M-wallets: doing good

Twenty million mobile wallets – that’s some achievement! As per the latest quarterly newsletter by the State Bank of Pakistan (SBP), more than three million new branchless banking (BB) accounts – also referred to as m-wallets – were opened in the Oct-Dec quarter last year.

In a country where conventional banking is yet to serve the masses, stakeholders expect m-wallets to fast-track financial mainstreaming of under-served and un-served Pakistanis. So there was more to cheer in the recent SBP newsletter.

For instance, transactions performed via m-wallets had reached almost the same volume as the hitherto-dominant over-the-counter (OTC) transactions. The share of m-wallets in customer transactions has been ameliorating for last many quarters, reaching 49 percent in Oct-Dec quarter. And it looks set to cross the OTC volume this year. That will be a positive development for driving the digital economy.

The BB segment has seen healthy growth lately. An average of 1.5 million transactions took place daily in the Oct-Dec quarter. By December end, agents had totaled nearly 360,000 (though active agents were lower, at 210,581). Transactions recorded during the quarter were roughly 134 million, 21 percent higher than previous quarter. Value of transactions stood at Rs597 billion, 15 percent higher quarter-on-quarter.

Customer-oriented transactions were 128 million in volume and Rs373 billion in value during the period. M-wallets had a 49 percent share in volume and 41 percent share in value. M-wallet transaction volume grew by 35 percent over previous quarter, driven mostly by mobile top-ups. Their value increased by over 50 percent, fueled by fund transfers. This growth is far superior to the one seen in OTC transactions.

Yet, despite their growing numbers, providers of m-wallets need to do more – such as attractive saving/credit products and retail spending platforms – to seriously challenge conventional banking accounts. One of the issues is the continually high concentration of inactive accounts. To increase account activity, the market heavyweights, Easypaisa and Jazzcash would need to up their game.

A gender gap also exists: females had a 21 percent share in total m-wallets, which is lower than their share in the general population. But this ratio fares well compared to conventional bank accounts. Also, in terms of geography, m-wallets need to serve more people in under-served regions like Balochistan, AJK and GB. Those regions collectively had a roughly six percent share in the accounts.

The fact that just about 32 percent of agent locations could open BB accounts as of December last year suggests the difficulties encountered by service providers. It is no doubt a costly exercise to train the agents and to equip them with biometric verification machines to open bank accounts. Then there is an apparent bias against m-wallets among BB agents, who rely on OTC transactions for their income.

Twenty million is a big number. But in a country with more than 100 million cellular subscriptions, each mobile phone holder is carrying a potential digital account. Service providers need to step up, cooperate, and become interoperable. Besides expanding their agent and biometric footprint, they must also reduce the cost of transaction on m-wallets. Such steps can help the digital payment ecosystem grow rapidly.