Bolstered by proliferation of electronic payment infrastructure and growing consumer confidence, transition from manual, paper-based systems to electronic payment systems has been on the rise for quite some time.
According to SBP's second quarterly report in FY11 on Retail E-Payments and Paper-Based Instruments, eBanking transactions constitute almost 39 percent of total retail payment transactions by volume. However, as the paper-based medium is still preferred in facilitating large-denomination transactions, the share of electronic medium, in terms of value, remains relatively stagnant at 12.3 percent.
Low processing cost, along with speed and ease of access, offered by technology has been fuelling up demand for electronic payments infrastructure. Banks added around 172 ATMs and 309 retail online branches (RTOB) into their network in 2QFY11, bringing the total number of ATMs and RTOB in the country to 4,734 and 7,036 respectively.
ATM is the leader in the automated transaction, facilitating more than half of total electronic transactions, whereas, in value terms, RTOB is the major contributor, with 94 percent share. Transactions through Point of Sale (POS) outlets are modest, but they are picking up.
Though, the country's automated payment infrastructure has come a long way, it is still fairly less mature than other developing countries in Asia. The low penetration of ATM can be gauged from the fact that there are just around four ATMs per hundred thousand adults and 5.49 braches per thousand kilometers, according to CGAP - a Washington based consultative group on the global microfinance environment.
With a large population living in far-flung areas, where it is not feasible to expand the service through ATMs and POS due to high cost of infrastructure, prospects of m-Banking have come to the fore. M-Banking has the potential to promote eBanking in a massive way.
Although there are eleven banks in Pakistan providing this facility, share of m-Banking in overall banking transactions is abysmally low. However, prospects look very bright. Some innovative products have hit the market and creative marketing is being undertaken. Strategic partnership between commercial banks and telecom operators are in the offing. This alliance will help in achieving the goal of financial inclusion.
There is a whole range of benefits that can be derived from electronic payment systems if the government comes on board. It is anybody's guess as to how much could be saved if the state institutions and government departments automate all payment flows. McKinsey estimated last year that India could save $22.4 billion annually if the government automated all payment flows, and that the required investment would be covered by these savings within one year.
eBanking and electronic payment systems provide speedy transactions and plug various leakages, a hallmark of manual payment systems. According to McKinsey, transaction costs in manual payment systems are around 15-20 percent. Administrative overheads and transaction costs can be greatly reduced with automated systems.
Private sector is more efficient today, thanks in part to automated payment systems incorporated in various departments. The government should take concrete steps to automate various departments, especially the Ministry of Finance and Federal Board of Revenue, if it wants to achieve any progress if meaningful taxation reforms eventually come through.
The government of Pakistan is in a state of chronic deficit and should be looking inwards to curb leakages, project delays and administrative overheads. Migration to electronic payment systems would bring it much needed fiscal relief as well.