This post is written by Khurram Sikander, SBI Resident Advisor for UBL Omni in Pakistan.
During the last couple of months, the SBI Pakistan team has had the opportunity of meeting various stakeholders in the branchless banking arena in Pakistan. A lot of interesting conversations took place about the roadmap of the industry and how new players entering the market would shape the path of financial inclusion for the 90% unbanked population. From our experience of working with different initiatives in Pakistan and analyzing the State Bank of Pakistan’s branchless banking quarterly reports, we have observed that over the counter (OTC) transactions remain the most popular service used by customers. OTC domestic remittances and bill payments form a major chunk of the branchless banking business and are a source of consistent revenue for agents, as well as service providers.
The State Bank data as of December 2011 shows that 80% of the transactions are being conducted OTC. Agents favor OTC over account-based transactions since they view the former as sustainable revenue on top of their core business.
In the present environment, branchless banking service providers have been discovering that when a walk-in customer requests to pay a bill or transfer money, the agent chooses the platform that provides them the best commission. This theme has resonated in numerous agent surveys we have conducted over the last 18 months. The revenue earned through walk-in customers may provide existing service providers a false sense of security that the agent network can be sustained around OTC payments. As new service providers start offering OTC services through organically built agent networks or start cannibalizing agents, institutions will realize that the agents are as loyal to the brand as the next best incentive.
The importance of an attractive account proposition becomes all the more relevant if branchless banking is to thrive as a phenomenon in Pakistan. It is critical for institutions entering the market to determine strategic direction for their branchless banking initiatives that focus on a core proposition that is unique, therefore differentiating them from the rest of the flock.
One concept under development is the partnership between a commercial bank and a telco to serve a significant working segment that requires men to be deployed away from their homes. Customers have to travel long distances to collect their salaries from the nominated bank every month. More often than not, they immediately transfer funds to their families using traditional methods such as the post office, bus transfer, giving money to a friend or relative travelling to their desired location, or by using the hawala channel. By recognizing that the existing payment stream does not work as efficiently as it should for the end customer, the service provider has the opportunity to design the account and agent proposition around it.
Identifying the segment, payment needs, and behavior ensures that the account proposition becomes an attractive alternative to the sender as well as the beneficiary of the funds at the receiving end. The service provider is then able to differentiate itself from competition by offering an account with value to the end customer. This also allows the service provider to strategically deploy agents around pockets of the sender and receiving families, creating brand and product loyalty among those who really matter in the ecosystem.
As and when institutions start offering value in opening an account, demand will create the need to build additional delivery mechanisms, thus justifying the infrastructure investment. Products such as micro-savings, micro-credit and micro-insurance will create linkages between services providers, and the market will push branchless banking platforms to inter-operate, making P2P, P2B, B2B, B2P and G2P transfers possible. Customers will eventually use mobile money only if there are sufficient cash-in and cash-out points and enough participants that they can exchange money for goods and services. Once this becomes a reality, the need for the agents will squarely be on opening accounts and facilitating deposits and withdrawals. The product attractiveness will ensure the customers demand a certain product or brand instead of relying on the agent to make the decision for them.