The new name of convenience

Nov 29 - Dec 05, 2004

Less than a decade ago people could only dream about the level of convenience they are enjoying at present. A lot of people attribute this change to induction of technology but real credit goes to the players and the regulators. Players took the initiative and started investing in the technology. This would have not become a norm if not fully supported by the regulators. Now the race is on and each player is trying hard to attain an edge on all others. Some cynics say that the benefits of technology are confined to urban areas only. To be honest, the low literacy level in the country is a major constraint in the effective utilisation of the technology particularly in the rural areas.

The transition of banking system started in early nineties when the government decided to allow the private sector to establish commercial banks. A major change in the strategy of banks operating came in after the imposition of economic sanction on Pakistan in 1998. The 9/11 incident and the subsequent events changed the entire landscape of the banking in the country. Since then the whole concept of banking has changed in Pakistan at an unprecedented speed. The banks are no longer confined to the branch network and conducting transaction is not restricted to the typical banking hours. Now the clients can withdraw money whenever and wherever they are. Transfer of money from one city to another can be done instantly. One need not stand in long queues under the scorching heat to pay the utility bills. This lastic money system allows people to make purchases without carrying cash in their wallets. On top of every thing the Internet allows them to make certain transaction while at home/office or the nearby cyber cafe while moving from one place to another.

One of the factors that have contributed a lot in popularising e-banking has been the growing network of auto teller machines (ATMs) in the country. Some critics may say that the use of ATMs is one out of hundreds of options available under the umbrella of e-banking. Whereas others quote an old saying, "The taste of the pudding is in eating". Unless a person is exposed to the simplest function he/she can never build the courage to undertake the other but more complicated options. It is suffice to say that now the infrastructure has been built and it is up to the people to reap the benefits or continue to do the things in the orthodox manner. The procedures are not complicated but at time language do become a serious limitation.

The second factor providing the opportunity for conducting transactions electronically is the credit/debit card. The infrastructure or the information highway allows the cardholders to complete a transaction without making payment in cash. In case of a credit card the amount is debited against a pre-determined credit limit of the cardholder. Whereas in case of a debit card, the amount is instantly debited against the balance maintained in the account of the cardholder. The underlined satisfaction is that both the buyers and the sellers consider such transactions safe, though the potential threat of hacking is always there. Since a person is required to protect his cash from thieves, it is also his/her responsibility to protect the card from possible theft or misuse by an unauthorised person. In case of loss of card, it is also the responsibility of the cardholder to inform the bank immediately for blocking the unauthorised use of the card. Like one has to protect his/her cash from potential snatchers, it is also the responsibility of the cardholder to protect his card from the hackers.

Another example of transactions commonly conducted on the information highway is the online banking. This allows the accountholders to withdraw cash from the nearest branch of his/her bank or a branch situated in another city while travelling. The greatest advantage of online banking becomes evident when the person is away from the hometown. One is saved from carrying large amount during travel but also the local travellers cheques, previously considered to be an ideal instrument for settling payment during the travel. On top of this, the ATM facility now offers 24-hours a day and seven days a week cash withdrawal facility.

One of the factors contributing to a very fast growth of electronic transactions has been a limitation faced of the banks limited number of branches. When the government allowed establishment of commercial banks by the private sector, the biggest challenge for the new entrants was to compete with the banks operating in the public sector, enjoying the advantage of extensive and intensive branch network. To overcome this immediate threat, the new entrants brought the banking out of the traditional branch network. The emerging technologies and its global use provided the way out. The new players took the initiative, which was well responded by the accountholders.

Most of the banks operating in Pakistan have been making huge investment in three key areas namely 1) expansion of the branch network, 2) upgradation of the existing infrastructure and 3) adaptation of the new technologies. The ultimate objective is to offer a complete electronic banking facility. All the investment being made to create the infrastructure allowing the clients to undertake any transaction at any time irrespective of the distance from the conventional bank as well as any hour of the day. The new era marks the beginning of the use of technology previously considered to be the hallmark of developed countries.

According to the last annual report of State Bank of Pakistan (SBP) the number of online branches reached higher in June 2004. The total number of ATMs also increased. A factor adding to the facility has been the unification of the various independent networks. Now the ATM cardholder a bank can use any ATM of his/her choice and convenience. However, it is also a fact that most of the ATMs are concentrated in large urban cities. The slower growth in the population can be attributed to a number of factors that include huge capital expenditure, mindset of people and lack of the basic requirement computerised branch network. As against the total number of branches operating in the country only one-third has been computerized. A positive development is that nearly fifty percent of the computerized branches have attained the status of online branches and more will attain the status in the near future.

Initially banks chose to install their own ATMs. However, very soon became evident that it was a very expensive proposal. To start with a number of banks formed network called 1-Link. This enabled the ATM cardholders of the member banks to use any of the nearest ATM carrying the 1-Link symbol. Another network, MNET, established by Muslim Commercial Bank enjoyed the deepest penetration for a long time. It was also realised that the average utilization of both the networks was very low. To reduce the cost per transaction both the networks were merged. It may be worth mentioning that the banks have succeeded in reducing the cost per transaction but very few people know that for a transaction on other than the dedicated machine, they have to pay a transaction cost. However, most of the cardholders looking for convenience are willing to pay the additional cost. They term this 'cost of convenience' rather than an extra expense.

Commercial banks achieved another landmark when both the switch links were connected on March 16, 2004. The connectivity between the two links now allows cardholders access to their accounts from over 600 ATMs across the country. The convenience of the inter-switch connectivity is evident from the fact that over 4000 transactions were executed between the two switch-links during the initial two weeks alone.

A key factor contributing to the fast growth of number of ATMs and the cardholders is the low fees being charged by the issuing banks. The 24-hours convenience of withdrawal of cash prompts the accountholders to acquire the card. The banks also encourage accountholders to use the card extensively to minimize rush at the branches. It is no longer a secret that MCB enjoys the largest number of ATMs as well as the number of cardholders. The bank has succeeded in building such a number because it has issuing such cards without charging any fees. This encourages more and more people to acquire the MCB ATM card.

To further facilitate its cardholders MCB also signed with a few utility companies for the payment of bills. Now a number of banks offer this service but MCB is enjoying the advantage of 'early bird'.

It is often said that while e-commerce has become a norm around the globe, it seems to be missing in its true spirit in Pakistan. The review of plastic card-based transactions indicates that only a small percentage of total population is benefiting from the huge investment in technology. It is also a fact that the sole reason for the prevailing situation is the low literacy level. However, some analysts say, "Low literacy level is not the real issue. The real problem is that most of the people still prefer to deal in cash to avoid becoming part of the ongoing process of documentation in the country. Since they do not want their transactions to be documented they offer all types of excuses for not utilising the technology."

The love for cash transactions is also evident from total number of bank accounts being maintained in the country. As against a total population of over 150 million and hundred and thousands of business entities the total number is estimated around 25 million, including multiple accounts maintained by business entities and individuals. Half of these accounts pertain to the most populous province, Punjab. The most striking observation is that the total number of credit cards issued in Pakistan is more than 500,000. Out of this 45% cards have been issued in Sindh with the largest number being in use in Karachi. Similarly out of total 1.5 million ATM/Debit Cards issued nearly half are in use in Sindh, the largest number also pertains to Karachi.

The central bank as well as the commercial banks often boasts about the extensive investment being made in the technology. They are never tired of quoting the figures about growing number of ATMs, number of credit and debit cards and even the number of transactions conducted through the ATMs. But this is not the real e-banking. The lack of e-banking facilities has become a serious constraint in achieving the ultimate objective of e-commerce. The biggest disappointment is that so far Pakistan has not been able to establish the network to facilitate e-commerce in its true spirit. The central bank does not allow creation of 'merchant accounts', a must for initiating e-commerce in the country.

The central bank's hesitation in allowing establishment of merchant accounts is said to be due to the widespread cyber crimes. However, many analysts do not accept this rationalisation at all. They say, "Pakistan is not the pioneer and at the best it has to follow whatever is being done around the globe. It should take the advantage of others' experience, if the banks in other countries have been successful in containing the cyber crimes, why cannot Pakistan achieve the same. The safety and security has been made possible by the banks by creating appropriate 'security walls'.

One may argue that despite these strong security walls, frauds related to credit cards are common in the developed world. Therefore, the hesitance of Pakistan's central bank is natural. However, the argument of supporters of merchant accounts is, "the growing number of credit and debit cards and the quantum of transactions conducted shows that the local banks have been able to contain cyber crimes, related to the cards, successfully and efficiently." They also say that the misuse of cards is mostly due to carelessness of the cardholders, rather than the any inefficiency of the system. By disallowing such accounts the regulators are blocking the entry of Pakistan into the system, which has become a norm around the globe.

It may not be a very appropriate example but certainly establishes the fact that if proper infrastructure exists, people are always ready to use the alternative channel for conducting the transactions. The example is online trading of shares. Till November 2002 no such facility was available in the country. AKD Securities took the lead by creating the facility and in about two years time the quantum of shares traded online has increased beyond the expectations. It is worth mentioning that shares are traded and settled electronically in a paperless environment but only payments have to be made physically. Does not this look ironic that payments against the transactions conducted electronically are being made physically?

There are a number of partners in the e-commerce, the three most important being the sellers, the buyers and the banks. Despite the allegation that the banks are not fully ready to support e-commerce, it is also a fact that they are far ahead of the other stakeholders. Even the buyers have developed a mindset but the group lacking the initiative is sellers. It tries to hide its inefficiency by saying that the e-commerce is not possible without promulgating appropriate laws and creating the required infrastructure. However, the fact is that sellers have not done much to enter into e-commerce.

One of the basic requirements for conducting e-commerce is the presence of interactive websites of the vendors. It is often said that a large number of business entities have established their websites. However, the fact is that these sites only provide 'cosmetic' details and hardly help in conducting a business deal. The situation prevails only because of lack of commitment and initiative. The business entities of Pakistan don't have to reinvent the wheel. The expertise is even available locally, but if the clients don't wish to do any thing, the experts do not have any role to play.

As stated earlier one of the missing links is the legal cover for the e-commerce in Pakistan. According to some analysts, "Despite being the most important aspect least development has been made in this area. Pakistan is not the first to offer the e-commerce facility. According to some experts, "The regulators must try to benefit from the experience of other countries around the globe". Even if one assumes, for the sake of argument, that Pakistan lacks the expertise to develop the laws governing cyber trade, it should not be the tumbling block. On various occasions, Pakistan has acquired the help of international consultants, why the regulators are hesitant in accepting their inadequacy in this particular area. Lately, the government has taken the help of an international for the drafting of Insurance Ordinance, why not do the same for preparing the laws pertaining to cyber trade?


Keeping the fact in mind that Pakistan has no option but to follow e-commerce as a norm, it is necessary to reiterate that the country cannot afford further delay in its implementation in letter and spirit. The banks are busy in creating the infrastructure and even the regulators have realised the importance. The only missing link is promulgation of appropriate laws to provide legal cover for the transaction conducted electronically. The existing laws should be amended at the earliest It is necessary to remember an old saying 'Rome was not built in a day'. Successful nations capitalize the experiences of others to stay ahead in competition. The technology is available and laws are known, why to waste time and energy in reinventing the wheel?

It is true that bring the change is not an easy task. It becomes even more difficult when it involves huge capital expenditure and customer response is a little disappointing. However, it is also true that people in Pakistan are learning fast to use the new technology, particularly the computers and telecommunication. This is also the backbone of e-commerce. A lot of people may not find it easy to believe that often queues are seen at the ATMs. This proves that the learning curve is improving with the passage of time. Please give them time to get acquainted with the new technologies and stop calling them 'slow learners'.

Literacy level may be an issue in popularising the use of new technologies. However, in the case of adopting e-commerce and e-banking the real issue is absence of proper mind set. There are thousands of Internet connections in Pakistan and millions of people are fairly acquainted with the technology. If they can afford to waste their precious time in chatting and searching the obscene sites, why can't they be trained to make productive use of the technology?

The regulators must also get rid of the legacy that cyber crimes will proliferate if e-commerce is introduced in Pakistan. If rest of the world is living with this threat and also managing the affairs satisfactorily, believing that Pakistanis are incapable of managing their own affairs is humiliating. There is also piece of advice for the policy planners, stop wasting time for maintaining the status quo. The world is changing at an unprecedented and uncontrollable pace. Move along with the crowd at its pace to avoid the stampede.