Branchless Banking in Pakistan: the Glass Half and Full View
Branchless banking is flourishing in Pakistan. In the span of five years, the industry has grown from one business, Easypaisa, to four businesses, representing a unique range of implementations – UBl’s Omni, Timepey from Zong and Askari, and Mobicash from Mobilink and Waseela. Easypaisa alone is one of the top implementations globally (see the chart below comparing it with other major deployments). We can expect a number of more businesses to launch this year (see page 3 of this report), and when they do, Pakistan will become the most competitive mobile money and branchless banking market in the world.
Businesses give a lot of credit to the State Bank of Pakistan (SBP), the banking regulator, for creating the right conditions for branchless banking to flourish in the country. Regulations came out in 2008 and were subsequently updated in 2011, introducing a level 0 account and making the Know Your Customer (KYC) requirements for those accounts proportionate to the perceived risk. The process of creating those regulations and the subsequent updates are widely recognized as being consultative with the larger industry. In fact, it is the State Bank of Pakistan's open dialogue with the private sector - not the regulations or their permissions - that have ultimately made the biggest difference. No wonder all mobile network operators and some of the major banks are involved in the mobile money space. Three of the mobile network operators now have ownership stakes in microfinance banks (see here, here and here). In our estimate, businesses have collectively invested at least $104 million, well above the total amount of donor funding in this space.
The SBP continues to keep its foot on the pedal. It issues a newsletter that summarizes key statistics so all players in the industry are on the same page. It has now started to convene private sector committees, set up to address next generation challenges facing the industry such as agent network standards and supervision. The SBP and the Pakistan Telecommunications Authority also remain engaged on those issues that both regulators can collectively address. SBP has also played a role in promoting digitization of government flows, the progress on which we describe in a recent report . There is a lot of work ahead for both the SBP and the industry to maintain the momentum in this industry and to reach more Pakistanis with financial services. Easypaisa’s large active customer base transacts over-the-counter (OTC) without a wallet and two newer services are also introducing over-the-counter services.
While the recurring OTC customer base is quite sizeable, there is a challenge to get all those customers to transact purely digitally. Improving know-your-customer requirements for the entry-level account and finding a way to reduce the cost of identification verification determined by NADRA should help but, in the absence of more creative solutions, we might discover that many poor Pakistanis will not leave the comfort of transacting in cash. As more businesses come online, there will be challenges with fraud and crime. Despite the introduction of innovative products, the industry does not have a pipeline of innovative financial services.
In this video, SBP’s Executive Director, Inayat Hussain discusses some of these challenges, especially the possibility of new products in the future. He describes how SBP pursued and continues to pursue a private sector and market friendly approach to regulation. Mr. Hussain’s office and the office of Banking Policy and Regulation, under Mr. Ashraf, collectively share the credit for the active involvement of SBP in the branchless banking and financial inclusion space.
-------- The author leads the work on branchless banking in Pakistan at CGAP.