Information and communication technologies (ICT) have brought about a revolutionary change in the financial sector. This revolution finds manifestations today in shape of innovative banking products and services such as Automated Teller Machines (ATMs), Internet banking, tele-banking and so on. The Internet, ATMs, POS devices and mobile phones are the examples of online banking technologies, which serve to deliver a set of banking services and are part of distribution channels that may be used either separately or in conjunction to form the overall distribution channel strategy. Branchless banking may also complement an existing bank branch network for giving customers a broader range of channels through which they can access financial services.
During the last five years, the banks have expanded their online branch networks, ATM networks and POS networks across Pakistan to accept plastic money. The expansion of electronic banking and the increased use of IT, specialized and innovative software and modern hardware will require sizeable imports of these items to supplement good advances Pakistan already has made in these fields. But more, modern and imported sophisticated hardware is required on a large scale.
Fast growing segment
Today, branchless banking is the fastest growing segment in Pakistan. Online banking has also changed the financial landscape of Pakistan. Mobile phones are now compensating for inadequate infrastructure, slow postal services, and the limited coverage of banking system. Online banking has introduced non-traditional channels of delivering services in the banking industry.
Initially, Internet banking was launched in Pakistan to provide a limited number of services. In 2002, the government of former President Pervez Musharraf took a landmark step for promotion of electronic banking in the country by promulgating the Electronic Transaction Ordinance 2002, which provided legal recognition of digital signatures and documentation reducing the risks associated with the use of electronic media in business.
Credit cards entry
A credit card, offering valuable benefits for both consumers and banking industry, is a flexible payment tool accepted at millions of locations worldwide. Credit cards provide access to unsecured credit. They offer Interest-free payment from time of purchase to the end of the billing period. They provide Instant payment of purchases and allow for instant receipt of goods and services. They provide all-time access in a day. They give Fraud protection with zero liability to the consumer in cases of fraud. Moreover credit cards offer air travel points, car insurance, damage and loss insurance and extended warranty programs. The retailers that accept credit cards receive fast and guaranteed payment, which can reduce line-ups at checkout.
Credit cards in Pakistan’s banking industry evolved with the introduction of credit cards by Habib Bank, the country biggest bank, a couple of decades ago when it launched the gold card. Then Citibank launched its Citibank Pakistan Visa Card in the 1990s. Then the Muslim Commercial Bank, the National Bank of Pakistan and Bank of America soon followed suit with their own credit cards. Presently, the various credit cards used in the country include Balance Transfer Card (used to transfer a high interest balance onto a low APR credit card), Instant Approval Card (offering instant approval on select credit cards from specific banks.), Business Credit Card (offering an expense management service that facilitates keeping track of outgoing business money), Student Credit Card (used for high school and college students with lower credit limits and fewer incentives to help keep their spending in check). Prepaid Credit Card (used to control spending) and Reward Credit Cards (rewarding purchases in the form of Cash Back).
Electronic payments continued to show a rising trend as both the number and value of such transactions increased in the past five years in Pakistan. A few banks also offer transactions through mobile phones, which include payment through mobile, utility bills payment, intra customer account fund transfers and inter customer account fund transfers.
The telecom operator Zong and Askari Bank have already launched their branchless banking solution Timepey to facilitate 80 percent Pakistanis who do not have bank accounts. Timepey allows its users to pay utility bills, transfer money to specified recipients anywhere in the country, deposit and withdraw cash and carry out account transfers. The users do not have to be Zong customers or even be mobile phone subscribers, as the service offers complete flexibility to anyone who wishes to avail essential financial services without the need to open a bank account.
Timpey is the first of its kind collaboration where a telecom operator and a commercial bank are providing branchless banking services under a relationship where none of the parties have any share or controlling interest in each other.
Zong is the third telecom operator to offer mobile banking services in the country after Mobilink launched its branchless banking solution Mobicash two years ago and Telenor started its Easypaisa service.
The State Bank of Pakistan (SBP) has issued four branchless banking licenses and its plans to issue several others. The central bank has taken a constructive regulatory approach by providing clear guidance. The government must continue to encourage innovation by piloting the use of branchless banking to distribute government payments.
Consumer financing has emerged out as one of most prolific aspects of banking in Pakistan. Consumer financing products include credit cards, personal loans, auto loans and housing mortgage. It not only contributes towards facilitating the life patterns of consumers, but it also proves to be a source of improvement for the image of banks.
Banking sector witnessed unprecedented growth after 2001 due to low interest rate and product innovation in consumer financing. A need is, however, felt to strengthen the regulatory mechanism for strengthening the consumer financing sector in the country.Consumers with credit cards from banks, however, must be protected by constitutional regulations that require disclosure of the interest rate at the time of solicitation or application, and on monthly statements. Customer awareness should be increased to encourage use of services such as ATM, credit cards and Internet banking.
The banking sector still requires expansion and upgradation of the ATMs to overcome customer complaints in recent years. The banks must ensure provision of uninterrupted ATM services to customers and take responsibility for resolution of all types of issues emerging from outsourcing of ATM replenishment. ATM is the predominant alternate delivery channel of e-banking that leads the retail level e-banking/online services in terms of volume.
Need of advancement
The government should take initiative for effective use of ICT in microfinance sector, which has so far remained isolated from the digital world.
The advancements in ICT have the potential to change the lives of Pakistan’s poor, particularly serving the financial needs of the unbanked poor.
Customer awareness should be increased to encourage use of services such as ATM, credit cards and internet banking.
The banking sector still requires expansion and upgradation of the ATMs to overcome customer complaints in recent years. The banks must ensure provision of uninterrupted ATM services to customers and take responsibility for resolution of all types of issues emerging from outsourcing of ATM replenishment.
ATM is the predominant alternate delivery channel of e-banking that leads the retail level e-banking/online services in terms of volume.
Today, ATMs, tele-banking, Internet banking, credit cards and debit cards have emerged in Pakistan as effective delivery channels for traditional banking products. In Pakistan, foreign banks took the lead by introducing ATMs and credit cards in the mid 1990s, and domestic banks followed in the late 1990s.