Published On: Fri, Nov 6th, 2015

Pakistan’s silent financial revolution tests laggards


Branchless banking is proving itself a catalyst in expanding the outreach of financial services in Pakistan where only 15 to 20 percent of the population are banked; although banks fear a loss in their market share to the slow but steady growth of Fintech – start-ups that use internet or mobile technologies to offer competitive banking products.

The underprivileged class, detached from the conventional banking system because of its multiple strict criteria, is now enjoying a convenience of financial inclusion on the back of cellular mobile operators.

The most they need now is a mobile phone and they can transfer and receive money and pay utility bills without enduring a hassle of opening bank account.

Multibillion rupees of transactions are taking place on this alternative banking channel. Government and non-government organisations are leveraging the branchless banking mode to disburse relief funds, charities and pensions among the masses living in remote areas and without formal bank accounts.

Banking experts said mobile network operators that have more than 110 million subscribers are catering to the ‘ignored lot’. Pakistan’s population is around 200 million.

A senior banker told the Kooza that this is a wake-up call to all those banks, “(Which) are sleeping.”

“Mobile banking is a silent financial revolution…banks are not taking it seriously,” observed Khurram Shaikh, Head Branchless Banking at Meezan Bank, Pakistan’s leading Islamic bank.

“Maybe in the next few years, you would see top five banks from somewhere else…not from the banking sector,” Shaikh said.

The top-five banks (HBL Pakistan, MCB Bank, National Bank of Pakistan, United Bank and Allied Bank) represent half of the total deposits and advances of the banking sector.

Shaikh questioned would Nokia have ever imagined that low-cost smart phones would dwarf the century-old mobile giant.

“But, that is a reality now,” he said, suggesting that modern banking is a disguise in blessing for those who are adaptable to change.

“The question is valid that who’ll visit the bank’s branch when services will be delivered at customer’s doorstep,” he added. “So, [Fintech is] posing a challenge to the banking model.”

The way Fintech are outsmarting financial institutions with their banking products is, “the top-of-mind technological issue in the C-suite today,” said a global survey report, released last month by the Economist Intelligence Unit (EIU).

“They all want to eat our lunch. Every single one of them is going to try,” the EIU report quoted CEO Jamie Dimon at JP Morgan as saying.

The report said unclear digital strategy, inadaptability to change and inability to keep technology talent on their roster are the key impediments for the banks to respond to Fintech.

“Banks are risk-averse…they do not attract the right talent. Without the right people, they cannot pursue the best strategies … and without strong Fintech initiatives, they cannot attract risk-oriented technology leadership … and so on,” it said.

Of 35 commercial banks in Pakistan, only UBL and HBL timely acted to hop on the bandwagon of branchless banking, though 16 banks are presently providing mobile and internet banking services to their accountholders.

An industry insider said Meezan Bank has been brooding over its plan to roll out branchless banking for long.

Shaikh disclosed that the bank is finally launching this month its branchless banking operation in collaboration with Ufone, a wholly-owned subsidiary of the country’s leading Pakistan Telecommunication Company Limited.

“Agreed they (Fintech) are innovating products, but they are limited in scope,” said Nabeel Ahmad, Head Branchless Banking Products at HBL, which serves walking mobile phone users – along with its six million plus customers – through its over-the-counter (OTC) services of money transfer and bills payment.

“Banks have a wide range of solutions from LC (letter of credit), DD (demand draft) and working capital financing,” Ahmad said.

Telecom firms have a small basket of products – a fact that the State Bank of Pakistan (SBP) wants them to change.

“The mobile financial channel is relying heavily on cash-in/cash-out transactions and not strengthening itself for day-to-day usage of accounts,” said the SBP in its latest branchless banking newsletter.

“In order to increase account usage, there is a need to offer tailor-made products and services that suit the needs of different socioeconomic market segments in the country.”

A senior telecom official said the State Bank is referring to the service providers, “which are mostly milking cash from funds transfer.”

“They should diversify their services,” agreed Omar Moeen Malik, Director Strategy at Easypaisa, the largest branchless banking service in Pakistan of Norwegian mobile operator Telenor.

“We have a big product portfolio comprising of insurance products, near field communication and ATM (auto teller machine),” Malik added.

Pakistan’s financial sector regulation doesn’t allow telecom operators to start banking operation on their own. Therefore, all the five cellular service providers in the country acquired microfinance bank licences or closed ranks with banks to offer mobile banking services.

“(Globally), banks’ positions are protected by a maze of government regulations that restrict new entrants and stifle new forms of competition,” the EIU report noted.

Ahmad said telecos are lending support to financial inclusion through their all-pervasive agents’ network.

As compared to nearly 12,000 branches of banks, cellular mobile operators have more than 229,645 agents across the country.

“You can see that industry players are working together,” said Amir Pasha, spokesman at Ufone.

“There is still a much room for branchless banking to grow. Product portfolio will expand in days to come from the exiting fund transfer and deposit services.”

Pasha said telecom operators have been instrumental in disbursing relief funds among the internally displaced persons affected by the war on terror in the northern areas of Pakistan.

OTC transactions account for 80 percent of all the branchless banking operation in Pakistan. The fee for domestic remittance transfer is between Rs60 and Rs480, which is high in view of an average income of the targeted group.

Malik of Easypaisa admitted that the cost is high, “because we need to pay commission to merchants.”

“But, they (public) can save cost by opening a wallet (account),” he said.

Mobile banking users of commercial banks in Pakistan stood at 2.27 million compared with 7.53 million wallet subscribers of telecom service providers as of June 30, 2015, showed the SBP data.

Nonetheless, Malik said this figure should go up. He enumerated lack of awareness in public, regulations and taxes as major reasons behind a small number of accounts.

“A very few people who transfer funds from mobile channel know about the wallet,” he observed. “We are doing below the line advertising to educate people that they can save cost by opening a free account with us,” he said.

Industry analysts said literacy is important to underpin the sustainable growth in digital banking.

A very small portion of the population in Pakistan can read and understand English, which is usually the medium of communication in any application or software.

Therefore, content in local languages assumes greater significance. Short messages in local scripts are doing some good.

To Shaikh of Meezan Bank, trust building, however, is more important.

Malik said the State Bank should increase limit of fund transfer per day from Rs50,000 to give branchless banking a level-playing field to progress.

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Shahid Tariq

- is a SEO Consultant. He has over 4 years of experience in SEO, e-commerce, content strategy and digital analysis. Shahid has helped grow businesses through more effective search marketing and SEO strategies.