Six years have elapsed since the introduction of Branchless Banking (BB) in Pakistan, yet the total transaction value still amounts to a dismal 0.4% of the country’s total banking transactions.

More than 80% of all BB transactions do not even go through the banking system; they are person-to-person transactions, conducted over-the-counter (OTC) at agent locations (retail outlets and franchises) using CNICs for identification. The mobile phone is simply used to confirm the transaction between the sender and receiver via text.

The transfer of funds or domestic remittances constitute in value terms, 78% of all OTC transactions, although this is triple the cost of sending money orders through a post office. Nevertheless, customers are happy to pay extra for a hassle free, instant transfer advantage.

Orion, a product launched in 2007 by United Bank Limited (UBL), was the precursor of BB in Pakistan. The product was backed by a prepaid bank account and services included fund transfers, mobile top-ups and utility bill payments. A limited amount of marketing supported the launch, but it was unable to gain traction in the absence of a regulatory framework.

Then in March 2008, the State Bank of Pakistan (SBP) announced the much needed Branchless Banking Regulation and the prospects of the service taking flight looked strong. The regulation called for a bank-led model, meaning that only commercial banks and microfinance banks were eligible to apply for a BB license. However, it allowed multinational companies to act as ‘super agents’ for the banks and provide marketing and distribution support.

Telenor, the second largest private sector telecom company in Pakistan, while gearing up to launch multinational-based BB, acquired a 51% stake in Tameer Microfinance Bank and in October 2009 launched Easypaisa.

Even if the current outlook seems disappointing, there is cause for optimism because of the relentless efforts being made by the leading telecom companies and the banks involved. Another external factor likely to boost the market was the decision to enforce universal biometric verification for SIM card owners.

According to a GSMA report (the association representing the interests of mobile operators worldwide), within a year of launch, Easypaisa’s network totalled 8,000 points of sale or agents. Easypaisa M Wallet (the mobile bank account driven service) was introduced in 2010 (a year after launching Easypaisa) although acceptance, even at agent level, was limited; 15% offered M Wallet and the rest preferred OTC transactions. Furthermore, as the report stated, “a small number of retailers drove much of Easypaisa’s business.” The proof was that 73% of the commissions were earned by the top quartile. That same year, total Easypaisa’s transactions crossed 100 million, with a throughput of over $1.4 billion (Rs 147 billion).

UBL lunched Omni in April 2010. Prior to this, in July 2009, UBL used the system it had devised for Orion, with a VISA prepaid magnetic strip card to run a pilot ‘cash for food and work’ programme for the World Bank, and then in 2010 to run the Government of Pakistan’s cash support for internally displaced persons in Swat. In recognition of these efforts, UBL Omni won the GSMA 2011 award for best use of mobile in a humanitarian crisis.

Unlike Easypaisa, Omni was available on all mobile services and branded its network of agents ‘Omni Dukaans’; customers could go to any Omni Dukaan, present a copy of their CNIC and use the service via their mobile phone. The standard OTC package included utility bills payments, domestic remittances and receipts and purchase of mobile top ups. Customers opening Omni bank accounts could also deposit and withdraw cash. Today, UBL Omni reportedly has a presence in over 650 cities and towns.

Other BB services to follow in 2012 and 2013 included Mobilink’s Mobicash, Zong’s Timepey, Ufone’s Upaisa and HBL’s Express; however, most of these later entrants have yet to create a ripple in the market.

It hardly needs to be emphasised that mobile driven accounts (M Wallets) are the mainstay of BB as they fulfil the underlying objective of financial inclusion (a globally acknowledged development goal) added to which is the fact that the cost of the service to customers is lower than OTC.

According to the SBP Quarterly Report for March 2015, “customer-oriented transactions, whether through M Wallets or OTC,” contributed 94% to the total BB transactions in volume terms, and 65% in value terms. The rest “were agent-based transactions…” The report states that the OTC business completely overshadows mobile account transactions, accounting for 88% of total volume and 82% of value.

Despite the low contribution of M Wallets, every quarterly report from the SBP paints a rosy picture, suggesting that BB is growing by leaps and bounds. For example, the opening lines of the March 2015 Report read as follows: “the first quarter of CY 2015, witnessed a widespread increase in branchless banking accounts, which climbed to 7.5 million, showing an impressive growth of 39% over the previous quarter.”

This is followed only a moment later by the admission that the volume of transactions grew by only one percent over the preceding quarter and value dropped by 4.8%. The average transaction size too was lower – Rs 4,883 compared to Rs 5,181 for the previous quarter. The reasons given for the drop were lower G2P (Government-to-Public) payments and reduced mobile top-ups.

Yet, even if the current outlook seems disappointing, there is cause for optimism because of the relentless efforts being made by the leading telecom companies and the banks involved. Another external factor likely to boost the market was the decision by the government to enforce universal biometric verification for SIM card owners. Despite criticism and the fact that the move eliminated 30 million SIM cards, it left the telecom companies with a database of over 80 million customers with fully verified credentials.

As a result of the SIM verification drive, Telenor started placing biometric terminals at their agents’ premises, seeing it as an opportunity to grow the business. Based on this new capability, the company launched the ‘one-step-mobile-account’, which required only a few minutes to open a customer account once the formalities were processed. As a result, the rate of Easypaisa accounts opened shot up, hitting 8.1 million very quickly, of which 1.1 million were active accounts (accounts not used for one year are considered dormant). Other mobile companies followed suit.

Around the same time, the telecom companies were able to negotiate lower biometric verification costs with NADRA, thus providing a further incentive to customers to open a mobile account. According to SBP estimates, biometric devices at agents’ premises will grow to 62,000 by the year-end.

Another significant development has been the introduction of affordable smartphones, which along with the launch of 3G and 4G will eventually ensure faster data download and a better internet experience. As a result, mobile internet usage will grow exponentially and extend deeper into the rural areas. Industry estimates suggest that the smartphone user count will reach 50 million by 2017.

Easypaisa is already focused on meeting a target of 50 million mobile accounts by 2017. The benefit they see is that even if the average balance maintained in their active accounts remains at the current average of Rs 3,000, the amount of money coming into the Easypaisa mobile account at Tameer Bank by end-2017 could reach Rs 150 billion.

Consequently, Easypaisa have been beefing up their services; they already offer free fund transfer between Telenor service users, an ATM card, NFC Tap and Pay at selected merchants, profit on mobile savings account (seven percent per annum) and free insurance cover. Much more is in store, depending on how the digital ecosystem evolves.

Other mobile service providers are also getting their act together. UBL Omni offer a profit on their mobile accounts, while Mobilink’s Mobicash offer insurance to their mobile account holders. Other players need to wake up to these growing market opportunities and offer better value to customers.

According to Nadeem Hussain, CEO and Founder, Tameer Bank, the financial services industry is at “a tipping point of ubiquitous payments.”

He suggests that the percentage of Pakistani adults who hold a conventional bank account has dropped from 10 to nine percent over the last three years while the number of mobile account holders has jumped from three to six percent. In his opinion, the government can play a critical role in bolstering mobile banking by routing all its payments (not just G2P) through this mechanism. Additionally, they can use BB to source funds from the public by launching “electronic prize bonds and micro T-bills.”

Clearly, the way ahead is to indentify more creative ways of using mobile technology and banking know-how to spur the momentum for BB further and ensure that the facility can be used across all sectors of the economy, for all kinds of receipts and payments and for the purchase of routine goods and services.

Ejaz Wasay is Senior Fellow Marketing, Institute of Business Management.

ejaz.wasay@gmail.com