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Growth challenges for branchless banking in Pakistan

Published on 29th Dec, Edition 52, 2014


The banking industry in Pakistan faces tough competition unleashed in the global arena. Information and Communication Technologies (ICT) have transformed the global economy bringing 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. Online banking has introduced non-traditional channels of delivering services in the banking industry. Pakistan has witnessed in recent years a growing trend toward branchless banking, which is actually a distribution channel strategy used to deliver financial services without relying on bank branches. It can also be used as a separate channel strategy that entirely forgoes bank branches.

Branchless banking regulation was first introduced in the country in 2008. Branchless banking transactions in the country have crossed the Rs85 billion-mark. The country has over 1.4 million mobile bank accounts today. Pakistan Telecommunication Authority (PTA) envisions to bring banking services to 120 million mobile subscribers of the country by creating synergies among mobile operators, banks and technical service providers. The portfolio of services still needs to be enhanced by introducing services like home remittances, salary disbursements, food chain transactions, payment services and transactions related to small and medium enterprises and microfinance institutions.

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.

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.

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.

Online banking has accelerated financial inclusion and changed the financial landscape in many developing countries including Pakistan. Mobile phones are now compensating for inadequate infrastructure, slow postal services, and the limited coverage of banking systems in many countries. 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. Electronic payments continued to show a rising trend as both the number and value of such transactions increased in past three years in Pakistan.

A few banks also offer transactions through mobile, 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 a year and half 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.



Today, branchless banking is the fastest growing segment in Pakistan. 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.

The banking sector still needs to take effective measures for improving and strengthening its competitive position vis-a-vis the foreign banks. The banking industry must be able to meet increasingly complex banking needs if it is to flourish. The country cannot catch up with its Asian neighbors India and China in terms of economic development without making investment in new banking technology. In the Asian economies, the relative wealth increases among the population and a burgeoning middle-class has brought greater demand for banking facilities and investors and business are also looking for more supportive financial services, with a demand for financing solutions, hedge funds, and asset-based securities.

Pakistan needs to place ICT on its priority list to keep pace with the advancement in technology and minimize digital divide. The government needs to take measures for creating a conducive environment for technological innovation and its effective use in financial sector. The banks offering mobile banking services need to develop aggressive marketing plans and campaigns to attract customers to visit the agent location for their banking transactions.


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