The latest annual Payment System Review (the Review) by the State Bank of Pakistan (SBP) shows an all-round growth in retail payment infrastructure and transaction-mix during FY16. The numbers surely look good on their own. But it is the quality of growth in alternate delivery channels (ADCs) that seems like a massive work in progress, especially in the context of financial inclusion in this largely un-banked country.
There are three main ADCs through which commercial banks can help the cause of financial inclusion: the ATM network, the POS terminals, and the plastic cards that power these two machines. In these areas, retail bankers have some work cut out for them.
For instance, data in the Review showed that the ATM population had nearly doubled since FY12 to reach 11,381 installations as of June 2016, (end of FY16). That translates into one ATM for more than 17,000 Pakistani people, assuming a population of 200 million. Besides low coverage, we just dont know what the regional breakup for ATMs is. But anecdotal evidence suggests an overcrowding in urban areas, relatively low penetration in sub-urban areas, and extremely rare presence in rural areas just the same as bank branches.
The number of point-of-sale (POS) terminals showed double-digit year-on-year growth to reach 50,769 machines during FY16. That translates into one POS terminal for about 4,000 people. The Review mentions that there were only 9 out of 45 banks (35 commercial banks and 10 microfinance banks) that were POS acquirers as of June 2016. Do the banks find POS a hard business case? Compared to nine POS acquirers, 22 banks offered Internet banking and 16 banks offered mobile banking services in this period.
The POS population needs to drastically increase if there is to be meaningful hope of bringing efficiencies and transparency in the payments process down the pyramid. For instance, to avoid the mafias of middlemen, Pakistans flagship social-safety-net, the Benazir Income Support Program, is planning to use POS infrastructure to migrate to a biometric verification for its quarterly disbursements. But the weakest link, if all else is done right, is going to be a woefully inadequate POS footprint.
What empowers the ATMs and POS machines are the debit cards. But the situation on that front, too, needs a jolt. The total number of issued debit cards had reached 27 million by June-end 2016. That's about a quarter of Pakistans adult population. Thanks to the inclusion of microfinance banks in the SBPs payments database, the number of ATM-only cards had grown manifold to 4.8 million during the period.
But even after including the ATM-only cards, a significant chunk of population remains locked out from the system. The Review mentioned that only 28 out of 35 commercial banks issued debit cards as of June 2016. One wonders why the rest of the banks are not issuing debit cards. Another issue is that it is not clear how many of the issued debit cards are currently active. The SBP must do something about this.
The data also showed that over 96 percent of the 13,179 bank branches had moved to real-time online banking (RTOB) by June 2016. This comes out to a similar ratio as the ATMs/thousand folks. But the RTOB is the most formidable among e-banking avenues, generating some Rs32 trillion out of 135 million transactions in FY16.
As a result of creeping ADC influence, paper-based transactions are on a decline. Accounting for 38 percent of total retail payments in FY16, paper-based transactions had declined by 6 percent year-on-year (339.7 mn). But their value had jumped 6 percent to Rs134.4 trillion in the period under review, accounting for roughly four-fifth of the retail payments.
Overall, the direction of retail payment systems seems right, only that the pace and quality of growth needs a checkup in some areas. We understand that the SBP has pinned its hopes largely on the branchless banking segment to help meet the financial inclusion objectives by 2020. It may be better to address the imbalances in the above-mentioned aspects of retail payment infrastructure.
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