BRANCHLESS BANKING: PLAYERS ADDING VALUE TO LURE CLIENTS.
In Pakistan from 'Big Five' to microfinance banks are involved in deployment of technology to extend their outreach. While the initiative is driven by Financial Inclusion Program followed by State Bank of Pakistan, the underlined advantage if bringing people into the banking loop who have been conducting transaction outside formal banking system or relying on informal delivers channels. Some of these recent initiate needs specific mention because these are bring paradigm shift, which will bring change in their business model.
U Microfinance Bank (formerly Rozgar Microfinance Bank), in collaboration with Ufone, has launched its branchless banking services under the brand name of UPaisa. This initiative has been launched with a network of around 9,000 agents located throughout Pakistan. U Microfinance Bank carried out its pilot operations of branchless banking from March this year after getting the approval from State Bank of Pakistan (SBP). It then received approval for commercialization of branchless banking services after successful completion of its pilot. UPaisa is the fourth service to have been started by a bank in collaboration with MNO. Telenor, Zong and Mobilink have already partnered with banks and have been providing BB services with the brand names of Easypaisa, Timepey and Mobicash respectively.
Habib Bank (HBL) and Warid Telecom signed an agreement on September 13th 2013, for a strategic alliance whereby Warid Telecom will provide HBL with access to its Unstructured Supplementary Service Data (USSD), enabling HBL Express to offer branchless banking product to conduct financial transactions in a reliable and secure manner. This partnership will allow HBL Express to expand its branchless banking footprint across the country. The provision of USSD services is the first step in this alliance to provide financial and commercial benefit to both organizations in the coming future.
Telenor Pakistan has been granted permission by the SBP to conduct due diligence of Tameer Microfinance Bank (TMBL) for proposed acquisition of further shareholding of the bank, up to 75% subject to meeting statutory requirements. TMBL is a listed microfinance bank and currently Telenor Pakistan has ownership of 51 percent or majority stakes in this MFB.
U Microfinance Bank (Ubank), a fully owned subsidiary of Pakistan Telecommunication Company (PTCL), has signed a Memorandum of Understanding (MoU) with the National Bank of Pakistan (NBP) to provide personal and corporate solutions through branchless banking (BB) services to the customers of NBP across Pakistan. According to the agreement, NBP customers will be able to avail services including but not limited to receipts of pensions, salaries and international remittances. They would also be able to pay loans through the branchless banking network of UPaisa. Under this arrangement, both parties will introduce different branchless banking products and services to facilitate the customers. In addition, the NBP itself will also be able to utilize the BB services of Ubank including salary disbursement to its employees.
Bank Alfalah has signed an agreement with Pakistan Bait-ul-Mal (PBM) for introducing a biometric based payment disbursement solution to its beneficiaries in different parts of the country. Under the agreement, the Bank will provide cash disbursements via its branchless banking offering to the beneficiaries of the Bait-ul-Mal Child Support Program as a pilot program, initially in the districts of Swat. This initiative will introduce smart cards with bio-metric verification systems in the districts of Swat for Child Support Program beneficiaries. Once successfully complete, this transparent disbursement mechanism may be extended at a broader scale to other areas in Pakistan.
A report titled "Microfinance and Mobile Banking: Blurring the Lines" has explored how mobile banking (m-banking) impacts not only the way micro finance institutions (MFIs) carry out their core business, but more importantly the emergence of innovative business models. The report provides insights from global MFI and m-banking alliances on how MFIs can leverage their transactions. The report highlights experiences of MFIs that have served as agents for m-banking systems, or innovated new business models, whereby evaluating the benefits and drawbacks for their pioneering models with reference to the MFIs and their customers. The report also examines why some MFIs are not following suit and are instead strategically holding off on launching m-banking.
The three main areas where m-banking has impacted MFIs most have been loan repayments, loan disbursements, and savings mobilization. However, the report does not finds substantial evidences that MFIs or their customers are driving the development of m-banking but MFIs are successfully leveraging m-banking in countries where an m-banking service is already widely used. Hence an existing successfully running m-banking service is a precursor to a beneficial leverage of m- banking in microfinance.
The general perception is that since MFIs are not well placed to build their own m-banking system, they are advised to partner with an existing m-banking system. Such important strategic alliances can help to diversify an MFI's product offering, outreach, and provide avenues of increased revenue from transaction commissions. However, these partnerships also come with the challenge of ongoing liquidity management, and inconsistent quality services at agent level. In some cases, MFIs can feel better suited for new customer registration and less for cash in cash out to avoid liquidity problems. In Pakistan's context the report cites Tameer Microfinance and Telenor alliance to showcase how microfinance banks shy away from taking any risk with customer repayment processes, as minor delinquencies can severely impact margins due to SBP's strict credit regulation.
In contrast, new microfinance business models are emerging that leverage m-banking more intensely across the microfinance business process where the branchless banking platform is fully integrated within several operational constituents of the microfinance model; for example to facilitate different degrees of remote customer registration. Nonetheless fewer MFIs use m-banks to facilitate loan disbursements and those that do continue to experience agent liquidity challenges.
Although MFI partnerships with MOs create important strategic alliances, it is pointed out that there is no real evidence of MFIs reaching customers in new geographies or lower income segments through m-banking. Even though quantitative evidence demonstrates that MFIs use m-banking to gain a competitive advantage and cost saving, the report highlights that the advantage is likely to diminish as more MFIs start integrating m-banking in their operations and success will bank solely on competitively efficient branchless banking services. This is why it will serve best for MFIs to evaluate the costs and revenues associated with m-banking more carefully instead of indiscriminately replicating existent market alliances.