BANKING & CELLULAR TECHNOLOGY: WHERE ARE WE?
SAAD ANWAR HASHMI
Mar 19 - 25, 2012
Pakistan with a population of 180 million people creates an automatic demand for consumer goods, consumer electronics, and consumer durables expected to increase minimum to an increase in population year on year.
In recent times, high demand is witnessed for purchase of mobile phones with an estimated increase in imports by more than 50 per cent through FY12.
A core reason for an increase in demand for mobile imports consists of options available to buyers to pick and choose between brands. Prices of mobile phones with basic functionality continue to fall. With stiff competition between brands and Chinese imports, new phones are available ranging between Rs1,000 upward to Rs80,000. Teledensity in Pakistan is 65 per cent with an estimated 117 million people carrying mobile phones. With new models imported through the year, consumers not only seek to purchase new phone but also replace older models, which make the cellular industry lucrative.
In addition to the cellular market, banks offer services to people for opening accounts and execute transactions through a formal network extended through bank branches. It is estimated that only 25 per cent of Pakistanis hold a bank accounts whereas 14 per cent of the rural population and 67 per cent of the urban population are banked. Rural penetration of banks continue to remain low due to complexity of running a physical branch and availability of skilled human resource. Banks on the other hand would only establish and keep a branch provided deposit targets are met and the branch assists the overall bank in generating required revenues.
In addition to such challenges which may extend to both urban and rural areas, overall cost of operating a branch is expensive and may not be effective in the long run leading to relocation of the branch or closure.
With high teledensity and low penetration of banks to provide financial services, this gap is being bridged though the use of mobile technology ands alternate channels with an aim to shift from conventional banking to branchless and mobile technology to provide financial services.
Based on the business model, telecom companies with penetration have the geographic reach, which banks can capitalize on. Following the teleco-based model for providing banking services, Telenor through Easypaisa provides basic fund transfer services through Tameer Microfinance Bank whereas UBL with launch of UBL Omni in collaboration with various mobile operators provides basic banking services with an aim to bring the unbanked to a formal banking network.
Increased awareness and operating a bank account on a mobile device eliminates or reduces the need for opening of physical branches. Main advantage of mobile banking is ease and convenience on part of the consumers whereas being cost effective on part of the banks.
Consumers are actively being pushed with inbound phone calls to carry basis banking through the use of mobile banking with an aim to reduce the consumer traffic physically approaching the branch.
Mobile banking is the next way forward to provide consumers with banking services without ever having to approach the branch. With such innovation and increased use of mobile phones, there is high competition between banks extending mobile banking services on the basis of services and price. In order to increase consumer awareness, marketing efforts continue on both outdoor, print and media to induce people to choose an alternate way of banking. However, since Pakistan literacy level is low, mobile services are usually availed through strong word of mouth and opinion driven from social settings for which consumer spends and marketing plays a pivotal role to keep the branch at top of the mind awareness. Those who earn a minimum wage and do not execute volumetric transactions drive comfort primarily through approaching a physical branch.
Shifting these small deposit holders to alternate channels of banking through cellular technology is a challenge. Another challenge, which can hamper the growth of mobile banking, is the ongoing threat of mobile snatching which restraints the use of expensive phones enabling the use of mobile banking.
The idea for banks to build a stronger consumer base without having to open a new branch is only possible through alternate banking channels. Considering the rural penetration of the financial sector, mobile banking will allow those residing in rural areas to execute transactions through formal banking network where money in the legal system will flow through the financial sector thereby increasing the deposit base. Alternate channels with success witnessed with Omni and Easypaisa are examples of how countrywide penetration is possible if exploited for social benefit and long-term profitability.
Despite the threats and ongoing challenges, the market continues to grow with each bank putting effort to switch from conventional banking to alternate channels. One such objection of the use of mobile banking apart from the comfort or law and order situation is the charge, though at par with competing banks, is high both through services offered by mobile operators providing internet, data communication and GPRS services coupled with those charges by financial institutions. Mobile technology is most being utilized for utility bill payment, fund transfer and checking of account balances which account for only basic mobile services. It is often argued that the service currently offered is simply following the western model of banking being implemented in Pakistan rather than focus on innovation which may be replicated all over the world.
SBP before allowing the teleco let model issued guidelines of how transactions shall be carried out based on allocated slabs. These slabs only allow basic facility of funds transfer primarily targeted to low income groups and discourage any form of money laundering.
Pakistan is predominantly cash led economy, which needs to be shifted into the financial sector to increase transparency in transactions. An objective of SBP is to assist both the consumers and financials institutions towards financial inclusion and provide ease through which banking services are offered to the consumers.
For the alternate channel to be successful going forward, financial institutions, mobile telecom operators, SBP and Pakistan Telecommunication Authority (PTA) collectively have to work together to provide a platform where mobile based transactions are secure leading to consumer comfort along with marketing and sales efforts to attract new customers yet shift the current customers to mobile and alternate mode of banking. Pakistan with high penetration and use of cellular technology and opportunity to bank the unbanked may assist banks in reducing the number of branches, thereby reducing costs and provide superior services through the use of technology.