Karandaaz issues ‘white paper’ on advantages, prospects of ‘open banking’

ISLAMABAD: Open banking in Pakistan has enabled consumers to manage and track their financial data and empowers them to utilise it for accessing a wide range of financial tools and non-financial digital consumer services.

Karandaaz, a development finance company, recently issued a white paper that explores the advantages of open banking and deliberates on its prospects in Pakistan.

It mentioned that the impact of open banking within the financial ecosystem is cumulative. “When a user grants access to their account or transaction data, it paves the way for other companies to offer innovative services related to their bank accounts.”

At an ecosystem level, open banking can not only create opportunities for consumers and digital businesses but also disrupt the conventional banking regime. As the digital financial services sector in Pakistan experiences significant growth, particularly in payment systems, there lies untapped potential in areas such as consumer finance and lending, the paper added.

Karandaaz CEO Waqas ul Hasan, while commenting on the prospects of open banking in Pakistan, said, “Open Banking has revealed the potential of traditional financial services, it facilitates the dissemination of data to financial institutions and third parties. This will help create a better ecosystem for market users in Pakistan.”

At its core, open banking involves the sharing of financial data between traditional financial institutions and third-party service providers through open and secure Application Programming Interfaces (APIs). This collaborative model catalyses innovation, allowing the development of innovative financial products for individuals and businesses.

In the Pakistani context, where digital financial services have seen substantial growth, open banking presents an opportunity to accelerate the transition from cash to cashless transactions.

The SBP’s efforts to implement open banking in Pakistan are under way, with ongoing consultations and initiatives. The central bank’s proactive stance aligns with its commitment to financial inclusion and the promotion of an instant payment system in the country. While progress has been made in payment systems, open banking introduces a new frontier, potentially unlocking avenues for financial services that cater to the diverse needs of the population.

Karandaaz Research Analyst Saad Sarfraz said that open banking brings forth numerous opportunities for stakeholders, providing them with efficient minute-by-minute solutions for financial needs, contributing to the advancement and improvement of the Fintech ecosystem.

If implemented effectively, open banking has the potential to support the growth of Fintechs and digital platforms, especially those targeting underserved segments of the population. Furthermore, it can contribute to the country’s economic growth by shifting informal, cash-based payments to formal digital channels, thereby boosting GDP.

The prospects of open banking in Pakistan extend beyond the mere facilitation of financial transactions. Choosing the right open banking model and establishing effective governance mechanisms are pivotal steps in ensuring the success of this transformative initiative.

The SBP is poised to play a lead role in this regard, given its position as the driving force behind financial inclusion and the instant payment system initiative.

However, collaboration with other regulatory bodies, such as the Securities and Exchange Commission Pakistan (SECP), is equally vital.

The SECP can contribute significantly to the success of open banking by providing regulatory oversight, ensuring compliance, and fostering a conducive environment for innovation in financial services.

As the SBP spearheads efforts to implement this mechanism, collaboration with regulatory bodies like the SECP, coupled with a well-crafted regulatory framework, will be key to unlocking the full potential of open banking. The shift towards a more inclusive, innovative, and digitized financial ecosystem is on the horizon, with open banking leading the way.

Copyright Business Recorder, 2023