It has been just over a year since the introduction of the first major branchless banking model in Pakistan, but this innovative banking has successfully reached the hearts and minds of regulators, bankers, telecommunication service providers, and last, but not the least, the general public.
With two major players already in this business - UBL and the Tameer Microfinance Bank, three more banks are expected to join this race soon, according to sources close to the situation.
Among bankers, the growing popularity of banking services through retail agents is driven by an itch to target the large portion of unbanked population. The potential is enormous as around more than 75 percent of the adult population has been deprived of basic banking services in Pakistan.
A strong business case for the branchless banking framework is stemming from the fact that it provides a low-cost medium to expand outreach. A CGAP analysis with Tameer Microfinance Bank earlier discovered that the capital and operating costs for an agent are 76 times lesser than its microfinance branches in the first year, and 89 times cheaper over five years.
In short, it benefits a bank to expand outreach in far-flung small villages where it is not feasible to open and operate bank branches.
Realising the fact that low-cost deposits are the key to bank profitability, account opening in rural areas will also give the opportunity to garner small, low-cost deposits as the availability of banking services - when it becomes convenient to store money in an electronic form and easy to withdraw when needed - will also encourage savings amongst the poor.
Moreover, the banks also don want to miss out on any opportunity to cross-sell other banking products and services, primarily loan to the agricultural community such as agri loans, crop insurance etc, in future, using this emerging channel, to say the least.
Positive response from regulators towards the development of this industry is undoubtedly one of the major push factors behind the smooth rollout of the wide range of branchless banking services.
This raises a question: what is the prime motivation for regulators? For regulators, growing interest is arising from the fact that the availability of branchless banking services will eradicate informal remittance channels, improve the saving rate and help facilitate government-to-person money transfer. The Watan card is a case in point.
For the public, availability of branchless banking products not only provides convenience, but also reduces transaction costs. The CGAP compared prices charged by 16 branchless banking providers across 10 countries and by 10 traditional banks in five countries and summarised that branchless banking is 19 percent cheaper than comparable bank services overall.
The same research revealed that the average monthly price to use a bundle of branchless banking services is $3.9 a month, compared to $8.2 a month for Easypaisa in Pakistan, the most expensive among other players in sample.
This suggests that service charges might be higher in Pakistan compared to other developing countries, but once more service providers will step in, competition and growth in transaction volumes will help reduce the service charges.