Branchless banking: to the next level

The market for branchless banking services has been growing rapidly since its rollout in 2009, and reports released by the State Bank of Pakistan have shown double-digit growth in the market. Just last week, the SBP Governor revealed that the number of BB accounts had crossed the 800,000 mark and the BB agent network had exceeded 20,000 agents (twice the number of bank branches in Pakistan), thereby channeling a liquidity of Rs.190 billion in up to 50 million transactions. He disclosed that almost 180,000 transactions take place every day with an average ticket size of Rs.3,700. The BB market may appear to be transactional at the moment, but it has serious potential to transform the financial inclusion landscape in Pakistan. With the ongoing (and anticipated) participation of major mobile network operators; the exceptional mobile teledensity can really turn around the situation in Pakistan wherein, according to a reliable estimate, roughly 84 percent of adults remain unbanked. As the market is in its infancy, "one-to-one" BB model has been chosen by the early entrants. With the arrival of more players, which looks certain to happen this year, "one-to-many model" may emerge as the second operative model in which a bank will offer BB services in partnership with more than one MNO. Yet those at the helm of affairs are certain that for the BB sectors long run financial viability and operational sustainability, market participants must graduate to the "many-to-many" BB model, wherein various banks and MNOs will collaborate to offer mobile financial services to all the bankable customers. For such a model to work, the market would need sound "Third Party Service Providers" (TPSP). SBPs BB regulations require a TPSP to be controlled by either a financial institution or a third party under proper agency agreement with the FI. The TPSPs role includes key tasks such as settling all transactions on real-time basis and maintaining documentation of all the transactions for compliance. As the market matures, this model would provide much-needed inter-connectivity to further the virtual footprint of BB services. The pinnacle would come when both the FIs and MNOs are able to entertain each others customers, something which draws parallels from the existing ATM network in the country where customer of any bank can use ATM of any other bank. Towards that end, it is heartening to see SBP and PTA, key regulators, joining hands to help sustain the market growth and taking it to the next level. Last week, the duo vowed to facilitate the market through their regulatory oversight and issuance of license and designation to the TPSPs. They would also set performance benchmarks for service agreements between telecom operators, TPSPs and authorised FIs. For this market to grow and sustain itself, it is essential to have interoperability in the agent and technology networks. This would help the market in many ways. For one, the strategic focus would shift, from fretting over coverage and footprint, towards developing financial suites relevant to peculiar market segments. In addition, market may become more competitive as new entrants would face fewer barriers. For a country which has been termed as a "laboratory of innovation" vis-à-vis branchless banking services, this year appears set to bring forth exciting developments.