Branchless Banking - The Good, The Bad And The Ugly

The concept of branchless banking (BB) was a continuation in the process to ease lifestyles of people incapable to visit banks for some social or medical reason. The key concept was to bring banks at their doorstep simply by confining it all in a mobile app. Thus, to cater to all income groups and unbanked rural population, branchless banking came as the solution. In this regard, The Dawn narrated:

The banking sector in Pakistan has come a long way since 1947. With over 12,000 branches spread across the country, the banking footprint is well established. However, it is still insufficient to serve the rapidly growing population, most of whom still have little or no access to banking services. The solution to this situation is branchless banking that relies heavily on IT, especially telecommunications technology.

This idea gaining popularity, got to the notice of Consultative Group to Assist the Poor (CGAP) which after approval by State Bank of Pakistan defined official criterion of branchless banks allowing the use of technology, outlets other than banks, the government recognized deposits and much more.

What Is It?

Branchless Banking involves the use of daily life gadgets such as mobile phones or outlets such as post offices or ATMs to identify a bank customer and allow him to make transactions even if he or she doesn't have a mobile account.

Why It's Good?

Through Branchless Banking, the service points of banks increased considerably without any new recruitments avoiding salary payment issues or more investments in employee hiring. Furthermore, assurance of quality service to everyone without any fuss, disciplinary issue or hustle was another benefit. Thus, this kind of banking appeared to be in complete profit for the banks and rightly termed as “effortless earning”. “Konnect” by HBL, “Alfa” by Bank Alfalah and “ebank” by UBL are some evidence of development in this regard.

Why It's Bad?

The rapid dissemination of facilities from branches to handheld devices has exposed a number of threats. Allowing easy account-opening remotely places an obvious question on the maintenance of security standards. The verification of the client’s data is a must which gets risked through such remotely operated banking system. 

Registration of faulty accounts using fake data and even using names of deceased people are some issues witnessed globally. Saving all financial details in software always welcomes the risk of system hacking. Even hacking of a single app account through any anomalous situation can pose serious threats, leading to significant losses to both, account holder and the bank, with no defined person for compensation.

The Ugly

It's incredibly difficult to find the right agent network plus there is always a chance of cash theft and lack of customer education regarding the service being provided by the bank. The last problem essentially opens the doors to controversies and places a huge question mark regarding the reliability of this system across Pakistan. Shahid Nawaz, co-founder of A&S Consultants, believes that:

Another difficulty (regarding branchless banking) that discourages agents is the element of robberies and frauds. One in five agents in the metropolitan areas has reported a robbery. As per agents, the service providers don’t pay attention to such incidents and remain unhelpful and their lack of interest has forced them to limit the cash agents hold for transactions thus carrying lower number of transactions.

Though e-banking is the ultimate destination of banking as evident by the trends of this rapidly transforming world, banks need to take adequate steps, in accordance with BB regulations revised by State Bank of Pakistan to tackle of the above-stated issues and ensure smooth, problem-free banking in future.