Pakistan’s e-banking – past, present

and future
 W ASIO ALI KHAN ABBASSI

 APR 25TH, 2013

 ARTICLE

E-Banking is not something new to Pakistan. It was in 1987 when first

ever ATM was installed in the country. Even till late 1990s, ATM growth
and issuance of cards remained very low. The real growth in ATMs and
cards issuance were seen after the formation of national switches in 1999
and then accelerated with SBP's circular in 2002 mandating the banks to
issue cards to their accountholders and connect to either of the 2 switches
(1Link and MNET).

State Bank of Pakistan played a key role in the e-banking growth by

providing enabling environment. With efforts of SBP as a regulator, it
paved way for banks to issue cards to its customers and give access to bank
accounts over ATMs by integrating the bank with 1LINK or MNET. SBP
later mandated in 2006 the two networks to inter-connect, which made it
possible for any cardholder of any bank to take cash out from any ATM of
any bank across Pakistan. SBP has continued to bring out regulations to
improve the quality of service delivered through the e-banking channels
and ensure that the customers' service is not compromised.

With the growth of economy, the financial transactions increased in great

numbers and it was felt to extract more benefits from the switching
network. This led to some innovative solutions that made banking easier,
faster, cost-effective and reliable for everyone. 1LINK took the initiative to
offer card scheme services such as Visa and UnionPay that increased
plastic cards acceptability outside of Pakistan. IBFT (InterBank Funds
Transfer) and UBPS (Utility Bills Payment Solution) made it easy to
rapidly transfer funds to other accounts and pay utility bills from any of the
alternate delivery channels previously restricted to branches only. This
growth soon led to the need for branchless banking.
Branchless banking has experienced significant growth in the past few
years. Mobile banking in particular has greatly mapped the unbanked
population of Pakistan. One such example is EasyPaisa launched by
Telenor in collaboration with Tameer Micro Finance Bank providing
instant money transfer, local remittance through its huge agent network
and cell phones. UPayments is another mobile banking platform set-up by
Ufone that enables banked customers to securely perform transactions via
USSD. Similarly Internet Banking channel adoption is fast catching up and
is now offered by almost all the banks in Pakistan.

The E-Banking industry is much different from what it was a decade ago.
According to State Bank of Pakistan's quarterly review of fiscal year 2013,
by second quarter the industry had:

-- 6,232 ATMs all over Pakistan

-- 9,896 Real-Time Online Branches (RTOBs) out of 10,523 ie 94%

-- 20.72 million plastic cards issued in the country

-- 79.45 million overall E-Banking transactions

-- Rs 7.6 trillion value of transactions

To understand the growth of E-Banking industry in Pakistan one has to

look at the change of numbers over the years in the infrastructure. In June
2006 there were 3,555 RTOBs, 1,612 ATMs and 32,331 POS that
increased to 9,896 RTOBs, 6,232 ATMs and 34,724 POS by December
2012. Similarly there has been growth in various segments of E-Banking
infrastructure as shown in the graph (source: State Bank).

The infrastructure laid down by national switches has proved to be of

immense help to the economy. It not only energised the financial sector but
common Pakistani found it easy to perform banking activities even after
banking hours. The same infrastructure proved crucial to the country in
times of need and TPS played pivotal role as technology backbone.

One such instance is when floods hit northern areas of Pakistan and
travelled all the way down to Sindh province; a significant population was
displaced that needed support. When international donations began to pour
into Pakistan, the existing infrastructure was utilized to issue Watan cards
(Visa Debit cards) by UBL and other banks to financially support the IDPs
in collaboration with NADRA. The IDPs were registered using biometrics
and NIC numbers and each family was given a Watan card where donation
was directly deposited through banks. The whole process of registration
took 13 minutes and funds were transparently made available to the IDPs.
By the end of 2012, NADRA had issued 966,619 Watan cards to more than
1.1 million families, distributing Rs 37.896 billion.

Similar concept was implemented for Benazir Income Support Program to

issue BISP cards to eligible families for poverty alleviations, providing Rs
1,000 per month on quarterly basis. There are currently 1.5 million
beneficiaries of BISP program in the rural areas of the country that
regularly receive funds through this mechanism.

E-Banking has simplified lives of a common man in the country. With the
popularity of e-banking among the accountholders, electronic channels are
preferred over brick and mortar branches for regular account inquiries,
cash withdrawals and funds transfers. There is now a steady growth seen in
electronic funds transfers and retail payments. Immense growth potential is
expected in Branchless Banking space which is widely believed to also
improve the economic health of Pakistan. The banks are now on the track
of service innovation and value creation for the customers through low cost
service delivery which is only possible with alternate delivery channels.

TPS philosophy is about preventing segmentation in the banking industry,

helping to create innovative solutions and encourage further growth in the
financial sector. The infrastructure has already been laid and various
methods of payments are being introduced that was unthinkable before.
Currently 65% of Pakistan's population is below the age of 25, and youth is
more adaptive to technology and innovations, creating endless future
possibilities. As technology gets better, so will the financial industry.