It has been three years since the issuance of branchless banking (BB) regulations by the State Bank of Pakistan (SBP), but only four licenses have been issued to date, out of which two service providers have achieved adequate scale in their operations. The response from the private sector hasn been overwhelming so far, considering the vibrant banking and telecom sectors in Pakistan.
The World Banks Consultative Group to Assist the Poor (CGAP) has been working with the SBP to promote financial inclusion through the branchless banking platform. In its latest country report on Pakistan, CGAP gave an overview of the branchless banking scene in the country and also took stock of key challenges facing the budding sector.
The two operational services are Tameer Microfinances Easypaisa and UBLs Omni Dukaan. Both the service providers have primary exposure in person-to-person (P2P) transfers; however, they have also handled government-to-persons (G2P) welfare payments in the recent past.
While CGAP is cautious not to recommend drastic changes in the BB regulations, it has highlighted some key challenges regarding account opening requirements, identity verification, and the BB business model in general facing the stakeholders.
CGAP suggested that the requirement of capturing biometric fingerprints should be done away with altogether because these are unverifiable against the national database. Besides, this technology is costly and offers little additional security.
The transaction limits, set in 2008, for Level 1 accounts (basic accounts with limited KYC requirements) are low given the erosion of customers purchasing power due to double-digit inflation, and therefore, make the service of little use to customers and their agents alike. CGAP recommended that these limits should be revised upwards or linked with inflation.
Another issue is the high fees (Rs35 - Rs45) charged by Nadra for web-based CNIC verification, which pushes up the cost of account opening significantly. The report laments that Nadra is trying to maximise its profits in exchange for verification, which is a public good, and charges higher verification fees from banks compared to telcos, distorting the playing field.
The most intriguing challenge, however, is the adoption of the business model. While the choice of a bank-led model by the regulator has not discouraged the non-banking players, the response from the banking community itself leaves a lot to be desired. Long drawn negotiations for alliance with telcos have yielded few concrete results so far.
The bank-led BB model means that any ambitious player outside the banking arena would need to have a banking license if they want to get things done their way. Telenor followed this path, and acquired a 51 percent stake in Tameer Microfinance Bank in November 2008, before launching Easypaisa.
More such initiatives are in the offing. TCS, the courier and logistics company has submitted an application for a microfinance bank to the SBP. Mobilinks parent company Orascom, has also developed a business plan for a microfinance bank which has already been approved by the central bank.
The threat of total interoperability - which allows multiple banks to offer services to the customers of multiple agent networks or telcos - is holding back some players from developing their own networks.
With only 16 million bank accounts in Pakistan, the un-banked market, however, seems too promising to be left to a wait and see approach.
Comments
Comments are closed for this article.