July 23 - 29, 20

Pakistan has a population of 180 million people therefore creating a large market for the purchase of consumer goods, consumer electronics and durables. The high demand has been evident in the purchasing of mobile phones with an estimated increase in imports by more than 50 percent to 60 percent through FY13. A core reason for an increase in the 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 Rs 1,000 upward to Rs. 80,000. Tele-density in Pakistan is 70% with an estimated 125 million people carrying a mobile phone. Pakistan has the second highest market for use of mobile phones after India having a tele-density of 80%. For international cellular companies and mobile operators, the market potential in Pakistan for those who do not have a cellular phone gives an opportunity for deeper penetration within the country. With new models imported throughout the year, consumers not only seek purchases of new phones but also replace older models which makes the cellular industry lucrative for business.

In addition to the cellular market, banks offer services to people for opening accounts and executing transactions through a formal network extended through bank branches. It is estimated that only 25% of Pakistanis hold bank accounts whereas 14% of the rural population and 67% of the urban population are banked. The rural penetration of banks continue to remain low due to the complexity of running a physical branch and the availability of skilled resource. Banks on the other hand would only establish and keep a branch provided that the 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, the overall cost of operating a branch is expensive and may not be effective in the long run leading to the relocation of the branch or closure.

Banks globally, specifically banks that operate in the western markets do not require customers to visit the bank branch once the account is established. Banks in developed markets also encourage consumers to carry out all basic functions including remittances, transfers, loan requests, card requests or replacements, payment of bills and university fee's to name a few through either an online portal or through the use of mobile phones. In respect to Pakistan, high teledensity and low penetration of banks to provide financial services, the gap is being bridged though the use of mobile technology with an aim to shift from conventional banking to branchless and mobile technology to provide financial services. Based on the business model, telecom companies that have penetrared the market with penetration have the geographic reach which banks can capitalize on. Following the telecom based model for providing banking services, Telenor through Easypaisa provides basic fund transfer services through Tameer Microfinance Bank whereas UBL with the 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.

Banks in Pakistan have already witnessed a slowdown in the consumer segment where those now qualifying for a bank loan have to meet a minimum benchmark set which has been revised time and time again to make such requirements more stringent. In such an environment, banks would like to lower expenses to the maximum without having to incur extra costs. Through the telecom based model, banks can keep a high tap on costs without having the need to operate and expand the branch network which can be substituted through a virtual hub for the same advantages. The core advantage of mobile banking is the ease and convenience in terms of the consumers whereas being cost effective on part of the banks. Consumers are actively being pushed with inbound phone calls to carry basic banking through the use of mobile banking with an aim to reduce the consumer traffic physically approaching the branch.

Banks in Pakistan have setup separate divisions such as retail and consumer banking who look after alternate channels for delivery of banking services. The objective is to help provide consumers with banking services without ever having them 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's literacy level is low, mobile services are usually availed through strong word of mouth and opinion driven from social settings. Those who are illiterate may establish an account but may not carry volumetric transactions since comfort is driven primarily through approaching a physical branch. Looking at an average Pakistani resident, those who live at or below poverty line, make a living from pay cheque to pay cheque, and are unaware of alternate channels or find high comfort in visiting a physical branch despite their knowledge and competence in alternate channel of delivery, they are most unlikely to revert to mobile banking. A common misconception for those not using these services is the hacking risk of the account causing extreme discomfort.

With a significant portion of the population untapped due to geographic coverage, the idea for banks is 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 a formal banking network where money in the legal system will flow through the financial sector thereby increasing the deposit base and improving transparency in the payment system which is largely undocumented to date. Alternate channels with success witnessed with Omni and Easypaisa have been examples of how country wide penetration is possible if exploited for social benefit and long term profitability.

Despite the challenges to promote the use of banking through handheld devices, banks are investing heavily in technology and human resources thus keeping in line with the market potential. In the western markets, one such bank has an appraisal system for the branch managers based on consumers visiting the branch. This means that if the consumers who visit the branch are below a certain threshold as defined by the headquarters, the bonus will be the highest also keeping into account the deposit targets and service level maintained. The branch managers and officers are also required to speak to every current and new consumer visiting the branch and direct them towards alternate channels.

Consumers who use mobile technology mostly do so for bill payments, fund transfer, checking account balances which are basic bank services. One such objection for the use of mobile technology are high charges, both by the bank and the telecom operators providing GPRS or internet services which hinders frequent use. Banks and telecom companies further argue that the charges are high since investment in technology and human resource hired responsible to supervise the business increases the cost per transaction which needs to be charged from the customers. Another objection with regard to mobile technology is the banks are not offered services beyond the basic banking, which may induce requesting for a new cheque book with subsequent delivery at office or residential address, request for increase in limit on credit or debit card, fill and forward an application with request for a consumer loan, standing instructions for transfer of balances between account of same bank or different banks to name a few. Another argument is that if a consumer has an account in a multinational bank in Pakistan and another account in the same bank abroad, consumers cannot use the online global portal for transfer of funds between both accounts.

SBP is encouraging the use of mobile technology and has issued specific guidelines as to how transactions are to be carried out based on slabs which would hinder any chance of money laundering. Cellular technology is seen as a positive sign, the challenge is Pakistan is a cash led economy which needs to be immersed in the financial sector to increase transparency in transactions. An objective for SBP is to push the consumers and financial institutions towards financial inclusion and provide ease through which consumers can use banking services. Pakistan once again with the highest teledenisity in South Asia after India has an opportunity to use such technology in order to attract the unbanked population in order to encourage banks to reduce the number of branches thus relieving the banking institutions of additional costs.