Digitalization of Pakistan’s banking sector is essential to increase financial inclusion of the majority of the country’s population, including the rural areas, the poor, and women. Financial inclusion ensures broadening access to financial services, including payments, savings, loans, insurance products, etc. According to the World Bank, Pakistan has the third largest unbanked adult population globally, with about 100 million adults without a bank account. Furthermore, women’s access to financial services via a bank account in Pakistan has grown from four percent in 2008 to 18 percent in 2020. It still means that over 82 percent of women are unbanked! Research conducted worldwide shows that women’s financial inclusion is one of the most powerful levers for bringing families out of poverty.
As per Financial Inclusion Insights (FII) Survey, Pakistan has all significant preconditions to increasing financial inclusion using digital financial services: 95 percent of adults have the necessary Nadra ID cards, 77 percent have a mobile phone or access to one, and most are aware of mobile money. The last decade has seen governments and the SBP make policies to encourage banks and other entities to tap into this market. We look at how HBL became one of the pioneers of this market.
Bank of Tomorrow
HBL was the first Pakistani commercial bank to be established in Pakistan in 1947. Over the years, HBL grew its branch network and maintained its position as Pakistan’s largest private sector bank. It currently has over 1650 branches, over 2100 ATMs, 66,000 plus Konnect by HBL agents (branchless banking platform), and 55,000 plus QR locations serving over 27 million clients worldwide. It is currently the country’s largest domestic bank, with a presence across major trade zones globally.
Starting in 2016, HBL adopted a technology-focused approach, which is unparalleled in the country. It re-envisioned itself as a ‘Technology company with a banking license’ and, in doing so, transformed itself into a bank of the future – one that is empowering its customers through digital enablement. By 2021, it had established itself as the preeminent leader in a pool of 33 commercial banks in Pakistan. HBLs digital customers carried out over 330 Mn financial transactions, generating PKR 7 Tn ($ 39.7 Bn) in payments, a growth of 30 percent since 2020.
HBL now aims to double its banked customers by 2025, and to facilitate this; it has incorporated a five-fold strategy that is crucially based on data-driven decisions.
“HBL was a pioneer in the banking sector’s move to adopt digitalization in order to reach out to every household in Pakistan so that they can reap the benefits of financial inclusion. As the country’s largest bank, HBL now sees itself as boldly breaking old barriers as a technology company with a banking license to become a bank of the future.”
Muhammad Aurangzeb (President & CEO-HBL)
1. Data-Driven Decision Making
HBL undertook a considerable exercise, which resulted in a backend consolidation of all its data repositories into a centralized database. This enabled a better understanding of user segments and patterns and facilitated effective campaign management and marketing around product growth through customer profiling and credit scoring. Furthermore, machine learning and artificial intelligence were used to reduce fraud and optimize cash at ATMs. This data-driven decision-making also created opportunities for HBL allowing for a unified digital payments ecosystem to be established.
2. Digital Payments Ecosystem
HBL has led the way in developing Pakistan’s digital payments ecosystem with its suite of solutions to digitalize banking for individuals and business customers. Generally in Pakistan, cash on delivery (COD), over-the-counter (OTC), and traditional check payments were the primary options available to customers. To scale up its operations and business, HBL provided tailored digital solutions to transform the entire payments ecosystem as a whole, from traditional to digital.
Digital Payments for Unbanked Customers
Much of Pakistan remains unbanked. HBL seeks to address this gap and thus increase financial inclusion across the country through its Branchless Banking (HBL Konnect) channel. In 2021, Konnect remodeled its acquisition and product usage strategies to accomplish its goals effectively, identified potential customers, and deployed digital marketing campaigns on them.
Konnect also strengthened its digital product offerings, introducing debit cards for non-banking customers, a savings facility called ‘Gulak’ to encourage saving habits in customers without a bank account, and a Kissan Card for farmers. Both the savings facility and the Kissan card are industry firsts in Pakistan, and both aim to transition unbanked customers into the banking mainstream using digital tools. Konnect has so far touched the lives of 7.1 million Pakistanis, and in 2021, relentless efforts to include the marginalized segment into the formal economy resulted in 27 percent growth in transactions and 40 percent growth in throughput (PKR 850 Bn / USD 4.815 bn), indicating the appeal of the product amongst unbanked customers.
Digital Payments for Business Banking
For corporate customers, traditional banks offered digital products in silos, which resulted in limited acceptability in the market. HBL sought to change the game by providing solutions that addressed the needs of corporate clients through unified offerings. It created the Digital Payments Processor and HBL Pay Business Banking; while the former is a mature product that enables utility companies, schools, and corporations to receive payments digitally, the latter is for corporations to collect payments from merchants and vendors through digital channels.
By 2021, HBL Pay Business Banking, a one window solution for business clients, sought to transform the Bank’s global business model and digitalize the complete customer journey by having Receivables Management, Payments, Employee Banking, Trade, Supply Chain, and Custody/Securities Services on a single platform. This platform was improved with product enhancements like API-based acquisition of payments and reporting, global view, and regional statements to expedite portfolio digitalization. Furthermore, asset management companies were provided real-time redemption payments without manual intervention – a first in Pakistan – by successfully integrating the HBL Pay Business Banking Platform with CDC (Central Depository Company) Web Services Portal.
In 2021, Business Banking saw transactions grow by 52 percent and throughput by 68 percent YoY. In contrast, the same for the Payments Processor was 35 percent and 64 percent, respectively – a testament to HBL’s successes in simplifying digital payments for businesses.
Open Banking Initiatives
HBL pioneered Open Banking in Pakistan by opening its APIs and connecting its 1500 plus partners and 12 competing banks with emerging Fintechs. This expedited the expansion of their solutions, increasing their outreach and multiplying their customers’ payment options.
HBL also introduced an eCommerce payments gateway, HBL Pay Checkout, as a product and API, thereby allowing customers more choices to pay – international & domestic card schemes and other Open API-based payment methods. The solution currently facilitates over 500 merchants and holds 35 percent of the market share by transactions.
“HBL is committed to serving its clients by providing them with a seamless and hassle-free banking experience. The use of technology, data- driven decision making and HBL’s cutting-edge digital assets makes banking simpler for our clients.”
Sagheer Mufti (COO-HBL)
And finally, a web-based billing portal was launched, offering a unified platform for local bill payments by any cardholder anywhere in the world, the primary beneficiaries of over 9 Mn expats. The architecture and design of the portal are flexible enough to be showcased on third parties’ apps or websites in the form of a widget.
In another first for Pakistan, HBL also developed APIs to help the Government collect taxes from the Pakistan Single Window portal.
Digital Payments for Retail Merchants
While HBL’s POS (Point of Sale) continues to grow by 52 percent in transactions and 455 percent in value year on year, HBL is setting its sights on revolutionizing retail and eCommerce delivery payments. HBL introduced HBL mPOS (mobile Point of Sales) – a mobile app that can process card transactions safely, anywhere. In a country where less than 20 percent of eCommerce transactions are done via cards and one in which 98 percent of the 2.5 mn merchants do not have a POS machine, HBL mPOS is set to be a game-changer for the economy.
In 2021, the mobile Point of Sales (mPOS) mobile application was piloted to bring card transactions to customers at their doorsteps. This has been scaled up aggressively in 2022 with Pakistan’s largest eCommerce merchants. HBL mPOS can be used by both riders of eCommerce merchants or retail mom and pop stores to set up a card payment mechanism cheaply and nearly instantaneously. By addressing a target market hitherto untapped – HBL mPOS is set to remake the digital payments landscape of Pakistan.
3. Digitalization of Business
HBL also embarked on a journey to digitalize its various businesses and departments by introducing novel digital products, services, and backend operations. It supplemented the same with a cultural change across the bank.
Digitalizing Retail Banking
HBL enabled digital account opening through its web portal in January 2022 and added additional digital categories such as the newly launched Asaan (‘Simple’) Digital Account (ADA), Asaan Digital Remittance Account (ADRA), and Freelancer Digital Account to HBL’s existing account types to bring simplified digital banking to a variety of users. Digital account opening can be completed within 15 – 20 minutes, and to date, over 2,000 accounts have been opened with a deposit volume of PKR 93 Mn (USD 0.53 mn).
Additionally, the Bank significantly improved its ATM facilities in 2021, enabling biometric functionality on all ATMs. HBL thus has not only the largest market share of 13.6 percent ATM fleet in the country but also the most extensive biometric fleet, serving our customers with over 113 Mn transactions, valued at PKR 1.4 Tn (USD 7.93 Bn).
Automation & Robotics
HBL uses process Automation & Robotics to enable its digital assets to run on the Agile Operating Model. HBL deployed AI-based bots in 2021 in many areas to improve efficiency, including expediting consumer products such as approving and disbursing cards and loans – reducing what used to be a whole day process to under a minute. The HR department has assisted in screening and onboarding new hires – reducing onboarding times by 90 percent.
HR at HBL also introduced chatbots and a mobile app to provide digital assistance to all employees. The department introduced gamification to its user onboarding protocols, enabling new hires to experience simulated work experiences and testing them virtually before they begin working.
Enterprise Process Transformation Department has supplemented HR’s efforts. Since its inception in March 2021, EPT has successfully implemented several process simplifications by eliminating the manual work procedures, reducing redundancies, and introducing modern tools & technology like Robotic Process Automation & e-signatures. EPT has simplified more than 175 processes yielding more than 10,000 man-hours savings per annum.
4. Empowering Clients
HBL has dedicated the fourth pillar of its strategy to empowering customers, expanding options for end-users, and making banking accessible through HBL Mobile and Internet Banking. Furthermore, HBL equipped its customer base with Conversational Banking, allowing users to fulfill basic banking needs through a dedicated WhatsApp and Facebook service.
In 2021, HBL Mobile focused on customer-centricity by delivering features and enhancements tailor-made to simplify banking. Acquisition of lending and card products was simplified, reducing the time to acquire to under 24 hours. Card management was facilitated through the app, and a personal finance manager was incorporated alongside its suite of lifestyle options and widgets – empowering customers with flexibility and optionality. By 2022, HBL Mobile boasts 70+ unique functionalities, all designed to ease and enrich the lifestyle of its customers.
Konnect similarly has empowered the unbanked and underbanked populations through various digital initiatives. In a break from standard industry practice, Konnect by HBL offered a ‘digital self-onboarding’ option alongside its agent-based option, which resulted in a significant expansion of its agent network. Konnect’s model was also mirrored by HBL’s Development Finance Group (DFG) for onboarding farmers, allowing for a simplified process for disbursing agricultural loans.
HBL also consolidated a centralized digital onboarding mechanism for its branch customers; previously, when the customers wanted a new product, e.g., a supplementary Credit Card, they were taken through the entire documentation process every time. Post the process revamp through the unification of the data repository for customer profiles and product subscriptions; the branch staff can review the customer information in real-time, bypassing the need for duplication of effort. Thus, centralized digital onboarding has made the process more convenient and seamless for our customers.
This effort to empower customers resulted in significantly higher usage of HBL products. HBL Mobile increased its user base by 39 percent; it catered to over 80 Mn transactions worth PKR 1.1 Tn (USD 6.231 Bn). Meanwhile, Konnect witnessed a mammoth 226 percent growth in its active user base, processing 73 Mn transactions worth PKR 850 Bn (USD 4.81 bn). These numbers suggest that HBL’s approach is bearing fruit and, in time, would result in transformative change across the economy.
5. Breaking Barriers
HBL recognizes the value of disruption when it comes to traditional business practices, and its successes on this front were brought about in the following spheres:
Digitalizing Pakistani Agriculture
HBL is at the forefront of digitalizing Pakistan’s rural agricultural sector, which despite forming the backbone of the economy, has not been able to keep up with the pace of financial digitalization. HBL’s Development Finance Group (“DFG”) designs and implements innovative agronomy-linked in-kind financial solutions, targeting Pakistan’s Agriculture and SME sectors. In 2021, DFG completely digitized the end-to-end agrarian financing model, from on-farm farmer onboarding to application processing, disbursement, and vendor management. This reduced the turnaround time for onboarding by 11 working days and farmer’s visits to branches from 8 to 2.
Secondly, HBL completed small and medium scaled digital interventions on multiple crops to wean farmers off their traditional and exploitative source of financing. These pilots had an average yield improvement of around 22 percent over the yield of other local farmers, with a net increase of 116 percent in their net income as compared to other farmers, due to the compound impact of incremental yield and savings from selling directly to the Bulk-Buyer. HBL is now scaling these pilots in 2022 to realize the same gains at a national level.\
Digitalizing Consumer Lending
HBL’s digital lending portfolio was initiated in 2019 and was significantly expanded in 2021. The bank adopted cutting-edge digital technology, enabling real-time loan application approvals using AI helped risk profiling. This process can now be completed in under one minute, in contrast to the 24 hours the previous method used to take. HBL is the first bank to integrate the technology on such a massive scale.
Overall, in 2021, digital lending through personal loans stood at PKR 5.6 Bn (USD 31.7 mn) in 2021, showing a growth rate of 60 percent year on year. These constituted 33 percent of all such loans disbursed in 2021. Meanwhile, over 24k credit cards were issued instantaneously through the mobile app, a growth of 50 percent from 2020. In a country on the cusp of digital expansion, these results testify that the future of lending lies in digital domains.
Leading the Way on ‘Digital Pakistan’
In 2021, HBL paved the way for an even further expansion of the digital ecosystem of Pakistan by initiating a Venture Capital Fund dedicated to making investments in financial technology (FinTech) startups. This fund made its first investment in FINJA in 2021, a FinTech startup that provides small and medium enterprises with digital loans. HBL also invested in Healthwire, a startup that aims to integrate software into the Pakistani healthcare space, enabling seamless payments between insurance companies, patients, and hospital banks. Through both investments, HBL has demonstrated that it is aiding a 360⁰ expansion of Pakistan’s digital landscape by leveraging its financial resources and technological achievements.
Over 80 percent of HBL’s transactions are now managed by its digital channels. Equally significantly, HBL Mobile has become HBL’s largest channel for digital transactions, surpassing even the branches in the number of transactions undertaken in 2021. Konnect, through its app and agent network, has undertaken almost as many transactions as HBL’s 1650 plus branches. For a country like Pakistan, where smartphone penetration is still low by developed world standards, this is an unparalleled resounding achievement in the region. Meanwhile, HBL continues to innovate and introduce cutting-edge products designed to transform the Pakistani market, thus reducing the gap between us and the developed world.