This second in two blog series examines the challenges regarding the success of OTC and the prospects for the future of branchless banking in Pakistan
In the first part of this blog, “Over the Counter (OTC) in Pakistan: Why It Works”, we examined the drivers behind the roaring success of OTC-based services in the country. This blog examines the challenges this success has bought, how the providers are responding and the prospects for the future of branchless banking in Pakistan.
4) What are the challenges for Providers?
5) How are providers responding to these challenges?
In the current environment all branchless banking players have failed to respond effectively to these challenges. While the substantial expansion of account opening, an enlarged agent base and the introduction of the biometric verification system (BVS) is laying the foundation for a critical mass of mobile wallets, the industry is unable to convert these acquired wallets into active users.
Different market players are tackling cash management issues through different methods. Agents with high liquidity are being selected and used to provide liquidity support to smaller agents in the same locality and effectively being used as master/liquidity support agents. For MNOs this function is performed by their respective franchises, which are even extended credit on weekends to support agents tagged within their defined boundaries.
6) What is the future for OTC and branchless banking in Pakistan?
Future of OTC in Pakistan looks bright, especially in the money transfer business, which is still growing.
Money Transfer Tranx and Volume | Million Tranx | Per Quarter (Million $) | Per Month (Million $) |
2nd Qtr 2014 | 26 | 1,068 | 356 |
3rd Qtr 2014 | 27 | 1,161 | 387 |
4th Qtr 2014 | 28 | 1,222 | 407 |
Pakistan has a large and growing population base where the overwhelming majority (86%) of the adult population is unbanked. However, the growth of brick and mortar banking is limited by the high cost of conventional banking as well as lack of awareness, the complexity of documentation required and a host of other factors. Another important element is the role and size of Pakistan’s informal economy which employs a significant portion of the labour force. This segment is largely excluded from conventional banking channels because it cannot meet the extensive documentation required to open an account. Branchless banking can provide the platform that enables this segment of the society to make the first step towards becoming financially included, as it can offer convenience, easy access and reliability to this population. Taking those served by the current OTC offering to the next level to provide them access to savings, insurance and merchant payments will require very significant and concerted effort by branchless banking providers and the government. Some efforts are underway, but we should not underestimate the scale of the challenge.
Mr. Ashraf Mahmood Wathra, Governor of the State Bank of Pakistan, recently announced at the 8th International Mobile Commerce conference in Karachi Pakistan, “The National Financial Inclusion Strategy, recently developed by the State Bank of Pakistan in collaboration with the World Bank envisions that the uptake of m-wallet accounts will cross 50 million over the next five years”
In 2015, additional initiatives have been taken to increase the transactions/penetration on m-wallets, including:
While the initial indications of the results of these initiatives look positive, they are on a modest base. M-wallet to m-wallet transfers increased from 43,848 transactions (of Rs. 46 million [<$0.5 million]) in July-September 2014 to 185,023 transactions (of Rs. 447 million [$4.4 million]) during the October-December 2014 quarter. This represents an important four-fold increase in the number and nine-fold increase in the value of these transactions in one quarter – so an exciting step forward (see a detailed discussion of this in “Over the Counter (OTC) in Pakistan: Why It Works”
Nonetheless, agent-assisted OTC transactions are likely to remain dominant in the Pakistani market until all stakeholders support the unbanked population to open and use accounts by defining real use-cases and products to support them. Stakeholders will then need to increase marketing and communication to drive awareness of m-wallets, and their value of proposition. This must be backed by the provision of easy and convenient user interfaces to facilitate the conduct of m-wallet transactions, and the development of an eco-system across the country. Otherwise mobile wallet transactions will continue to work in different silos and will not achieve the SBP/World Bank’s goal and begin to convert Rs.2.73 trillion [$0.27 trillion] of physical cash into digital money.
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