Moving with the times

It is good to see that banking system of the country is adopting new technologies and moving with the times to enlarge its deposit base. Inaugurating a one-day workshop on "Future of Branchless Banking, Payment Systems and Financial Inclusion" in Karachi on 19th December, Governor, State Bank stated that while the brick and mortar retail network of the entire financial industry grew to only 11,000 outlets after 65 years of efforts, branchless banking retail agents' network had grown beyond 32,000 outlets in a short span of three years.
With 1.8 million mobile banking accounts, the customers of branchless banking had conducted almost 32 million transactions worth Rs 140 billion during the quarter ending September, 2012. Average size of each transaction during this period was Rs 4065, which showed that technology was helping "financial access" of the unbanked population of the country considerably. Ninety percent of total bank branches were currently processing real-time online banking services across the country. One million internet banking users, 1.8 million mobile phone banking users and more than 10 million call centre users were enjoying virtual banking. Thirty-six percent of the transactions were now routed through electronic channels and these had depicted an annual growth of 23 percent in the last five years as against an average growth of 2 percent in the paper-based transactions.
The Governor, SBP, was, however, not fully satisfied with this trend in growth which he termed insignificant for a country of 180 million inhabitants and with a high currency in circulation of Rs 1.9 trillion. This showed that a majority of population was still disconnected from the banking system and heavily reliant on cash-based transactions. He urged upon the Chief Executives and the Boards of banks to have ownership of branchless banking because this would help bring commitment, attention and support from every level of the organisations to this innovative, exciting and challenging service.
The growth of branchless banking and the increasing use of latest electronic devices to make financial transactions in the last few years as revealed by the Governor, State Bank is indeed impressive. His suggestions to accelerate the process through certain policy measures are also very relevant. It is certainly encouraging that Pakistan was catching up with the financial innovations available in developed countries where the physical or personal contact of a banker with his clients for a routine business is now almost a thing of the past, making the processing of transactions easier, faster and more convenient. However, a lot of ground is still to be covered in Pakistan and this fact was underlined by the number of people living in the country and level of currency in circulation which needs to be captured and channelled through the financial system to enhance investment and productive capacity of economy.
Bringing this untapped market segment into the formal financial system, should of course be the key objective and bankers and mobile network operators have to assign high priority to the use of latest tools available in the industry for enhancing financial inclusion and promote socio-economic development of the country. The State Bank has usually extended a helping hand to foster the desired trend and hopefully would continue to improve its regulatory framework with the passage of time to facilitate the process. However, while on the subject, it needs to be pointed out that the present size of the informal economy would continue to be a major roadblock in enlarging the scope of such initiatives. As such, every effort should be made to bring in most of the economic activities of the country into the formal sector through some innovative and unorthodox ways. Also, increasing level of financial inclusion about which the Governor has talked about should not mean only mobilisation of more deposits from unbanked part of the population. Right kind of socio-economic goals could only be achieved if they are also enabled to get more credit from the system to better their lot. Lastly, evolving the new system has to put in place the necessary safeguards to preclude the possibility of forgeries, etc, in order to popularise branchless banking and the use of technology, particularly among lower segments of society.