Finding the right relevance for digital financial services

Financial inclusion in Pakistan has long been a thorny issue in terms of economic development. Half of the adult population is still financially excluded as per the latest State Bank of Pakistan’s (SBP) Access to Finance Survey 2015. According to the 2017 Global Findex Report by the World Bank, only 21% of the population disposes of an account with a financial institution; the corresponding figure for the rest of South Asia is 68%, indicating that Pakistan has some catching up to do.

Almost half of the adults who use any sort of financial services do so through informal means such as hundi and hawala systems which provide non-bureaucratic and undocumented credit facilities to small farmers and lower income households. The simplicity of the process means that literacy is not a requirement and is therefore ideal for people whose financial needs are limited to money transfers within Pakistan.

When Easypaisa was launched in 2009, it was hailed as a game-changing product that would eliminate financial exclusion by addressing a huge pain point in the banking industry – convenience. Due to efficient distribution models and innovative delivery approaches, customers could conduct their transactions outside banking hours and the agent network served areas which the banks could not reach.

Branchless banking transactions are conducted in two ways: mobile wallet and over-the-counter (OTC). Mobile wallets use a cell phone number as an account number where customers can deposit money – this allows for larger applications such as QR code payments and mobile top-ups. OTC is a one-off transaction administered by a retailer and offers limited services. According to SBP, branchless banking accounted for Rs 639 billion in 320 million customer-based transactions in the last quarter of 2018.

Despite these hefty numbers, the results have been mixed, as according to SBP, financial inclusion has increased by only three percent between 2008 and 2015, although branchless banking did help reduce reliance on informal services by almost doubling the number of customers using formal means.

The concept of branchless banking revolves around the notion of convenience; the fact that we can perform all our financial transactions without leaving the house. Yet, the majority of mobile money customers find it easier to go to their retailers and have them undertake their transactions. This is similar to why some people still turn to travel agents for their bookings rather than go to a website.

So why is mobile money not increasing financial inclusion more rapidly? The behaviour of users provides a first clue as over half the transactions are utility bill payments, mobile top-ups and money transfers. It seems that the financial requirements of most customers hover around absolute basics; less than one percent of the transactions were for loan repayments. Furthermore, on average, customers are extremely dependent on the agent or retailer to carry out their transactions for them. In most cases, customers state what they need (paying a bill or sending money) and the agent will perform the transaction through the service that offers them the highest commission. Often, mobile wallet users rely on their agents to help them with even the most basic of functionalities such as checking their account balance and unsurprisingly, of the 47 million mobile accounts registered, only 42% are active (source: SBP).

All this may serve to highlight why branchless banking (OTC in particular) has been successful in reducing dependency on the informal financial sector. Compared to the hundi/hawala networks, customers with basic financial needs have found a more reliable channel. But this raises the question of whether the value proposition offered by mobile money has really resonated with the unbanked population. Why is it that Pakistanis do not find the notion of going cashless appealing?

The concept of branchless banking revolves around the notion of convenience; the fact that we can perform all our financial transactions without leaving the house. Yet, the majority of mobile money customers find it easier to go to their retailers and have them undertake their transactions. This is similar to why some people still turn to travel agents for their bookings rather than go to a website. In reality, the perceived ‘convenience’ offered by branchless banking is, in fact, inconvenient to the unbanked population.

To overcome these issues, the first thing that needs to be addressed is the inability of people to use mobile money. A good starting point could be to incentivise retailers to maintain active mobile accounts rather than giving them wallet activation targets. This would prevent a tendency to open mobile accounts that later remain dormant. Secondly, awareness needs to be raised among customers regarding how user-friendly their mobile wallets can be.

These efforts need to run in conjunction with SBP’s National Financial Inclusion Strategy that includes improving financial literacy and leveraging public-private alliances. Lack of ability leads to lack of confidence; people need to be comfortable with the idea of branchless banking and there is a perception that mobile money is unreliable because it is not tangible (like my parents preferring to pay by cheque rather than use internet banking). Many people are also afraid of making mistakes when using their mobile account which may then lead to losing cash; it is easier to hold the retailer accountable for such errors. Promotional campaigns need to raise awareness and address these fears; perhaps a clever spin on the fact that mobile money, because it is invisible, is less likely to be stolen.

Thirdly, relevance for mobile money needs to be created. According to GSMA, a shift to a ‘payments as a platform’ approach is at the heart of the industry’s new direction; yet, our payment ecosystem is limited to urban centres, with deals with fast food chains and the facility to pay traffic. Although this is a good start, relevant use case scenarios for the common man need to be developed and integrated in order to dispel the perception that mobile accounts are only useful if one earns large sums of money. Fourthly, given that the majority of the unbanked population is made up of women, special focus should go on promoting gender inclusion. According to SBP, only 20% of mobile accounts are operated by women and GSMA reports that there is a strong correlation between the percentage of women agents and women customers. Increasing the number of women agents should be priority.

Branchless banking has the potential to stimulate the uptake of other financial tools such as credit and e-commerce. The success of branchless banking lies in leveraging mobile accounts and not just retailer-dependent OTC transactions; otherwise, we will only be addressing the same basic level needs formerly serviced by the informal sector and fail to achieve SBP’s goal of opening formal financial access to 50% of the population by 2020. For this to happen, brand managers need to reposition the way they are marketing their products.

Ans Khurram is an insights professional working in the telecommunication industry in Pakistan.
anskhurram@gmail.com