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The pandemic is expected to have increased the usage of digital alternative delivery channels (ADCs) within Pakistan’s banking system. Or so some people think! One will know for sure whether and how much it has been the case when the SBP’s Payment System Review for the Apr-Jun quarter is released in a month or so. But as of March end, the picture looked a bit but muddled.

Analyzing the retail banking payments universe – comprising of i) e-banking transactions (through ATMs, online branches, Internet banking, mobile banking, POS, e-commerce, etc.) and ii) paper-based transactions (cash, cheques, pay orders and demand drafts, etc.) – gives some insight into how the organized financial sector is faring in terms of going paper-less.

As per the central bank’s latest review, e-banking transactions stood at 236 million in terms of volume in the Jan-Mar 2020 quarter. This accounts for e-banking share of 68 percent in retail banking transactions in that quarter. The concentration looks impressive, until one notices that e-banking’s share in the retail banking pie has not grown by a large degree from 62 percent in March 2016. Also, with 8 percent yearly gains in e-banking volumes in the period under review, the growth rate is decelerating.

Things look different in terms of “value”. With Rs17.5 trillion transacted under its hood in the same quarter, e-banking accounted for 35 percent of all retail banking transaction by value. Here, the trend line looks better. E-banking consistently grew its share, up from 21 percent seen as of March 2016. Also, the value growth of 18 percent year-on-year in 1QCY20 continues to show a strong growth trend, that has been seen in the same period during recent years.

Put another way, by March 2020, paper-based banking came down to 32 percent in terms of retail banking volume (Mar. 2016: 38%) and 65 percent in value (Mar. 2016: 79%). This progress is something to be built on. But there is a big caveat: “cash” is somehow still intruding into the e-banking sphere.

While it is evident that ADCs such as Internet banking, mobile phone banking and e-commerce – the truly digital and cashless channels– are firmly set on a strong growth path, the e-banking pie within the formal system is dominated by premises-based or “physical” ADCs. For instance, in the quarter under review, ATMs represented 56 percent of overall e-banking transactions by volume. That is great for convenience; but not so much when the idea is to reduce cash usage.

Also, note that customer transactions for online cash withdrawals, cash deposits, and inter-bank fund transfer by visiting Real-time Online Branches (RTOB) constituted 84 percent of the value of all e-banking transactions in the quarter. Should RTOB numbers really be counted under e-banking? In addition, POS machines, which should have been a basic ingredient of retail shopping long time ago, continue to shrink in numbers, as factors like fear of documentation and reliance on cash hinder uptake among merchants.

The need is to rapidly increase the attractiveness of cash-less alternatives. For that, it is imperative to improve banking sector’s retail-sector tie-ups and digital capabilities on the supply side, and to increase financial inclusion and literacy on the demand side to drive better access and higher usage. Covid-era regulatory measures, such as waiving of fund transfer charges on online banking, are welcome. But more needs to be done.