Branchless banking gradually taking acceptable roots

ISLAMABAD:The history and evolution of broadband industry is a known fact, of how hundreds of smaller

Internet Service Providers (ISPs), telcos and other stakeholders created a demand through real hard for high-speed broadband in Pakistan.

It took these small companies over 10 years to reach a point where groundwork was laid and a clear demand for DSL services surfaced, culminating in the start of a digital Pakistan.

It was during this time that giant players – who were previously silently observing the whole game play as a part of their strategy – jumped into ring with strong financial muscle that no one could compete with.

Being a witness of that bigger game, people also foresaw same situation in Branchless Banking (BB) industry at present that currently thrives on two major revenue streams – Over the Counter (OTC) 80 per cent and Wallets 20 per cent.

In order to comprehend the overall scenario, it is important to perceive dynamics of Branchless Banking offerings and how it was introduced.

Across the globe, the financial services accessibility remained restricted to a small set of overall population due to various regulatory and other due diligence requirements. This created a need for developing a separate programme and infrastructure with relaxed criteria focusing on financial requirements of relatively lower segments of society and thus paved way for Branchless Banking set-up to serve financial inclusion cause for masses in a much better and improved way.

Like parts of the world, Pakistan has made giant strides in development of digital financial inclusion and knowledge economy as total volume of branchless banking reached over Rs 486 billion during October to December last year.

The number of branchless banking transactions also surpassed Rs. 101.6 billion during the same period.

A report of regulator has revealed that the numbers are testimony of the fact that mobile money has potential to expand reach of banking services to 85 % unbanked population.

The report said amalgamation of Information and Communication Technologies (ICTs) and banking services can help in moving towards a fully documented economy which is necessary to improve tax collection circle and achievement of tax to GDP ratio by 2025 as stated under goals of Pakistan Vision 2025.

The economic impact of ICTs can also be observed with tremendous rise of e-commerce through different websites.

It said potential for e-commerce growth is astronomical and according to GSMA’s recent report, Pakistan’s e-commerce industry is expected to grow to several hundred million dollars by 2020.

The business owners attribute the rapid expansion in e-commerce trends to introduction of mobile broadband services in Pakistan as the explosive growth in e-commerce can safely be said to be on of the biggest benefits of Next Generation Mobile Services (NGMS).

It merits mentioned here that relationship between ICT growth, especially broadband and socio-economic development in a country has been extensively studied by leading researchers and institutes in the world. It has been empirically established that growth in broadband or internet penetration has significant positive impact on country’s economic outlook.

When contacted, experts have said in comparison to other players in this region, Pakistan is still in early stages of life cycle and there is a huge room for improvement.

The experts said financial inclusion is a key socio-economic challenge and one that is of interest to international financial institutions, central banks, governments and policy makers alike.

This is evident from the fact that the World Bank has set a goal to achieve universal financial inclusion by 2020.

With regard to future of Branchless Banking, the experts said so evaluating the entire scenario, one can easily understands that Branchless Banking market is currently going through development phase and has a clear correlation with the broadband industry.

As per Financial Inclusion vision 2020 of the government, efforts are being made to get 50 million mobile wallets opened in next 4-5 years.

Future projections based on this ratio would lead to fact that transacting customers would remain at one million even if the total wallets reach 50 million mark. This could be primarily because of the fact that people still believe in paying in cash, keeping tangible currency, using conventional banking tools (where possible). The lack of stronger checks in e-commerce industry further alleviates the problem since the community as a whole prefers to avoid online payments models against purchases.

Some 4-5 years from now, the experts foresee 2020 as year by which behavioral changes and transformations in payment/ spending mediums would take acceptable roots in general society as more licenses in BB space would be issued with lots of new start-ups and corporate entities vying for slice of branchless banking space. There will be a time when masses will get their basic needs and requirements fulfilled through BB/Micro Finance players.