On revised BB regulations

Seven years on, the State Bank of Pakistan (SBP) continues its proactive role to bolster the country’s branchless banking (BB) sector. Last week, the watchdog came up with some revisions to existing regulations. The revised code lays emphasis on a stab at a number of things, including matters of governance and security. Below we analyze some of the key financial changes.
There is a clear desire to increase usage of the BB channel among existing users. In the revised regulations, the daily, monthly and yearly transaction limits have now been significantly raised for both level 0 and level 1 BB accounts. The expanded limits and the enhanced deposit limits may help increase account activity, for only 41 percent of the 15.3 million BB accounts were “active” in the Oct-Dec 2015 quarter, as per the SBP newsletter.
Then there are changes aimed at bringing in new, verified users to the system. For instance, the funds transfer limits have been significantly expanded for those users who will be biometrically verified. This may motivate some folks to open m-wallets instead of transacting over-the-counter (OTC). In addition, the revised regulations suggest that from July 1, 2017, only those agents who will have biometric machines will be able to perform OTC transactions for their customers.
Those steps can positively impact the regulator’s objective to improve the “m-wallet to OTC transaction ratio”, which stood at 52 percent in the Oct-Dec 2015 quarter. The trend is already encouraging. The latest BB newsletter had showed that 34 percent of customer transactions were initiated via m-wallets in Oct-Dec 2015 – an increase from 14 percent seen in the same quarter the previous year.
Another measure to boost m-wallets is the permission to remotely open Level 0 accounts. As per the revised regulations, initially the BB service providers will run pilots for three months before a final lunch of such remote accounts. This step can further boost the popularity of Level 0 accounts, which were already about 90 percent of the total BB accounts opened until December 2015.
The new regulations have also expanded the scope of branchless banking. Previously supplied via agent kiosks and mobile wallets being run on cellular (2G) technology, the BB sector will now also be servable by electronic banking alternate delivery channels (ADCs) such as Internet banking, plastic cards, POS terminals. Mobile broadband – 3G and 4G networks – also form the scope of expanded ADCs.
The changes seem all potentially good. Except for one thing: the July 13 press release by the SBP mentioned that, “SBP has launched NFIS in 2015 wherein a target of 50% growth in bank accounts by adult population by the year 2020 has been set out to enhance the outreach of basic financial services to unbanked/underserved population.”
This column would like to point out that back when the NFIS – or National Financial Inclusion Strategy – was released in May 2015; it had identified, among its major objectives, a target to increase the ratio of adults using formal accounts to 50 percent by 2020. Now the SBP is talking of a “50 percent growth” in bank accounts. One wonders what has prompted the SBP to suddenly aim low.