Mobile banking in Pakistan a laboratory of innovation

The rising competition among the banks and cellular operators in Pakistan for mobile banking has turned the country into a virtual laboratory for innovation in financial services that make the country a market worth watching for the world to learn new lessons in mobile banking within the next 12 months.

Revolutionising mobile banking

A report of CGAP, the global industry body dedicated to advancing financial access for the world’s poor, predicts that during the next 12 months Pakistan could see an even greater surge in new mobile and agent banking services seeking to bring financial services to people across the country. Pakistan is one of the fastest developing markets for branchless banking in the world. Clear regulations and a regulator that is willing to both listen to the private sector and provide incentives for innovation have promoted a dynamic branchless banking sector. There is a lot of interest in government-to-person (G2P) payments as a means of promoting financial inclusion in Pakistan. Financial services have traditionally been out of the reach of people in poor and remote areas in Pakistan. A number of developments are turning the country into a virtual laboratory for innovation that promise an end to this financial exclusion.
Challenges of innovation

The government introduced branchless banking regulation in April 2008, two large-scale initiatives have taken root and two other pilots have been introduced to test the market. The State Bank of Pakistan (SBP), the banking regulator, has supported these initiatives and has now issued four branchless banking licenses to banks, some of which have partnered with mobile operators and other actors to launch services. The recent changes to the regulations will make it much easier to open an account by removing the need to provide biometric information. Chris Bold, author of the CGAP paper says like any innovation, however, success is not assured, even for larger-scale efforts. This is a tough business to succeed at. Getting customers, many of whom may have never used a bank account before, to put their trust in these services is going to be a huge challenge. These businesses need to offer services at a price that makes them more attractive to consumers than informal alternatives, and at the same time they must protect their customers – and themselves – from fraud and abuse.
Hallmarks of success

Given the early signs of customer acceptance for the initial schemes, and the commitment of serious business operators, Bold says there is reason to hope that Pakistan can progress from being a virtual laboratory for branchless banking trials to a showcase for how this approach can deliver responsible financial services to those without access. The two largest initiatives were launched by Tameer Microfinance Bank, owned by mobile network operator Telenor, and UBL, a major commercial bank. First MicroFinance Bank and Dubai Islamic Bank Pakistan have also received branchless banking licenses and have launched pilot programs. Telenor and Tameer Microfinance Bank, operate the “easypaisa” service, through which customers even those without a Tameer account or a Telenor phone can pay bills or make transfers with the help of one of 12,000 easypaisa agents. By the end of July 2011, easypaisa had processed 23 million transactions of $500 million.
Predicting growth

UBL launched UBL Omni in April 2010, offering a similar range of over-the-counter services and, like easypaisa, customers can also access personal accounts through their mobile phones. UBL Omni has secured several contracts to make millions of payments on behalf of government and non-government agencies, including the Benazir Income Support Program, the government’s flood relief effort, and the World Food Programme. The report says others planning to enter the market include TCS, Pakistan’s biggest courier and logistics company with 400 outlets countrywide, and MCB, a commercial bank with more than 1,100 branches. The G2P payments have facilitated mobile banking growth after the military action in the Swat valley in May 2009 the government and the World Food Programme worked with UBL to issue automatic teller machine (ATM) cards that were used to make payments to 12,000 beneficiaries.
Benazir Income programme

The country’s flagship social cash transfer programme, Benazir Income Support Programme with 2.2 million beneficiaries, used two pilots as branchless banking agents. The first uses a card with a barcode on the back that is read with a scanner. The second uses mobile phones. Four banks UBL, HBL, Tameer, and Bank Alfalah agreed to provide a combined total of 180,000 free mobiles to beneficiaries in order to be included in the pilot. At present the pilots do not allow funds to remain in the customers’ accounts or for them to transact from their phone. SBP, in partnership with DFID, has recently announced a Challenge Fund that will provide grants to other government departments to allow them to experiment with financially inclusive payment arrangements.