Banks in Your Pocket: Digital Financial Services as a New Standard in Uzbekistan

The banks in Uzbekistan have embraced digitalisation, entering a phase where they offer more favourable terms to clients. This includes interest-free transfers, deposits and loans made directly through smartphones. Kursiv Uzbekistan talks about the industry’s digitalisation with the regulator, development institute and banking sector’s representatives.

Pandemic boost

During the pandemic, most banks in the country developed mobile apps to provide financial services to customers since visiting banks was impossible due to strict measures. According to the SNS Ratings, a local rating agency, 33 out of 35 financial institutions received satisfactory to excellent ratings for their mobile apps.

Over the past four years, this surge in banks’ digitalisation has been attributed to the pandemic by Eldor Zakirov, head of the Central Bank of Uzbekistan’s Monetary Policy Department. To attract customers, banks began offering higher interest rates on deposits to those who use their mobile apps. Zakirov believes that digitalisation allows banks to reduce costs, making it possible to offer more favorable conditions, including higher interest rates on deposits. Additionally, traditional banks have higher operating expenses than digital banks due to the costs of employees and building rents. This situation has pushed financial institutions towards providing services through mobile apps or online platforms.

Win-Win situation

The banking industry in Uzbekistan is rapidly embracing digital transformation. Artyom Popov, Chairman of the Board of AVO Bank, notes that both small and large financial institutions recognise the importance of implementing digital technologies to stay competitive and enhance customer service quality.

Consequently, there’s been notable progress in online banking, mobile applications and digital payments. These innovations improve customers’ access to financial services and enable banks to adapt swiftly to market changes and offer previously unavailable financial services to most citizens.

AVO Bank has invested in digital technologies, offering financial management services through the AVO application. The bank has systematically developed a fully digital platform by modernising its internal IT infrastructure, integrating new data analysis methods, and automating business processes. This effort has resulted in the introduction of new products, with over one million users downloading the AVO bank application in the first three months after its launch in February 2024.

The flagship product at the launch was the AVO Platinum credit card. Customers can obtain a credit limit at any time from anywhere in the world and use it for any purpose. The head of the bank emphasised that thanks to digital technologies, AVO Platinum is accessible for registration to any citizen in any part of the country.

Customers are also attracted by the opportunity to use borrowed funds without paying interest during a grace period of up to 45 days. However, digitalisation necessitates substantial investment in security due to the prevalence of cyber fraud. AVO Bank regularly tests all systems for potential intruders or cyber-attacks and employs professional external auditors to ensure data security. In addition to data security, the bank focuses on a wide range of services and processes to protect customers from fraud.

AVO Bank’s systems comply with international security standards, such as PCI DSS, ensuring the high protection of clients’ personal and financial information.

Development potential

Adham Kuchkarov, a senior private sector development officer at the Asian Development Bank (ADB) Uzbekistan, believes that Uzbekistan’s banking sector has significant potential for further digitalisation.

Many young people are adopting new technologies in the country, and widespread mobile internet usage creates a favorable environment for digital financial services. With approximately 30 million internet users in a population of nearly 37.2 million as of July 30, 2024, there is a considerable opportunity for digital growth.

Kuchkarov noted that the rapid development of digital technologies and changing customer expectations are compelling banks to invest in their IT infrastructures and develop innovative services. This led to ecosystems or super-apps offering various functions such as marketplaces, delivery services and loan disbursements. Kuchkarov believes that a regulatory sandbox for testing new solutions in a controlled environment would be beneficial to speed up this process.

However, Kuchkarov pointed out that there is still work to digitise the banking sector further. While there have been some positive changes, many citizens in Uzbekistan still use cash for payments. In the first half of 2024, 468 trillion soums were credited to bank cards, of which 107 trillion soums were cashed out, representing approximately 23% of the credited amount. This reflects the need to build trust in the banking system, both in digital and traditional banks.

Kuchkarov emphasised the importance of improving citizens’ financial literacy to develop digital services. He also highlighted the need for banks to enhance their use of artificial intelligence, build loyalty programs and improve banking applications to ensure user convenience.

Banks’ digital transformation success depends on having highly qualified IT specialists and a willingness among banking staff to adapt to change. In addition to technical modernization, restructuring business processes to align with the requirements of the digital economy is crucial. This includes the introduction of new tools for customer identification, solvency assessment and data security.

Kuchkarov summarised that achieving these changes will require modern technologies and the appropriate knowledge and skills among employees.