Words like, Unbanked, Underserved, underprivileged are somewhat used very commonly whenever we are talking about the Financial Services Industry of Pakistan. The industry is one of the oldest ones and has been with Pakistan since its inception. We have banks which were established before the independence and are still serving people to provide access to formal financial services.
With over 30 banks and many other financial Institutions working since 1947 or even before, Pakistan remains at a small scale of the banking density score card.
If we put it to numbers, as per different independent and government sources, it hovers around 12% of the population which is considered to be “Banked”; means they have a bank account and access to conventional financial services, however, in this 12%, many questions are still unanswered:
Are these different customers having accounts with different banks or there is duplication which means, if I have bank accounts in three different banks I would be counted thrice?
Is the opening of account merely ensures that the person has access to the financial world and the term more commonly used these days – the digital world?
Is this bank account causing a noticeable change in his social life?
The answer to these questions may vary from one respondent to another whereas a consensus is clearly visible on the fact that Pakistan needs a serious effort on increasing the financial inclusion, and fortunately enough, all the stakeholders are aggressively working to achieve this target.
In today’s World of Financial Services, the unbanked, underserved and underprivileged are all those people who are digitally not linked with a financial system for making a transaction, or, they are using cash as a mode of operation.
With this, we can simply consider a major portion of this 12% to be partially banked or otherwise.
Hence, one can easily understand the kind of opportunity available in this market with 88% completely unbanked, and opportunity is lying with the 12% banked as well. There is a lot to be offered to both of these segments.
To give it a bit of international aspect as well, below provided picture will help you understand that right now we are standing in the middle of active markets, witnessing the change to happen
While all the stakeholders are well known to the opportunity, and yet all of them are aggressively moving towards bringing an advanced level of technology along with customer focused products to make it more digital for the customers. However, the scope remains extremely broad and open for many other players to come in this arena and try their luck, be it telcos, other financial institutions, solution providers or the most attractive Fintechs.
Similar kinds of efforts are underway on the unbanked side commonly known as Branchless Banking, for the unbanked. On this side as well, many players are working much aggressively to tap the needs of different customer segments by bringing in value additions which can help creating financial inclusion.
Ultimately all these efforts have to result in the creation of a favorable ecosystem which influences the decision of people for transforming cash transactions to cashless i.e. electronic or digital transaction. Doing so, will not only include them financially but will also have a long-lasting and positive social impact on their lives.
Financial inclusion can even neutralize the effects of poverty when it comes to a certain level.
The two models for branchless banking
There are two models for doing branchless banking internationally; one is the telco-led, and the other is bank-led. Pakistan is well regulated by SBP and the design allowed in Pakistan is bank-Led which means that the Accounts or Mobile Wallets have to reside within the banking system or in simple words, public money has to remain with the Financial Institution working under the regulations of State Bank of Pakistan.
It is not necessary for the financial institution to be a full-fledged commercial bank, rather, it can be a microfinance bank or other financial institutions as well.
In comparison to this, the telco-led model is more of an independent design which doesn’t require a financial institution to be part of this arrangement and any telecom operator, or other large organization can launch its branchless banking by owning and operating a banking system by themselves.
In most of the cases, the Bank-led model requires a partner to execute branchless banking as going beyond branches is not the domain of regular banks hence they partner with an organization which has a huge footprint – Agent Network.
The ideal marriage, in this case, is with telecom operators, as they have the largest of the footprints available along with telecom muscle of technology and marketing. The Agents of telecom operators are more familiar with technology and are well trained on using the access channels like USSD, SMS, Mobile Apps, etc. for serving the customers.
One of these access channels is used to access the banking systems from small shops and agents outside bank branches for making the transactions.
Ever heard of USSD?
The most widely used access channel is USSD i.e. Unstructured Supplementary Services Data, which is considered to be the easiest of all the technologies.
When you dial a number starting with * (Star) and ending with # (hash) from your mobile phone, the string is called as USSD. The entire agent network of telecom operators has been using USSD since ages to perform the airtime recharge transactions using their mobile phones.
A similar technology with few minor modifications to USSD is DSTK, which is commonly known as SIM toolkit. It also uses USSD service at the backend however the menu is more customized with names of the end users for the convenience purpose.
For USSD, almost every customer uses it for checking available balance in his/her account, and many of them use USSD for availing other value added services of telecom operators as well. DSTK is less known to the customers comparatively. However, this as well is available in all the SIMs and is displayed in mobile phones as SIM Toolkit menu. Few of the fundamental reasons of USSD/DSTK being the most widely preferred access channel are:
No handset dependency which means it may be consulted via any mobile phone. Even those cell phones can dial USSD code which did not support SMS service.
- USSD service is free of cost, and it is not charged even on international roaming.
- It is the most well-known technology.
- Better user experience than SMS & IVR.
- Zero acquiring and transaction cost.
However, considering the fast-paced adoption of smartphones, the trend might tilt towards applications in years to come, but this is yet to be witnessed. In the case of any other partner, Banks might get hold of the Agent Network, but the access channel remains a problem, and it increases, both, acquiring and transactional cost for the bank while making it a difficult business altogether.
The above discussed is evident from the current situation of Pakistani Market whereby all the major players in the market have telecom operators as their partners especially the market leader, Easypaisa, which is a joint venture of a microfinance bank Tameer Bank and a telecom operator i.e. Telenor. Another player is Mobicash, which is a common brand of another microfinance bank i.e. Waseela Bank and the largest telecom operator of Pakistan i.e. Mobilink.
Then we have three more branchless banking players in the market:
- Upaisa i.e. Ufone and UBank (Microfinance Bank)
- Timepey i.e. Zong and Askari Bank (A Commercial Bank)
- Mobile Paisa i.e. Warid and Bank Alfalah (A Commercial Bank which was sister concern of Warid before Mobilink purchased it)
Ufone has taken a unique position by launching two brands of mobile banking in Pakistan one is Upaisa and, as defined above, the other one is the Islamic version of Upaisa i.e. Meezan Upaisa in which they have partnered with a commercial Bank – Meezan Bank, Pakistan’s Largest Islamic Bank. This is the World’s first Islamic Branchless Banking launched by two well-known organizations of Pakistan.
Two more players are there in the local market who have launched it without telecom partners, UBL Omni and HBL Express. UBL Omni was the second player in the market before all other started sharing this arena and did manage to enjoy a fair share of around 15-20% in the market.
However, things have changed all of a sudden with other players coming into the market and claiming their share especially the ones having telecom partners with them.
HBL Express has never been able to create any impression in the market.
On one side the independent models of likes UBL Omni and HBL Express have hardly been able to go beyond 25,000 agents and, on the other sides, telcos led models are claiming more than 100,000 agents. The sole reason behind this success is the cost associated in onboarding an Agent, is negligible for telecom operators whereas it is massive for bank owned branchless players.
Hence, it makes the marriage of Banks and Telecom operators an “IDEAL ONE”!!!