Branchless Banking present and future challenges

Pakistan is a country with over 72 percent of its population connected through mobile phones and only 12 to 15 percent availing conventional banking options. This means around 85 to 88 percent people are out of the financial net. These people can only handle cash and unable to open bank accounts due to different limitations. For example, they are illiterate, do not have CNICs, live in largely inaccessible areas and so on. This situation creates a huge market and needs for branchless banking, or you may call it mobile banking

Over the time, different players have entered the market and provided the option of transferring and carrying out financial transactions through cell phone connections.

A significant number of Pakistanis have been availing benefits for quite some time, but it seems now a concerted effort has been launched to multiply this number. Resultantly, new partnerships are emerging every other day and adding to diversify further the financial services already available on the market.

So if one looks at the portfolio of this segment, one finds Easypaisa and Omni offering branchless banking services such as delivering stipends to girls enrolled in Sindh Education Support Programme (SERP) and for cash transfers under BISP and beneficiaries of Maternity Newborn Child health Programme. Then, there is Mobicash, a branchless banking service in Pakistan, launched by Mobilink that has entered into a partnership with NADRA, and collects fees from applicants.

Meezan Bank, in collaboration with U-Pasa (a branchless banking service by Ufone) have recently started an islamic branchless bankingservice under the name of Meezan-UPaisa. Now the customers in Pakistan will be able to send and receive money, pay utility bills and do mobile top ups through Islamic branchless banking in more than 100 cities across Pakistan. Moreover, the punch line is that their money will go directly to the recipient without staying in the service provider’s account for any interest-generating activity.

Muhammad Munawwar, a franchisee based in Hide Market, Northern Lahore says mobile top-up payments have been the largest contributor to the volume of such transactions. After that, he says, comes the number of utility bills payments. It is a blessing to the people as they do not have to wait in the queues for hours outside banks that have only one counter to receive these bills.

Secondly, many banks accept utility bills only during limited hours. Now, he says, it is possible for the people to visit any nearby mobile shop even during the late night hours and deposit their bills, thanks to branchless banking. Earlier, people were reluctant and had doubts that the bills may not reach the service provider if submitted through them.

Head of the branchless banking section of a leading Pakistani bank says the National Finance Inclusion Strategy (NFIS) envisions that individuals and firms can access and use a range of quality payments, savings, credit and insurance services which meet their needs with dignity and fairness. The State Bank of Pakistan (SBP) under NFIS has set the target of opening 50 million mobile wallets till 2020 for a maximum financial inclusion of Pakistanis, he adds.

He says the biggest issue at the moment is to change the behavior of people and create an ecosystem based on trust, credibility, quality of service and customer confidence. He says what happens at the moment is that a person selects a shirt from the website of an online shopping company and asks for its delivery at home. When it arrives, it is of inferior quality and hardly worth Rs 300 to Rs 400, but the company says its products are non-returnable. So, the trust is having cash in hand and dealing in real time. “If I pay my driver by charging his mobile wallet byusing the branchless banking services, he will go straight to the agent and get it encashed,” he adds.

He says it is natural that people adopt a change once it becomes common and trust develops. Before the era of branchless banking, people were reluctant to receive a handwritten number from a shop to charge their mobile connections out of the fear of being bogus. They would insist on a scratchcard and scratch it when no one would see it. Now the situation is that people only ask a shopkeeper for a top up and leave immediately after receiving a confirmation message from the company, he adds.

Syed Jaffer Abbas Shirazi, Senior Manager Corporate Payments Mobile Financial Services, Mobilink, states that they launched Mobicash that is the fastest growing branchless banking player in Pakistan. It has an outreach of more than 59,000 agents across Pakistan to upwards of 7 million customers. The service offers an extensive suite of financial services to its customers including funds transfers, interbank funds transfers, bank deposits, utility bill & internet payments, passport fee collection, loan repayments, ATM cards and savings accounts.

He believes mobile payments are a huge enabler of driving financial inclusion. With the advent of new technology and increased awareness levels around it, he says Pakistan is supremely positioned to capitalize on this front. ” It will take not more than three years for us to see a widespread usage of these branchless banking services at retail shops, online shopping, transportations and other service sectors. Near Field Communication (NFC) payment model is also a key priority for Mobilink, which is in the final stages of rolling out this service to its customers.

On frauds being committed through mobile fund transfer facilities such as BISP prize schemes and telco prize schemes where gangs ask people to shift money through these channels and then vanish, Jaffer says these frauds usually build on the lack of customer awareness around using the branchless banking services. “We have taken various steps to build awareness around these services and practices to ensure minimal impact. We are following regulations & policies around AML / CFT & compliance that are governed by State Bank of Pakistan.”

He adds a low level of customer awareness about branchless banking and a lack of infrastructure within the supporting financial ecosystem are key barriers to this uptake. “We are working on both of these in collaboration with various market players to accelerate build-up of infrastructure & create awareness around branchless banking services. NFC in its present form has seen a very limited scale. We hope to change that in coming months.”

Jaffer is quite hopeful that branchless banking has a huge potential in Pakistan owing to hugely untapped market. Only 15 per cent of Pakistani population is within the financial net and companies in this segment have a critical role to play to shorten this supply and demand gap, he concludes.

Mubashar Bashir, a chartered accountant and former head of new initiatives at MCB Bank, says the potential of retail banking through mobile wallets is quite high but has not been exploited to the full due to different reasons. For example, he says, millions of shopkeepers do not want to open a bank account for this purpose out of the fear of coming into the tax net. Many merchants approached for this purpose would say they do not want to be questioned by the FBR any time down the road.

Mubashar says such banking instruments are based on disruptive technologies that are a break from the conventional systems in place and prosper the most where alternatives are not available. That is the primary reason branchless banking very easily spread its roots in Africa where traditional banking systems and supporting infrastructure were missing.

Fouad Bajwa, a public policy analyst and internet governance specialist, believes that in order to promote branchless banking at local level intervention, online payment models will have to be encouraged in the country. While the whole world has embraced Paypal, Pakistan has its strange set of reservations against it. His point is that people prefer to go out for shopping and dealing in cash. Therefore, they do not need using branchless banking option for payments. However, in a case of online purchases from abroad, they will need branchless banking tools and will automatically develop a habit.

Fouad adds that Pakistan boasts of having millions of mobile wallets but the fact is that most of these are passive ones and used to receive direct cash transfers like those disbursed under BISP. He says several microfinance banks in the country were failing, so the government auctioned them to telcos so that they could launch mobile banking services. Under the law, any company desirous of dealing in financial services must have a bank to operate its operations. So, what happened was that some companies first bought banks and then started working on their business plans.

He says branchless banking network is one of the hottest topics of interest within the banking, microfinance and telecoms industries. Citizens, he says, just need a CNIC and cell phone number of the person they need to transfer the money to. Some companies have started usingbranchless banking services to pay for bills and services but this is at a very nascent stage. “One thing to note here is that there is a federal excise duty imposed on these transfers by governments whereas there are limits on how much money can be moved within the country on a monthly basis. One thing to note here is that these services cannot be utilized by overseas Pakistanis that have to send remittances through traditional banking networks or use the illegal hundi/hawala system.”

Fouad says being able to connect one’s cell phone number to their existing bank accounts and making such transfers on the local banking transaction network is being explored and tested by various banks but this is still in the making without significant reports of success. The power to load your cell phone without massive taxing and then being able to use that balance to buy anything from Rs. 10 onwards is still a distant dream and is actually restraining the country and its citizens to explore and utilize new payment options for the masses. “At the moment you will only be able to use the telco offered mobile money transfer option if you were to use taxis or maybe your debit card connected to your bank account. The idea that your mobile number is your bank account is not yet possible but is being well adopted in other countries.”

On frauds, Fouad says this problem can only be solved through consumer awareness programs about branchless banking by the government, telcos and service providers since these messages end up on the mobile phones of users and it’s at their discretion on what course of action they would adopt, either outright ignore it or be fooled and respond to it.

He cites an example and says that one option that he finds interesting is the MCB Lite Mobile Wallet offered by MCB Bank that it terms as the world’s first socially connected payments solution with an associated Android application that provides accessing the MCB Lite Mobile Wallet to manage funds and make payments on the go with Android-powered smartphones.

It allows to users to pay on local and international websites. This could be a game changer if its adoption increases because a user does not necessarily need a bank account to avail this service. The user can take cash, get the MCB Lite membership followed by its card and load the card at any designated MCB bank branch. This debit Visa card can be used anywhere and then reloaded as many times as one wants.  Branchless banking is the future of Pakistan but the government, and regulatory bodies need to ease up on the payment service provider regulations and lower or remove the security money entry barrier to the market. He suggests adding, the current rules only allow existing banks to allow payment services and/or sub-license (rare) them to third-parties.

Telenor Easypaisa team replies to the queries forwarded by More says Easypaisa is the leader of branchless banking in Pakistan. Over 6 years it has done a lot of work in promoting financial inclusion in Pakistan by providing access to essential financial services to the masses of Pakistan. Prior to Easypaisa’s launch, over 30 banks existed and were providing services to 15 million people. In 6 years Easypaisa has been used by over 50 million Pakistanis, that’s half the adult population! “In 2015, we launched the easiest method to open bank accounts: self-registration from your mobile phone. We also moved nearly 3 percent of Pakistan’s GDP and have 20 million active customers. Our reach expanded to over 73,000 retailers in over 800 cities across Pakistan. Over 8 million mobile accounts have been registered, with more accounts opening every day. There are a myriad of payments options available on the Easypaisa platform, covering a diverse range of products and services including utility bills, online payments, donations, ticketing, challans and more.”

The team adds they do not think that branchless banking means using your mobile balance. “In our market the reason is obvious: the tax deduction done on airtime, which is not applicable to banking transactions. We already have the ability to make payments to anyone so the Taxi example already works (albeit only if both the customer and the Taxi driver have Telenor SIMs and Easypaisa Mobile Accounts). India as a market for mobile financial services is very different from Pakistan. They primarily use IMPS, where mobile phones can be used as a channel for your bank account but the bank account, is still conventional and comes with all the KYC requirements that the unbanked find difficult to fulfill. In Pakistan due to the work of PTA and SBP we now have biometrically verified SIMs for everyone and can use that as KYC for account opening making it much more accessible to the masses,” it adds.

Easypaisa has already launched NFC payments in select markets. It covers the sign-up process, the use case and a list of merchants where the service is available.

On fraud, the team says they cannot comment on the initiatives/schemes that may have faced any issues however they advise people to never respond to calls or SMS that do not originate from Easypaisa as a preventive measure. Most of these fraud messages and calls about branchless banking come from random private numbers. Customers also have the ability to stop a payment before it has been collected, thereby recovering their money. “We work diligently to identify and block such calls and messages on our network.”

The biggest impediment to growth for payments at the retail level, according to Telenor team, is interoperability. “When only one MFS operator (like us) builds a platform, it is only available to its own subscribers which represent a subset of the market. Such a solution is high on risk and low on growth. To make NFC payments truly compelling for a retailer, we need an NFC acceptance platform where all NFC payments can be accepted, those from Easypaisa customers as well as those from customers of competing MFS operators.” Another way to understand this is to see how a merchant with 1 POS machine can currently accept credit cards from any bank; it doesn’t matter if its SCB or BAF. Similarly with interoperable NFC payments, a retailer will be able to use 1 POS to service an NFC payment from any MFS operator in Pakistan. The second challenge is the retail network investment required. We are working with NFC payment service providers that are deploying NFC POS machines at stores, however with hundreds of thousands of retailers in the market, this is a sizable investment for any company. We need more companies that are willing to do NFC POS device deployments so that more retailers may accept NFC payments. Lastly, our NFC payments solution is only a year old and we expect it to take a bit more time before reaching critical mass.

“Branchless Banking is going strong in Pakistan, and it is considered one of the best markets for MFS in the world. In 6 years we have touched half the population and intend to reach more people in the coming years so the scope is massive. We have only just begun digitizing payments in Pakistan and we have a long way to go. The BVS drive is a great example of a strength of our market in documenting/satisfying KYC requirements for bank accounts. For Easypaisa the core strength has been the strong distribution network that allowed us to offer financial services in all corners of Pakistan,” the team concludes.


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