The banking sector in Pakistan has come a long way since 1947. With over 12,000 branches spread across the country, the banking footprint is well established. However, it is still insufficient to serve the rapidly growing population, most of whom still have little or no access to banking services.
The State Bank of Pakistan, the regulator of the banking sector, realised the gravity of the situation and once the technology was available, grasped the opportunity to bring the “unbanked” lower income groups and rural population into the fold. The solution to this situation is branchless banking that relies heavily on IT, especially telecommunications technology.Branchless banking – Rise of the unbanked
Branchless banking is defined as the delivery of financial services outside conventional bank branches, often using agents and relying on information and communications technologies to transmit transaction details – typically card-reading point-of-sale (POS) terminals or mobile phones. It has the potential to radically reduce the cost of delivery and increase convenience for customers.
Consequently, branchless banking can increase access to financial services for the poor, but only if regulation allows the following:
(i) permit the use of a wide range of agents outside bank branches, thereby increasing the number of service points.
(ii) easy account opening (both on-site and remotely) while maintaining adequate security standards.
(iii) permit a range of players to provide payment services and issue e-money (or other similar stored-value instruments), thereby enabling innovation from market actors with motivation to do so.
The basic concept is, for those who cannot or do not go to the bank for logistical or at times even social reasons, the bank comes to their doorstep or at least nearby. Major services on offer:
(iii) Remittance to various cities, where the receiver may not need to have a bank account
(iv) Payment of utility bills
(v) Payments for products/services provided by vendors who accept e-payments through branchless banking channels (for example Internet Service Providers)
In addition to consumer-centric services, there is also great potential for the government. The government can use branchless banking to make or receive payments from remote areas where physical infrastructure is not present.Models
Across the globe, there are various models of branchless banking followed. The most widely followed model in South Asia is the One-to-One model, where a single bank or financial institution collaborates with a single telecom company or an organisation with a large distribution network for providing financial services.
Theoretically, either the bank or the telecom can take the lead in this model. However in Pakistan, the One-to-One model is a bank-led venture with the bank partnering primarily with a telecom company on GSM networks. The other models are One-to-Many, where a financial institution partners with many telcos for the provision of services; and Many-to-Many, with cross collaboration among various stakeholders in the branchless banking infrastructure. At the macro level comes G2P (Government-to-Person) model where the government uses the branchless banking to make or receive payments.
A typical branchless banking model is beneficial for the bank, the telco, consumers and the economy as a whole. Below is a simplified diagram of collaboration between a bank and a telco for branchless banking services.