Branchless banking: ripe for new entrants!

Despite having a profitable banking sector financial inclusion in Pakistan is abysmally low, as roughly as 84 percent of adult Pakistanis remain unbanked. Most of the big boys, sitting tight on fat balance sheets and looking pretty, aren really interested in filling this void. It is in this backdrop that Branchless Banking (BB) has emerged as the best hope for financial inclusion in the country. Based on SBPs enabling role and markets early success, the "Consultative Group to Assist the Poor" - a policy and research center at the World Bank - has termed Pakistan "a laboratory for innovation". Among the countries that experimented with BB - like Brazil, Ghana, India, Mexico and South Africa - Pakistan is heralded by CGAP as a success story. In its latest publication, CGAP took an overview of the countrys BB sector and outlined key challenges that could shape it in the next 12 months. CGAP notes that the two existing BB ventures, Telenors Easypaisa and UBLs Omni, enjoy first-mover advantages and have reached significant scale. The existing service providers cater to both person-to-person (P2P) transfers (domestic remittances and account transactions) and person-to-government (P2G) transfers (utility bill payments). Pilots are underway for the government-to-person (G2P) transfers, whose success could follow a large-scale G2P roll-out. Two other players are also operating in the market, albeit on a small-scale. The First Microfinance Banks BB venture, in collaboration with Pakistan Post, is limited to only 52 post office locations. Dubai Islamic Bank is running a pilot project at three sites and may expand to 25 locations by year-end, noted CGAP. SBPs preference for a bank-led BB model essentially meant that any new entrant would have to have a banking license to offer BB services. There are many players waiting in the wings, or so it seems. Among these, CGAP anticipates Mobilink and its parent company Orascom to apply for a BB license soon, now that they have obtained the license for a wholly-owned microfinance bank, "Waseela". CGAP expects TCS to apply for its own banking license soon, as the logistics company is reportedly interested in using its couriers as "barefoot bankers". MCB Bank has the BB license; however, it has not yet rolled out an agent network, as it is unsure of the business case. Not much is known about any potential BB collaboration between the two local concerns of the Abu Dhabi group, Bank Alfalah and Warid. Askari Bank may go for a joint BB platform with Zong (China Mobile), as the bank aims to target army salary disbursements by recruiting agents in strategic locations near army barracks. CGAP also identified challenges confronting the sector. First is to build customer confidence and increase awareness, both critical to enhance transaction volumes. Moreover, investment in agent networks and prevention of fraud and abuse are crucial to maintain consistency, reliability and uniformity of services. It remains a challenge for the existing players to get customers to sign up and transact via accounts instead of relying on over-the-counter transactions. The more they wait, the more new entrants would find it difficult to reach adequate scale. The BB sectors future is bright in Pakistan, as highlighted in a recent study conducted by BCG for Telenor, which found that wide-scale adoption of BB services can increase financial inclusion in Pakistan by 20 percent by 2020. By 2020, 27 million adults would hold saving accounts; 17 million more could pay utility bills through mobiles; 10 million could get access to credit, and another 4 million could get insured. If more players enter the market, it would augur well for the BB sector in terms of outreach, penetration and competition. In the presence of a flexible regulator and a promising market, one wonders what the reluctant players are waiting for!