Aamir Ibrahim is the Chief Executive Officer of Jazz, a wholly-owned subsidiary of VEON, since 2016. He has also been a member of the Global Executive Committee of VEON, leading its Emerging Markets Division. Aamir has previously held senior leadership positions in Telenor Group, Ford Motor Company, Jaguar, Land Rover and Mobilink. His career spans over 25 years, 7 countries and in industries as diverse as telecommunications, automotive, and financial services. Aamir has also served on the board of Universal Service Fund (USF) and he is currently on several boards including IGNITE, Pakistan’s National Research and Development Fund. Aamir received his Bachelors in Business Administration (Accounting) from The University of Texas at Austin. He also holds an MBA from IMD in Switzerland and an AMP Diploma from the Harvard Business School.

BR Research recently had an in-depth discussion with the Jazz CEO on the prospects of digital payments and digital banks in Pakistan. Selected excerpts are produced below:

BR Research: The operating environment has become challenging in recent years, including for telecom firms. How are digital players like Jazz responding in this environment?

Aamir Ibrahim: The environment has been challenging and there are many problems that industry cannot solve on its own. However, at the same time, there are many opportunities as well. One of them is the Internet, which increases the productivity of individuals, even in blue-collar jobs. Whenever the broadband penetration goes up by 10 percent, the GDP of a country goes up by 1.4 percent, as per a World Bank study. With the Internet, you have the opportunity of shaping every traditional industry into an industry for the future. Sadly, even today there are 30 million Pakistanis who do not get a cell phone signal. On the banking side, it’s even worse, where 75 percent of Pakistan’s adult population does not have a formal relationship with a bank or a financial institution.

Technology can help address such problems, as almost every adult in Pakistan has a mobile phone. Unfortunately, not all those phones owned by people are smartphones, but even a basic feature phone can do more than basic things. For Pakistan to become a smarter, digitally-connected nation, we need to do two things: put a broadband connection in every home and put a smartphone in every hand. Remove the bottlenecks, and everything else will automatically happen. We must let this ecosystem organically evolve.The Internet, like water, will find its own path and new businesses will get created. Resist the temptation of over-regulating and good things will happen.

BRR: The digital ecosystem has been playing its role in financial inclusion for over a decade now, but still there are large gaps. How can it be addressed?

AI: The two main use-cases over the past decade which the digital financial services (DFS) players have provided to the unbanked/under-banked individuals are the funds transfer and bill payments. Other than that, not much innovation has happened in this sector. One thing that the service providers missed was building the ecosystem. Every shop or outlet should have been able to accept digital payments, as is the case in other developing markets like Kenya, Tanzania, etc. However, things are improving now. Now when we think of Fintech or digital banking, we are thinking of doing everything on the mobile phone.

There has been an awareness at the regulator’s end that traditional banks may not be able to fix the problem alone, either because of the cost structures or because of the commercial priorities of such institutions. Even SMEs are unable to access loans from traditional banks and farmers have to resort to middlemen for financing. The digital banking is expected to tackle this challenge, while some basic digital payment solutions are being provided by mobile wallets offered by Telco/Microfinance partnerships, the goal shouldbe to issue nano loans and micro credit. Our existing platform, JazzCash, already has the capability to provide nano loans within thirty seconds of up to Rs10,000 per customer – this compares well with long and cumbersome traditional loan process and documentation. Digital firms can better establish creditworthiness of individuals and businesses by using credit scoring engine. That’s the promise of digital banking.

BRR: Compared to the microfinance providers that are already in the market offering small loans, what kind of value can a digital bank add in the current market dynamics?

AI: I don’t think that the microfinance providers, including those owned by Telecom companies, are adding value either in the scale or the sophistication that is possible purely through digital mechanism. For instance, the dynamic credit scoring engines can ingest a lot of different data and use machine learning to improve its analytics and algorithms capabilities. This then provides differentiation in real-time in terms of what should be the loan size or the interest rate of the loan for a particular customer. This is not possible in a traditional lending environment, which relies on dated information from quasi-attested sources. Besides, the microfinance banks are allowed to provide loans for income-generating activities only, while digital banks can expand their ambit to issue buy-now, pay-later (BNPL) type of loans.

Lending and borrowing still happens in informal setting, but digital banking is about making it more sophisticated, transparent and more efficient. By removing intermediaries, digital banking will take costs out of the system, bring transparency, and increase speed of execution. Any one who sets up a Digital Bank will not have the burden of opening and managing branches, and all of the customer on-boarding will be done digitally. The whole banking architecture will be different compared to a traditional bank.

BRR: There is this criticism on nano loans that their small size barely fulfills a real financial need, forces folks to borrow from multiple sources, and eventually leads to indebtedness. How do you respond to that?

AI: Nano loans continue to provide solutions to people in a very simple and unstructured manner. They are a different product that targets the BNPL model cited earlier, where people who could otherwise not afford electronics like mobile phones or household appliances are able to own such goods. As JazzCash, we can only offer nano loans of up to Rs10,000 per customer because by regulations we are limited by our book size. But when are a full-fledged digital bank, we can offer all kinds of loans, including bigger loans, e.g. a car loan.

BRR: Compared to DFS players who are active in ‘payments’ space, commercial banks and International Fintech firms have been operating in the ‘banking’ space for far longer. Why would the central bank prefer JazzCash or Easypaisa or other DFS players over those financial institutions while granting the digital banking licences?

AI: Since we are an official applicant and the process is still on-going, I don’t want to comment on what Jazz can or cannot do. As per the SBP’s stated vision, they will be looking for someone who can achieve the national objective of financial inclusion, both at the individual level and at the micro-credit level.The process will be fair and tough, and the candidates will be reviewed from multiple dimensions, including experience, commitment, management team.

Again, the success for the country would be if the five applicants can deliver and move the needle on financial inclusion. If I am not one of those people, I will happily sit out. But if I am one of those five, then I carry not only the joy of winning the licence, but the responsibility of delivering what is expected of me.

BRR: The term ‘financial inclusion’ has too often revolved around merely opening new mobile wallets, which ignores the ‘usage’ aspect. The race to meet targets around new accounts eventually leads to a large share of inactive accounts in the overall accounts. How do you see this pitfall?

AI: We can define financial inclusion in multiple ways, but ultimately, for digital companies like us, it is about more people using the Internet (and a mobile phone) to meet their banking needs in a convenient and documented way. It is about having a formal relationship with the bank, which upholds a fiduciary responsibility, based on which people can put their money and borrow whenever they need, either for productivity or consumption purposes.

We can talk about the number of accountholders, which is different for a digital entity compared to a bank. A bank cannot close an account for ten years, even after it goes dormant, so it counts as an account. Whereas for us, we have our focus on ‘transaction active users’ – which is a stricter concept. However, there are many other metrics that will define accounts and not just not number of account holders.

BRR: Gender divide is one of the major contributors to financial exclusion. How can a digital bank address this challenge?

AI: Women are even more under-represented as bank customers. There are barriers that discourage women from coming to the bank branch. Digital is a great equalizer in the world, not only between urban-rural and rich-poor, but also between men-women. This is one of the critical areas which we can address through digital banking. Right now, even in mobile phones, usage is not equal among men and women, as only 22 percent of women are using our products. We have made the pledge to take this to 30 percent by the end of 2023. We are focusing on aspects of affordability for women, suitable products and entrepreneurship.

Digital bank is essentially a bank on a smartphone – it does need a good Internet connection. Once women have a smartphone, the world is their oyster. Equipped with a smartphone, the women can by-pass existing barriers of going to a physical bank branch and open a bank account from the convenience and safety of their homes. What will be important is smartphone ownership, awareness and education. And for this, the telcos have to work hard.

Women have been left behind over the past seven decades in Pakistan’s financial sector. Digital financial inclusion is enabled by smartphones and broadband. Going forward, we as a country need to make sure that everybody, especially women, should be able to buy a smartphone (even if it is on installments) and have an Internet connection in rural areas that is as good as it is in urban areas.

BRR: A major challenge which the country has been facing is on the ‘saving’ front. Can a digital bank encourage savings?

AI: This challenge requires a national, societal effort. What a digital bank can do is create tools and products that encourage people to save. For instance, we can offer digital ‘committees’. We can offer tokenization of real estate, which builds on the concept of fractional investments. Those are the kinds of things which perhaps the digital banks can do much better compared to traditional banks, which just push their standard products to customers instead of creating products that appeal to an individual’s needs and interests.

BRR: In the end, Jazz is one of the biggest corporates in Pakistan, but it is not listed on the bourse. Why not?

AI: Listing is simply a validation of a company’s value. To go public is to raise money and to give investors in the country the opportunity to participate in your success. The PSX has a collective valuation of $31 billion, which is very low.Both Jazz and JazzCash are success stories and both have strong governance and standards. But getting listed is not the only way to showcase their success and governance. We want to share our success with our customers at this time. Going public is very much on our roadmap – it is just a question of the right timing when we will start the process.