Branchless banking growth
Under the direction of the State Bank, the branchless banking sector has made good progress over the last few years, expanding the scope and reach of financial inclusion in the country. Last week SBP took some new decisions to streamline Branchless Banking Regulations in line with the best international BB practices. The new rules define the scope of powers vested in the boards of directors of banks who have been tasked with providing strategic direction and maintaining oversight while senior management would be required to set up necessary internal controls and ensure adherence to laws and regulations. The scope of alternative delivery channels and technologies has been expanded to include 3G and 4G spectrum, POS terminals, internet banking and ATM/debit cards for providing better branchless banking services. SBP has also introduced interbank funds transfer service with or without biometric system.
The objective behind the revised rules is to reach a larger chunk of population that is not yet covered by existing financial services. It may be recalled here that SBP has developed a National Financial Inclusion Strategy which was formally launched in May, 2015 to push forward reforms to achieve maximum outreach to people at the earliest possible. In the revised regulations, the daily, monthly and yearly transaction limits have been raised for both level 0 and level 1 BB accounts. It is expected that this would greatly help increase account activity, because at present only 41 percent of the 15.3 million BB accounts are active. In order to motivate people to open m-wallets instead of transacting over-the-counter (OTC), the funds transfer limits have also been significantly expanded for those users who will be biometrically verified. As per the revised regulations, from July 1, 2017, only those agents who have biometric machines will be able to perform OTC transactions for their customers .
The latest figures show that 34 percent of customer transactions were initiated via m-wallets in Oct-Dec 2015. This compares favourably with an increase of only 14 percent in the same quarter of the previous year. It is estimated that the revised rules would lead to further improvement in the m-wallet-to-OTC transaction ratio, which stood at 52 percent in the Oct-Dec 2015 quarter. The new regulations are designed to greatly expand the scope of branchless banking. Previously, agent kiosks and mobile wallets were run on cellular (2G) technology, but branchless banking will now also be served by Internet banking.
Without doubt, the new SBP regulations will have a positive impact on the National Financial Inclusion Strategy which seeks to expand the outreach of banking services to all segments of society. At present branchless banking is the most effective tool for achieving the targets set in NFIS which envisage a growth of 50 percent in bank accounts held by the adult population by the year 2020. The growth in branchless banking so far has been very encouraging in the urban areas. The number of BB accounts witnessed a threefold growth, rising from 5.4 million in December, 2014 to 15.3 million in December, 2015. On an annual basis, the number of transactions grew from 278 million (Jan-December, 2014) to 374 million (January-December, 2015), showing an increase of 35 percent while average deposits in BB accounts reached Rs 8.8 billion in December, 2015 from Rs 6.6 billion in December, 2014. However, rural areas of the country are still largely deprived of BB services which calls for special attention of the State Bank.