Pakistan: G2P Laboratory

A couple years ago, we wrote about how Pakistan was quickly becoming a laboratory for branchless banking business models. This trend has continued with two new branchless banking deployments entering the market in the past few months: MobiCash was launched by mobile operator Mobilink and Waseela Microfinance Bank; and Timepey was launched by mobile operator Zong and Askari Bank.

A leather worker sits on the floor of his workshop

Photo Credit: Massom Ali

But over the past several years, Pakistan has also been a laboratory for G2P payment innovations. In our new report on the G2P payments sector in Pakistan, we look at social cash transfers, salaries and pension schemes administered by central government agencies, and also an additional provincial scheme managed by the Government of the Punjab, the largest province in the country. Annual payments under these schemes amount to $9.3 billion, of which salaries make up $6.3 billion (68%). Pensions amount to approximately $1.9 billion (21%), followed by social cash transfer programs at $1.1 billion (11%).

The Benazir Income Support Program (BISP) represents the largest social cash transfer program in the country, and here is where most of the payments innovation has played out. When the program started in 2008, payments were delivered in person and in cash by the Pakistan Post. Starting in early 2010, BISP experimented with a couple new payment instruments: first with smart cards (Benazir Smart Card) and later with mobile phones. About a year ago in February 2012, BISP transitioned to a new payment mechanism using magstripe debit cards, coined the Benazir Debit Card.

Why does this excite us? Well, in our Focus Note from last year, we encouraged social cash transfers to be paid in such a way as to integrate into the mainstream payment infrastructure of a country. That is, don’t create a separate, closed-looped system that doesn’t talk to any other financial system in the country. Instead, take advantage of these payments to bring the very poor into the financial system. And this is what the Benazir Debit Card does. They are issued by six banks (five commercial banks and one microfinance bank) and while the nature of the account linked to the debit card varies by bank, they can all be used widely throughout the country’s financial system.

But this is just one of many interesting things happening in the G2P laboratory. The Employees’ Old-Age Benefits Institution is the social pension provider for private sector retirees, and last year they began providing the option to cash-out payments using EasyPaisa at 400 agent locations. The Government of the Punjab will soon start making payments directly into the bank accounts of pensioners of Lahore District. Most of these pensioners do not have bank accounts.

This progress has all been fostered by several opportunities. A strong enabling environment has been put in place by the State Bank of Pakistan. BISP has created a sensible operating environment for the participating banks by paying them a 3% fee under a 2-year contract. This was arrived at through a consultative process with the banks and reflects global standards of such fees. The banks also clearly see G2P as a key opportunity to grow their branchless banking business.

Certainly there are still challenges. The business case for banks becomes a challenge when they start to think about expanding from simply being the payment service provider to being the banker of these beneficiaries. This is tied to the lack of understanding of G2P beneficiaries as potential banking customers. This will very likely be the focus in the G2P industry going forward. One can hope that there will be some interesting solutions coming out of this fertile testing ground.

Read even more about these G2P flows, including Bait-ul-Mal and Zakat payments, in the report.