Yaseen Anwar: Mobile banking in Pakistan
Keynote address by Yaseen Anwar, Governor of the State Bank of Pakistan, at the
5th International Conference on "Mobile banking in Pakistan", Karachi, 15 March 2012.
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Distinguished Guests, Ladies and Gentlemen!
I feel privileged to be here today at the 5th International Conference on Mobile Commerce in
Pakistan and share my thoughts on the development of Mobile banking.
At the outset, let me congratulate the organizers for bringing together relevant stakeholders
to this very innovative value-creation opportunity ushered by the mobile commerce era. The
State Bank sees this as a great opportunity for safe, faster, and efficient provision of financial
services to the un-served segments of the society through mobile technology and agent
banking.
First I would like to briefly talk about the significance of Mobile Commerce and then move on
to the subject of mobile banking for promoting financial inclusion.
From the business perspective, the M-Commerce encompasses technologies, applications
and services that involve several stakeholders like infrastructure equipment vendors,
software vendors, content providers (including advertisers), content aggregators, Mobile
Network Operators, mobile device manufacturers and of course financial institutions.
Therefore, Mobile Commerce is generally characterized by a variety of business partnerships
often involving a large number of organizations, from content providers to financial
institutions to mobile network operators.
Over the past few years, Mobile Commerce has been used as an alternative channel for
delivery of various services in developed countries, whereas in the developing countries
attempts are being made to leapfrog and use M-commerce as a main channel due to the
limited outreach through conventional channels. I firmly believe that usage of innovative and
unconventional channels will overshadow the conventional means of business and
communication. To substantiate my optimism, currently the growth in number of mobile
phones is far greater than the growth in the number of Fixed Lines across the globe,
particularly in developing countries. Global mobile phone subscriptions have reached 6
billion, almost equivalent to 90 percent of the world's population. In Pakistan, the number of
mobile phone subscribers has reached 112 million and growth continues apace. The current
subscription rate is as high as 100 million which roughly is around 62 percent of the total
population. We should acknowledge the role played by the Government, PTA and the Mobile
Operators for achieving this high level of penetration, especially under our existing
socioeconomic conditions.
Turning now to the use of mobile technology to promote financial access, there is an
emerging consensus amongst policy makers around the world to improve access to financial
services for poor people, through supporting the safe and sound spread of new modes of
financial service delivery capable of reaching the poor. G-20 leaders in their last summit in
Toronto in 2011 adopted 9 Principles for Innovative Financial Inclusion which includes
promoting technological and institutional innovation as a means to expand financial system
access and usage, including by addressing infrastructure weaknesses. These principles aim
to help create an enabling policy and regulatory environment for innovative financial
inclusion. The enabling environment will critically determine the speed at which the financial
services access gap will close for the more than two billion people currently excluded. They
are the financially excluded in a world where access to financial services can mean the
difference between surviving or thriving.
Innovative modes of financial services delivery can have a transformative effect on poor
households. We know how greater access to even small amounts of credit can dramatically
improve welfare - such as women being able to buy a sewing machine and establish a small
business. Awareness is growing that access to a wider set of financial services provides poor
people with capacity to increase or stabilize their income, build assets and have much
greater resilience to economic shocks. Appropriate and affordable savings products,
payment and money transfer services (both domestic and international) as well as insurance
are all important.
At the same time, One billion people with mobile phones in the world do not have even a
basic bank account. As the cost of information and communications technology shrink, the
time is ripe for using technology to address financial exclusion. Technological innovation
changes the cost and access equation - making it economically viable for financial service
providers, often in partnership, to reach poor people, with a wider range of products and
services.
Innovation also extends to new institutional approaches. Increasing numbers of countries
with large unbanked populations are pioneering policy and regulatory innovations that open
space for "banking beyond branches" and similar new approaches to the delivery of formal
financial services. This is allowing previously excluded customers access to an increasing
range of basic financial services.
Pakistan has one of the lowest financial penetration levels in the world with 56% of the adult
population totally excluded, and another 32% informally served. We are a country with a
population of 180 million living in geographically diverse areas. Mobile phone subscription
has seen explosive growth in Pakistan - total subscription now reaches 112 million across
customers in all income segments, and growth continues rapidly. In contrast, banking
accounts are owned by approximately 25 million customers largely belonging to high income
segments. And there are about 7 million borrowers. With a network of 10,000 bank branches,
Pakistan has the highest number of people per bank branch in the region.
Until now, the lack of a sizable distribution network had been a major challenge in
broadening access to financial services. As a result, a large segment of the population,
particularly those living in rural and remote areas have remained deprived of banking
services. An important implication of this exclusion is that this large proportion of population
has been overwhelmingly reliant on cashbased transactions, thus causing a negative impact
on documentation of the economy, the tax-base, efficiency of economic transactions, etc.
Developing bricks and mortar branches is a costly proposition. To encourage FIs to develop
alternative delivery channels, SBP in 2008, introduced Branchless Banking (BB) Regulations.
The Regulations are applicable to all Commercial Banks, Islamic Banks and Microfinance
Banks in Pakistan.
These Regulations have actually catalyzed a number of branchless banking deployments
with dual advantages: First, there is enormous scope for expanding outreach, especially to
hard-to-reach rural areas. The emerging models relying on "banking agents" will greatly
extend the distribution of financial services to the poor and marginalized segments. Second,
alternative delivery channels promise significant cost reduction to institutions. Due to these
benefits, the expansion in the retail network of microfinance has arisen overwhelmingly from
agents and mobile phone channels.
Mobile phone banking is now the new market niche for both banks and Mobile Network
Operators (MNOs), and many of them are preparing to enter in this exciting market in a big
way. In almost 2 years, the branchless banking deployments with 22,500 agents offering
lowcost services all over the country, including in the hitherto neglected areas, have surpassed
the 10,000 branch network of banks. The fast mobile penetration and its continuing strong
growth fuels expectations that transformational branchless banking models would prove a
game-changer in improving access to finance in Pakistan.
The State Bank of Pakistan always welcomes innovative products and desires to work with
development partners in the promotion of such products that offer choices for Banking or
Payment Services in terms of cost, risk, and convenience. Certainly, benefits of such
initiatives for the economy are overwhelming.
I strongly believe that where conventional banking has its limitations, the Electronic
Payments and Mobile Banking products should fill the Gap. In particular, the challenge is to
extend these services to "Unbanked" or the Underserved segments of the population, that
mostly reside in far flung rural areas. In this respect a small Retail Store in a remote part of
the country could serve as an Agent to help solve everyday problems of a farmer, who is
generally required to travel long distances and incurs high costs for utilizing the necessary
financial services.
As a forward-looking regulator of the Banking Industry, the State Bank has played an
effective role in providing an enabling regulatory environment for the banks to leverage their
full potential of technology, mobile operators' penetration, and other available delivery
channels to provide financial services to all segments of the population. Until recently, banks
were largely focusing on conventional banking, but with the introduction of Branchless
Banking Regulations in 2008, banks are now getting fast into action by exploiting Information
and Communication Technologies (ICT) to offer more innovative products and services.
These Regulations have now enabled our banks to diversify their geographic footprint in
areas where conventional branch banking was either inadequate or totally absent.
Today, we have two fully functional Branchless Banking deployments with over
22,000 Access Points with a geographic dispersion in over 600 cities across the country.
These deployments are serving more than 1 million accountholders and millions of
Over-theCounter customers. So far around 80 million Branchless Banking transactions of
Rs.300 billion have been executed in Pakistan. In addition to the above, a number of banks
are already in the Pilot Phase with others approaching SBP to initiate Branchless Banking
business. It also gives me immense pleasure to share that one of the largest mobile
operators in the country and the largest private sector banks is already flexing its muscles to
enter into the Branchless Banking arena. With the influx of new entrants, I am expecting a
surge in the number of Access Points to over 50,000 very soon.
Our achievements in the Branchless Banking Services have put Pakistan at the Global
Centre Stage of Financial Inclusion and innovation. CGAP, in its recent study has also
recognized Pakistan as one of the fastest developing markets for Branchless Banking.
According to the recent data from SBP's Branchless Banking Newsletter, a large segment of
the previously unbanked population has started entering into a new arena of branchless
banking (BB).
Total volume (number) of transactions has jumped to 20.6 million during the Oct-Dec 2011
quarter. Thus, the average daily transactions have increased to 228,855. Value of
transactions during the last quarter reached Rs 79,410 million. Total number of branchless
banking accounts have increased to 929,184. Branchless banking deposits have grown to
Rs 503 million.
The average size of branchless banking transactions is Rs 3,855 (US$ 43) which shows that
mobile phone technology and agentbased banking are helping access to financial services
by the hitherto unbanked poor.
Early uptake of mobile banking is also beset with challenges. The existing agents network
needs to be further capacitated to generate new demand; handle and service even larger
volumes of transactions to establish the business viability of BB operations. Going forward,
SBP will be initiating actionable research on the supply and demand side in collaboration
with the Branchless Banking ecosystem for further development of such services in Pakistan.
The study will focus on opportunities such as:
i. Estimation and Development of a Retail Payments System Strategy: The initial
BB business is based on handling large volumes of transactions. Therefore
payments services such as bulk G2P, B2B, B2P payments and retail P2P payments
are a necessity for survival in its infancy phase. Identification and preparation of a
matrix of these payments will be helpful in highlighting the volumes in payments
services and opportunities for future development and partnerships for establishing
the business case/viability and promotion of branchless banking in Pakistan.
ii. Research into agents' economics and business case and identification of key
bottlenecks including public policy issues such as taxation of BB services etc.
iii. Research into agents' selection and management for identification of challenges,
particularly in the management of liquidity at agents' outlets, quality of service for
maintaining minimum service standards, Security systems & controls for fraud
prevention and detection, complaint handling and redress mechanism, and Agent
disqualification and delisting mechanism etc. Interventions will be launched to
enhance the agent's credibility.
iv. Research on BB Technologies: there is a need for understanding of BB technologies
for adoption of common standards and platforms for promotion of financial inclusion
on a massive scale. Therefore, a study on BB technologies would be conducted for
understanding existing technologies along with development of some common
standards. These will also be helpful in getting one step nearer to the interoperability
of the technological solutions and agent networks.
v. Likewise demand side field research into the experience of current users and
nonusers of branchless banking will be conducted. The survey would help in
identification and understanding the top financing needs of the low income clients
and help BB providers tailor their products to satisfy the unmet demand for such
services. Similarly the survey will also provide insights on financial literacy and
consumer protection issues.
Branchless Banking has also proved to be an effective instrument for channelizing the
Government to Persons (G2P) Payments in trying times like serving the Internally Displaced
Persons (IDPs), during the devastating floods over the last three years. Further, BISP
beneficiaries are also being served very effectively through the same mechanism as well. In
the coming days, this channel is expected to continue playing an important role towards the
promotion of financial inclusion and the management of Government to Person (G2P)
Programs like Salaries Disbursements, Pensions, BISP, Watan Cards, Pakistan Cards and
Tax Collections Services, etc. We are confident that the Branchless Banking deployments
can cater to the needs of over 10 million potential beneficiaries of G2P Payments in
Pakistan.
The State Bank will continue to play its role in promoting an environment which is conducive
for financial innovation. At the macro level, we will continue to work with the industry and the
other regulators to promote a sound, safe, efficient and inclusive Mobile Commerce
Ecosystem.
Our aim is to provide at least basic Banking Services to every adult and bankable citizen.
Today, as a large portion of our populations has access to mobile phones, we feel that if a
workable partnership between the Banking and Telecom Sectors continue, we shall see our
dreams come true. On this front, we are already working closely with Pakistan
Telecommunication Authority and have also signed an MOU for enabling the Interoperability
Framework where all banks and telcos can join hands to serve the customers. We are also in
the final stages of formulating the Regulatory Framework for Interoperable Mobile Banking
System. Interoperable systems are essential to mass adoption of mobile commerce. At
present, financial institutions and telcos can choose whatever business model suits their
needs i.e. One-to-One or One-to-Many; however, I can foresee that in future, only
interoperable solutions shall fasten both scalability and viability. Here, let me assure that all
the existing and the prospective One-to-One or One-to-Many arrangements between banks
and the Telcos would not be affected with the proposed regulatory framework.
I must acknowledge the efforts and initiatives adopted by Ministry of Information Technology
and the PTA towards the promotion and development of Mobile Banking in the country. It is
heartening to see that PTA is playing an important role by encouraging its regulatees to play
their due part in the provision of smooth and efficient Branchless Banking Services.
For banking and telecom industries, it should be a matter of great comfort and satisfaction
that their regulators i.e. SBP and PTA share the vision and are working in tandem to provide
an enabling regulatory environment for the provision of Mobile Banking Services. This
cooperation between the regulators; will create much desired synergy in both the banking as
well as telecom industries.
Going forward, much still needs to be done. SBP is keen to work with different stakeholders,
including but not limited to financial institutions, different regulators, private sector,
application developers and telcos to provide an enabling environment for the creation of
Mobile Commerce Ecosystem in the country. We have only seen the start of it but the rest is
yet to come. However, the common challenge is to ensure that all banking transactions,
irrespective of the technology platform, are cost effective, efficient, and pose a lowest risk for
the consumers. This requires close coordination among the stakeholders in the area of
regulations especially monitoring, licensing, provision of technological infrastructure and
ensuring maximum benefits for consumers.
I trust today's conference will help us understand the issues relating to Mobile Commerce
and the importance of Mobile Banking in the development of an inclusive Mobile Commerce
Ecosystem. This conference will help to increase the General Awareness among participants
about Mobile Commerce and the evolving trends in Mobile Banking for which Total
Communications deserves to be applauded.
Thank you all for being part of this forum and I look forward to your productive participation in
today's event.