Fast-tracking finclusion

Despite the hype about digital payments and financial inclusion, it appears that save for some exceptions, most corporations, banks, branchless banking operators and other players aren’t generally being too serious about it. Consider the following examples.

A source had to pay his insurance premium to a company owned by a group that has investments in tech businesses. For two days, he could not make the payment because the insurance agent insisted on taking the cheque for the premium amount, and because of conflicting schedules of the agent and the source in question, that cheque could not be collected /delivered. The transaction was eventually executed when the source insisted on paying the insurance premium via online bank transfer, an option that the insurance company should have presented in the first place instead of only insisting on collecting the cheque.

Similarly, to its credit the CDC has an e-IPO facility. But until at least a few months ago at the time of The Organic Meat Company’s IPO, online payment for e-IPO could only be done via banks registered with the CDC’s e-IPO facility. Prospective investors who did not have accounts in those few banks could not make digital payment for the e-IPO. A BR Research source had to make at least five calls to convince the CDC to allow him to use the ‘1-Bill digital voucher/invoice payment’ to make the payment for the e-IPO application. Eventually, the CDC allowed the transaction to go through via 1-Bill.

In both cases, the fact that leading corporations with otherwise good service and quality standards did not offer the entire spectrum of choices to its customers to allow for digital payments, and in fact customers had to insist on both accounts, leads one to believe that perhaps Pakistan’s corporate sector sees digital payments as a cute fad, a CSR or a complimentary service rather than being integral to their business processes.

Or consider the fact that dozens of Pakistani corporates that source their raw materials from rural and semi-urban areas (such as milk, meat, spices, fruits, eggs, etc.) pay their suppliers in hard cash. Yes, indeed, hard cash, not even cheques. Which begs the question: why can’t these payments be made through branchless banking?

In a recent interview with BR Research, Qasif Shahid, co-founder and CEO of Finja, stresses on the importance of keeping interbank fund transfer facility free of the usual transaction fees. Not that digital payment grew substantially post-Covid when the central bank had asked banks to allow transfers without the usual fee, but the argument to remove any disincentives from digitizing Pakistan still holds true. (See Brief Recording section, 26 Oct 2020)

However, it is rather unfortunate that even during peak Covid; branchless banking transactions were still not free. One of the major reasons is that a lot of branchless banking transactions are still agent-based, a model that has its own costs: cost of managing cash, agent commissions on both sending and receiving ends, etc. The transaction costs in case of mobile wallets, on the other hand, are negligible, but that too wasn’t waived off during peak Covid.

One way to reduce these costs is to move towards Unified Payments Interface (UPI) ala India that allows interoperability that reduces both monetary and non-monetary cost of branchless banking transactions (For details Read BR Research’s ‘Wanted: a common payment interface’, Jun 28, 2019).

Another possibility could be to seek funding from developmental partners who can pick up the cost of branchless banking transactions, thus making fund transfers free of charge or at negligible rates within certain communities selected for pilot projects. These may be labour colonies or small market clusters where branchless banking industry players can join hands to digitize the entire marketplace.

In market clusters where customers may be able to afford the cost of transaction and possess baseline digital literacy, perhaps awareness and hand-holding campaigns can be held to encourage both shopkeepers/vendors as well as customers to join the branchless bandwagon, possibly using NFC payment solutions. Subsequent to launch, these pilots should be surveyed and studied to glean insights for scalability.

Lastly, for investors with truly deep pockets and long vision, the real benefit of picking up the cost of transactions to promote branchless banking and building products is the accumulation of valuable user data. Once payments in various marketplaces or rural supply-chain clusters are digitized, they could form the basis for micro-lending, the data from which could, in turn, allow branchless banking players to partner with banks for conventional lending on profit/loss sharing basis. Perhaps the central bank can nudge the market in such directions that can actually deepen access and usage of digital payments.