Virtual banking

Mobile wallets are becoming increasingly popular in the country, thanks to the increasing number of young, tech-savvy people with limited familiarity or access to the traditional brick and mortar banking system. Virtual banks, however, have not made significant inroads, even though they could theoretically take advantage of the same potential customer base. But just a few weeks back, a new entrant to the market was granted SBP’s approval to operate. TAG bills itself as a “super app” which also gives its users debit cards and offers functionality much akin to a virtual bank. According to its website, the app should be available in early 2021.

It will be interesting to see how the company and its app fare in the market. Several brick and mortar banks already offer online banking products and apps of varying degrees of quality, while existing mobile wallet products offer many of the other services that traditional banks do not or cannot. That is not to say that the market cannot accommodate another player. Even after a spike in the use of digital payments caused by Covid-19 lockdowns, the average number of online interbank funds transfers were only at around 350,000 per day — almost double the number at the start of the year, but still relatively low.

But we would hope that new companies also offer innovative products rather than merely filling a void. In most western countries, online banks provide remarkably high interest rates on savings accounts and friendly terms for loans and other forms of financing. Some also offer money management tips, often giving young people the only access to honest, no strings financial advice that they can afford. They can do this because virtual banks have significantly lower staff and office costs. In many cases, they will only have a single brick-and-mortar office, and substantially lower staff since most operations are automated and don’t require staff. This helps set them apart from established traditional banks and benefits consumers and the industry by introducing healthy new competition and better products.

Published in The Express Tribune, November 6^th, 2020.

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