Dec 10 - 16, 2007

There has been a deliberate effort to bring commercial banking out of "brick and mortar". The combination of telecommunication and information technology (IT) is providing new impetus. The new strategy is aimed at providing more and better quality of services as well as reducing the traffic of walk-in customers.

Commercial banking sector in Pakistan can be divided into two extremes, "five big banks" and nearly two dozen medium and small size banks. Since most of the banks suffered from limited outreach the only available tool to beat the competition was technological edge, helping the remote customers to use the services without approaching the traditional "brick and mortar" branch. Though, it was considered to be an expensive option, in reality it made the execution speedy and cost per transaction also reduced with the rise in volume.

At present account holders are making extensive use of technology, whether they are aware or not. Now one could hardly see postings being made in ledgers, though in major cities and fewer branches. However, use of technology is intensive and extensive in main branches.

Use of online banking, credit and debit cards, ATMs, phone and internet banking is just not possible in the absence "technology highway". The requisite infrastructure, commonly referred as technology highway is built by using microprocessor based hardware, software along with telecommunication technology. Introduction of high speed microprocessors, larger data storage capacities, broad-band frequencies and use of fibre optics has been playing the most important role in promoting greater use of technology.

The use of electronic channels is consistently growing as contribution of electronic transactions increased to about 25% in terms of number but in value terms these constituted less than 10% of total retail transactions. However, the value of electronic transactions is on the decline declined due to heavy tax payments through paper based instruments.

During last April-June 2007 quarter commercial banks converted 45 manual/computerized branches into online branches and added 44 new online branches, raising the total number of online branches to 4,179 out of total 7,719 branches. The share of online branches in the total branch network increased to 54%. Similarly, during the quarter banks added 120 new ATMs in their network, bringing the total number to 2,294.

The total number of valid cards increased to 5.8 million valid credit, debit and ATM only cards. Total number of credit cards increased to 1.698 million and the number of debit cards, excluding ATM only cards increased to 3.983 million. The total number of ATM cards only is reported at 134,000. Out of the total 5.8 million debit and credit cards, chip based smart cards were 315,000 representing 5.4% of the total active cards.

ATMs are commonly used for small value cash withdrawal. Therefore, the share of ATM transactions in the total number of electronic transactions is highest, exceeding 50% of total transactions. Whereas, the share of Online Banking, POS, Call Centre and Internet Banking in the total E-Banking business was 32%, 15%, 1% and 1% respectively. However, in terms of amount, the contribution of online banking is 95%, since this channel is mostly used for B2B transactions. Share of POS, Internet and Call Center banking is very nominal.

During April-June 2007, according to State Bank of Pakistan 112.5 million retail payment transactions were recorded valuing Rs. 34.8 trillion. The volume and value of e-banking transactions during the quarter reached at 28 million and Rs.3.1 trillion respectively.

Total number of ATM machines during the quarter reached 2,294. The Real Time Online Branches (RTOB) reached at 4,179 and now constitutes 54% of total branch network in the country. Number of POS terminals available to customers was reported at 46,329. Total number of ATM transactions stood at 14.4 million, whereas the amount of such transactions was Rs.88.2 billion.

The number of Online Banking transactions grew to 8.9 million. The value of transactions through Online Banking recorded during this quarter was Rs. 3 trillion. The number of transactions on other e-banking channels (POS, Internet & Call Center/IVR, and Mobile) recorded during the quarter were 4.6 million. The value of such transactions was more than Rs 25 billion.

This is one side of the story but customers have different stories to tell. The biggest and most common complaint is that ATMs give too much trouble on the weekends and during long holidays. "No cash" is the most common plaint and the second most common complaint is "out of order machine/cannot undertake the transaction". The banks attribute these to interruptions in power supply, more than expected withdrawals and often mishandling by the cardholders.

However, experts identify other reasons for the malfunctioning of the ATMs as malfunctioning of telephone lines. Most of the commercial banks have installed ATMs within the branches and looking these after is relatively easier.

This often creates odd situation. In certain areas the number of installed machines per square kilometer is exceptionally high but in certain areas one could not find a machine for kilometers even in a city like Karachi.

Though, the banks are making efforts to increase number of installed ATMs, they have not been able to overcome the problem. The story started with' own' machines to syndication and ultimately linking the two popular links, namely m-net and 1-link.

This way the banks have been able to cater to larger number of customers, off course by charging a fee. However, the clients believe that this fee of Rs 15/transaction should not be there. If the banks are able to earn interest on amounts kept by the account holders, they should not be asked to pay any fee.

However, some of the banks say that the cost per transaction is still high because the average number of transactions is still below the threshold level. This is the reason that most of the ATMs are concentrated in large cities, with Karachi having the largest number.