Mirroring trends in the fragile economy, retail payment transactions remained tepid during the first quarter of FY11.
Electronic and paper-based transactions - indicators of consumer spending - plummeted in both in volume and value terms, according to the Payment Systems Quarterly Review released by SBP.
The main culprit behind the negative growth is slow economic activity at the start of the fiscal year amid heavy monsoon rains and floods. Monetary tightening also drove the overall decline in spending.
Floods that hit the economy at the end of July brought substantial damages to the agriculture sector, primarily standing crops and livestock. Besides, the construction industry, mainly cement, also took a knock on account of supply disruptions.
"Besides seasonal variation, a host of other factors i.e. slackened economic activities due to the floods; power shortages, security concerns and higher inflation etc may be attributed for the decline in retail payment transactions", told an SBP official speaking to BR Research.
The major decline was seen in paper-based transactions, which fell by 9 percent and 12 percent in terms of volume and value respectively, compared to the previous quarter, while volume and value of e-banking transactions eased by 2 and 4 percent respectively.
All e-banking channels witnessed a decline in volumetric transactions barring internet and mobile banking.
Although paper-based transactions (volumetric) account for about 61 percent of total retail payment transactions, but its share in the total mix is continuously declining. It fell from 63 percent in the previous quarter and 69.35 percent in 1QFY09.
The gradual increase in retail payment transaction mix to electronic channels provides useful insight into the changing consumer spending habits owing to growing preferences for convenient and low-cost payment transfer alternatives.
Among all e-banking channels, ATM facilitates a large chunk of volumetric transactions. While Real Time Online Branch (RTOB) accounts for the highest share in total value of electronic transactions.
The growth in electronic transactions has also been attributed to continuous expansion and upgradation in infrastructure.
Banking industry added nearly 97 ATM machines during the last quarter. At the same time, 60 branches upgraded their system to RTOB. On the other hand, POS machines/terminal declined to 48,632 from 52,049 during the previous quarter.
The possible reason behind the decline in POS is the growing reluctance on the part of card holders to use POS as many merchants recover bank charges from customers.
With the launch of major mobile banking products during the past few months, the electronic payment system is going through a period of rapid change. Financial transaction through mobile phones nearly doubled to 0.67 million in 1QFY11 compared to the previous quarter. Mobile financial transactions were mainly used to facilitate utility bill payments.
The outlook for consumer spending depends heavily on economic growth, which has started improving in the second quarter. Growing availability of branchless banking products shows that the electronic payment system will continue to snatch market share from the traditional paper based system.