Tech in Pakistan.
2. LITERATURE REVIEW
The impact of information technology on the banking
industry can be seen globally (OTUBU; ANAYASI,
2009). The findings of Mehmood, Nisar and Rehman, (2015) showed that
information technology has a positive and significant impact on banking sector
performance. Tayoung (2008) explained the
imporatnce of adoption of financial technologies by the banking sector as it
determine the success of Fin-Tech in banking industry.
According to Chiranjeevi and Umamheswari
(2014), the banking sector is increasing its innoative IT products and paper
work is becoming less in traditional banking and is being replaced by Fin-Tech.
The findings of Sartape (2016)
showed the major barriers and issues in implementation of Fin-Tech in Banks
include flexibility, information management, re-engineering and transformation.
Surulivel, Vijayabanu, Amudha and
Charumathi (2013)
stated that commercial banks can reduce cost by implementing various
information technology innovations. In India, the implementation of information
technology has minimized cost by 28%. Mahmood
(2013) argued that use of IT products by banks have significant positive
impact on service quality.
Further, service quality has a significant positive impact
on customer satisfaction in Pakistan. Puschmann,
(2017) conducted a research to examine the importance of Fin-Tech and
challenges, roles and trend of Fin-Tech in
financial sector. The findings showed that Fin-Tech improve the economy of
country better than tradition system.
Recently most of the innovation in Fin-Tech is because of
implementation of new payment methods and introduction of cryptocurrency. It
had led to the establishment of innovative technology like block chain
technology that is considered as the backbone of virtual currency (MAINELLI; SMITH , 2015).
Fin-Tech has completely changed the face of global
financial sector by offering number of financial products that have solved many
problems of customers. The typical example of Fin-Tech is PayPal, the leading
company which is transforming the nature of transactions and money management
by online trading and online payment system (DESAI,
2015).
Conner (2013) stated that one of th major changes of
Fin-Tech in global economy is in field of lending. Traditionally, only banking
institutions were authorized for lending transactions and customers would have
to fulfill all the requirements laid down by banks including business
contracts, mortgage papers, guarantee to pay back loan and many other documents (KUZNETSOV, 2016).
Fin-Tech
has a great impact on financial market and consumer finance. IT companies are
developing various easy to use internet technologies. Many non-financial
companies like ICT companies are entering into financial market and this can be
threat to financial services. Therefore, financial companies are paying
attention to Fin-Tech industry and analyzing its impact on their own business (SON; LEE; HEE-WOONG, 2013).
3. METHODOLOGY
In case of exploratory study, case study research can be
used (BHUTTA et al., 2013). According to Barkley (2006), case study can be used when there is a
need of holistic and in depth study about less known phenomenan. Case studies
are best to use when exploring a new concept as it provides a great source of
quantitative and qualitative data.
This study is a qualitative study that uses in-depth
interview to collect the data. The
purpose of this study is to identify the importance of Fin-Tech and challenges
faced by banks while implementation of Fin-Tech in Pakistan. Commercial banks
are selected for the study to know the Fin-Tech involvements in banks and their
implementation in Pakistani banking sector.
The respondents of this study are from commercial banks.
Interviews were conducted from branch managers of five commercial banks and
saturation point was achieved as suggested by (DEPAULO,
2010). The measurement of this research consists of one set of
open-ended question which formed by the researchers in exploring the
understanding of Fin-Tech in banking sector of Pakistan. After transcription of
interviews, Tag clouds were created by using website tagcrowd.com.
4. FINDINGS & DISCUSSION
The interviews were carefully transcribed and tag clouds
were made using online resources. The findings mentioned below are based on
interviews, field notes and tag clouds.
4.1.
Fin-Tech
in Banking Sector of Pakistan
Every bank knows the importance of Fin-Tech. Financial
technologies and the innovative companies providing Fin-Tech services to the
banking sector are the key element for the successful banking sector. One of
the respondent said that “Fin-Tech has
made the banking sector more efficient, quality service and cost cutting edge
for customers”.
It is a big tool for the customer satisfaction and to
compete in the market. In Pakistan, people are less familiar about the
importance of Fin-Tech, most of the banks are currently far behind with the
competition. there are number of reasons, inflation are the major reason in
Pakistan.
4.2.
Banks
Planning for The Adoption of New Financial Technology
Few banks are taking initial step towards the adoption of
the new technology, most of the banks only adopt new technology or change when
they feel pressure from other banks. As one of the respondents said,
“When other banks adopt technology than most of
the banks fell the need of the adoption of the technology for their banks, but
firstly they look for the cost cutting benefits for their banks”.
Customer satisfaction is important element but reluctant
due to some economic uncertainty in markets.
4.3.
Criteria
for Selecting Fin-Tech Company
History and reputation of a Fin-Tech company is one of the
big criteria almost in every bank. Then they look upon the need of the
software, products, cost evaluation and other aspects matter. Criteria also set
by the SBP about the Fin-Tech companies. Time demand is also one of the
important elements. One of the respondents said,
“Fin-Tech companies which are most suitable
with their products are most suitable for the company. Almost every bank goes
for the SWOT analysis before adopting any Fin-Tech company for their banks.
Customer satisfaction, cost evaluation and risk mitigation are the key factor for
the criteria”.
4.4.
Technology
as Banking Career
Machines are now taking the place of human beings.
Technology innovations are making everything more comfortable and time saving.
One of the respondents said,
“Fin-Tech companies are most popular in banking
sector. Every transaction in financial services and Fin-Tech companies are
providing these services to banks not only in low cost but high-quality
services for the banks”.
Technology is making the world more comfortable and time
saving. Although in Pakistan there are many economic uncertainties which can be
a problem in the way of innovation and adoption but with the passage of time
Fin-Tech trend is increasing but with the decreasing rate.
4.5.
Barriers
in The Implementation of Fintech In Pakistan
There are number of barriers and challenges in the
implementation of financial technologies, in banking sector of Pakistan. The
most important barrier is the literacy rate of Pakistan. People are not enough
literate to operate new technologies easily. Most of the respondents said, “People are reluctant to accept change in
Pakistan”. One of the respondents highlighted the issues,
“There are many issues, age factor matters a
lot, inflation rate in Pakistan, economic conditions in Pakistan, less trust on
online services, hackers and security issues, less access to banks, most of the
people live in rural areas where no banks facilities”.
Few people are familiar about the Fin-Tech. In Pakistan
poverty rate is one of the barrier, people are cost conscious as compare to
time. People are more feasible on the traditional banking work. Still Pakistan
is far away from the IT development race of this world.
5. CONCLUSION AND RECOMMENDATION
The purpose of this study was to identify the importance
and barriers in implementation of Fin-Tech in Pakistani banks. Based on our
findings, it can be concluded that Fin-Tech is in early stages in banking
sector of Pakistan. Banks in Pakistan prefer to outsource the financial
activities to Fin-Tech organizations due to many reasons i.e. efficient quality,
innovative technologies, software maintenance, competitive edge in market etc.
Along with these Fin-Tech benefits, there are many problems
in implementing Fin-Tech in Pakistan. One of the major reasons is customer
acceptability i.e. customers are reluctant to adopt financial innovations in
Pakistan. The reason of less customer acceptability is less literacy rate and
high poverty rate and that is why they are unaware of latest Fin-Tech products.
Security threat is also a major issue i.e. people prefer to
visit branches for their banking transactions rather than using financial
technology just to ensure the privacy and security of their transactions.
There should be positive and encouraging steps from state
banks and other regularity authorities for development of Fin-Tech in Pakistan.
Fin-Tech is not only efficient and productive for banking sector but we can
also utilize it effectively in other financial and non-financial organizations.
In today’s competitive world, no organization can sustain in market if it is
not up-to-date with latest technologies and innovations.
Regularity authorities should educate people about
technological innovations in financial field so that they can perform financial
activities more efficiently in international markets. We would like to
recommend that seminars and training workshops regarding Fin-Tech should be
conducted frequently to promote Fin-Tech in Pakistan.
In addition, there is need to establish Fin-Tech consortium
in Pakistan. There is a need to promote digital payments in Pakistan and
branchless banking will be great step towards digitalization of banking sector.
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