A low bank branch penetration and high volumes of consumers excluded from financial services has turned Pakistan into a "unique laboratory for innovation" in alternative payments. Duygu Tavan reports
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According to the State Bank of Pakistan (SBP), there are about 25 million bank account-holders in Pakistan. That equates to about 13.3% of the total population. In contrast, total mobile phone subscriptions amount to 109 million users – 58.2% of the population – and that penetrates all income segments.
In other words, almost two-thirds of the Pakistani population have a mobile phone, and the growth rate is still high, an predicted to rise further.
Data from the SBP, specifically focusing on branchless banking and published for the first time this month, shows that the number of active branchless banking agents has risen by more than 10% and the number of total active branchless banking accounts has soared by more than 51% within the space of just three months between July and September this year.
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By GlobalDataTotal deposits held with branchless banking accounts rose by almost a third to PKR187m (USD2 million) by September on the previous quarter; similarly to the number and volumes of transactions made in the quarter to September: The total number of transactions has risen by more than a quarter to 15.9m between the second and third quarter, while the total volume has risen by 43% to PKR58.7m (USD690,000).
P2P fund transfers between July and September 2011 were the most-used type of fund transfer, with 4.84 million transactions worth PKR18.23m (USD5m).
Cash-out trends
The most enlightening information for payment processors, however, is the comparison between cash-in and cash-out: Between July and September, 785,259 deposits took place and amounted to PKR569m (USD6.6m). But only 37,012 cash withdrawals were initiated through branchless banking accounts, totalling just PKR73m (USD800,000). In comparison, account-to-account fund transfers totalled 188,941 and totalled R16.1m (USD180,000).
So the often widely-discussed issue of cash-out is actually a relatively minor issue in Pakistan, asconsumers are tending to keep their funds in their accounts if they do not use it for payments.
The Consultative Group to Assist the Poor (CGAP) predicts that within the next year, there may be an even greater surge of new mobile and agent banking services targeted at the under- and unbanked.
According to Chris Bold, author of CGAPs Branchless Banking in Pakistan: A Labaratory for Innovation report, the country is one of the fastest-growing markets for branchless banking in the world. In the report, he writes:
A variety of business models is emerging that involves a wide range of players, including mobile network operators (MNOs), technology companies, and even a courier business. (Notably, a bank remains ultimately liable to SBP in all the models.) The government is further encouraging innovation by piloting the use of branchless banking to distribute government payments. Taken together, these factors make Pakistan a unique laboratory for innovation.
Innovative initiatives
The SBP had recognised the potential for microfinance three years ago and issued regulation to spur the growth of branchless banking in the country back in March 2008. Since then, many initiatives have been developed. Easypaisa and UBL Omni are the leaders in this space.
Easypaisa is a joint venture between Telenor and Tameer Microfinance Bank and offers even those who do not hold a Telenor or Microfinance Bank account the opportunity to remit funds or pay bills.
According to Electronic Payments Internationals sister title Banking & Payments Asia, easypaisa processed transactions worth $500m by the end of July.
UBL Omni has a similar range of alternative payment services, enabling consumers to make over the counter bill payments and send funds.
According to the CGAP paper, new entrants into the sector are lined up already. Among them is logistics and courier company TCS and Mobilink.
But although there is huge potential, challenges remain. According to Bold, these challenges are:
A) Educating consumers to make them trust the electronic services and thus increase their confidence and use. This will require investments in reliable and consistent agency networks, argues Bold, to ensure a uniform experience at all agents.
B) Achieving what Bold calls commercial viability in the absence of donor funding or government subsidy. Bold argues that such service providers need to think beyond the over the counter transactions in order to promote products that can enable a relationship with the consumer.
C) Of course, preventing fraud and abuse is another challenge. Bold says that evidence of abuse of branchless banking services could undermine the confidence of customers and regulators and set back the sector, especially in Pakistan, where the financial sector faces particular scrutiny.
