The challenges of launching a technology-based banking service in Pakistan.
Launching a technology-based banking service in Pakistan is no cakewalk; there are plenty of barriers to adoption, not the least of which is a low literacy rate, lack of understanding about the services offered and security concerns. However, this has not stopped banks from offering e-banking products, which include ATMs (easily the most popular), debit and credit cards, funds transfer, mobile banking and more recently, internet banking. The relatively young JS Bank is the latest entrant in the field of internet banking, with a launch in December 2011.
Internet banking has been a slow starter in Pakistan, however the latest Payment Systems Review by the State Bank of Pakistan (SBP) shows that the volume and value share of internet banking rose by 89% and 117% respectively in the first quarter of FY 2011-12 (compared to the first quarter of FY 2010-11). It is important to take these figures with, what one banking professional calls, a bucket of salt. A deeper analysis of the figures shows that internet banking accounted for only 2.5% of all e-banking transactions in volume terms and a mere 1.3% in value terms in the first quarter of FY 2011-12.
So why then are banks such as JS investing in internet banking?
According to Kamran Jafar, Group Head, Retail Banking Group, JS Bank, the SBP is keen to develop alternate delivery channels in an attempt to draw more people into the banking net. In this context, internet banking becomes part of the process of back end infrastructure development, which will eventually become an offshoot of the brick and mortar side. Jafar adds that launching the internet banking service was also an important part of further building the corporate brand.
By virtue of being a late starter, JS’ first challenge was to provide a service that was in some key way, different from that of the competition. Although JS Internet Banking offers the entire range of features offered by other banks, including funds transfer and bill payment (the most popular internet banking feature), the key differentiators, says Jafar, are features such as ease of access, augmented security and a greater degree of convenience via the ‘standing instructions module’.
“Customers can schedule monthly payments, and add certain limitations, so that if the payment exceeds a certain amount, we will check with the customer before making the payment.”
Differentiation aside, Jafar says JS Bank understands, considering the frequency with which identity theft and cyber crime occur in Pakistan, that security is one of the prime concerns for customers.
In response to this, JS wanted to put the most stringent security measures in place to ensure that the internet banking experience would be as secure as possible.
“We have a comprehensive security set-up for internet banking, which requires customers to enter their debit card number to register for internet banking in addition to the user ID and password for gaining access to their account. In order to conduct financial transactions, customers are also required to generate another secure financial PIN (FPIN).”
While this ensures security, it also creates additional impediments to popularising internet banking as customers need to have a valid debit card to sign-up. Jafar acknowledges this and says that JS has had to promote debit cards in order to get internet banking sign-ups, but is still adamant that strong security measures are crucial.
“One of the issues with internet banking is that there are very few fallbacks in terms of settlement, so iron-clad security infrastructure is of paramount importance.”
In spite of the focus on security, the challenge of getting people to sign-up remains. Jafar says customer response has been positive albeit slow, in large part because the majority of JS Bank branches are located in smaller cities and towns where there is little or no internet access and people still prefer to go to a brick and mortar branch.
Beyond the sign-ups, getting people to actively use their internet banking account is what matters. Not only is this an efficient and more convenient way of banking, it also allows the bank to cut down on customer service costs. However, as evidenced by the SBP figures, most Pakistanis still prefer to do their banking the old fashioned way. So what needs to happen for this to change? According to Jafar, a few key measures could help to make internet banking more popular.
“The onus for growth doesn’t only lie with the banks; the industry infrastructure also has to grow. Take ATMs for example, which became really popular after 1-Link was introduced. This is what we need today, a common platform that all banks can hook onto, but this requires an initiative from the SBP as well as other relevant bodies. In addition, the SBP should issue a comprehensive set of rules for e-banking transactions, similar to its Branchless Banking Guidelines, as this will reduce ambiguity among the banks.”
Ultimately, says Jafar, what banks are looking for is a system that gives them and their customers security as well as leeway to grow.
In terms of how JS Bank plans to grow its internet banking service, Jafar responds that “we are hoping to further grow our branch network in the major cities and this will help in getting more sign-ups. We also plan to offer payment services in association with business partners, although this will be launched in phases.”
Currently, Pakistani banks only offer the most basic, plain vanilla services when it comes to internet banking and as Jafar puts it, “when customers are able to conduct full service banking and transactions such as paying their kids’ school fees, insurance premiums and buying airline tickets via their online account, that will be when I would say internet banking has truly arrived.”