Electronic payments keep growing

The banks in Pakistan may not be lending to anyone and everyone, but they sure are leveraging their general banking operations. This is apparent in SBPs half yearly review of payment systems in Pakistan, which shows another six months of acceleration in retail payments and transactions in the banking system. According to the SBP review, the three major payment systems-paper-based, electronic and real-time inter-bank systems-all showed healthy growth during six months ended June 30, 2011. Despite tremendous growth in electronic payments in recent years, the banking system transactions are predominantly paper-based. During 2HFY11, Rs.84.6 trillion worth of transactions was paper-based, which shows a 13.3 percent growth over 1HFY11. The volume of such transactions reached 177 million in 2HFY11, and their value accounted for 87.5 percent of total payments in the system. Electronic payments were not far behind though, as the volume and value of e-banking transactions grew by 15.5 percent and 19 percent during the period, respectively. Over Rs.12 trillion worth of payments were settled through electronic means. The main transaction channels for e-banking are online banking, ATMs, and POS terminals, followed by mobile phones, internet, and call centers. According to SBP, 466 more ATMs came online during the period, taking the tally to 5,200. With over 14 million plastic cards in circulation until June 30, 2011, the ATMs channeled Rs.654.4 billion of withdrawals in 74 million transactions. In terms of volume, the ATMs accounted for 58.8 percent of e-banking transactions, and 5.4 percent in terms of value. The thrust for e-banking largely comes from the online banking services provided by the 78 percent of the banking network in Pakistan. During the period, 380 more bank branches were converted into "Real Time Online Branches" (RTOBs), as per SBP. These branches channeled Rs.11.2 trillion of liquidity in 39.7 million transactions during the period, and accounted for 93.2 percent of value of e-banking transactions. Its a different story with point-of-sale terminals, as over 7,000 POS terminals were discontinued during the period. Although the volume of POS transactions showed a marginal increase, their value dropped by 4.4 percent in 2HFY11 to Rs.33.9 billion. The share of transactions via mobile and internet banking is very small yet. During 2HFY11, the transactions through internet banking aggregated to 2.5 million, with Rs.1,24.8 billion in value. The mobile phone banking transactions totaled 1.9 million with Rs.5.23 billion in value. According to the SBP review, the volume of transactions routed through the "Pakistan Real-time Interbank Settlement Mechanism" also showed double-digit growth. Large value transactions are settled through PRISM, which include settlements against securities, interbank funds transfers, and clearing of retail cheques. Roughly Rs.45.5 billion worth of transactions were settled through PRISM in 2HFY11. The share of paper-based payments in the system is still way too large. If more banks move towards mobile banking, branchless banking, and internet banking, and if customers adopt these channels, this trend may soon reverse. Moreover, it is high time for the SBP to collaborate with other stakeholders to open up the online payment gateways in Pakistan.