According to a May 2011 research paper from University of California-Irvine School of Law, “An Emerging Platform: From Money Transfer System to Money Ecosystem,” the authors found that mobile money is becoming an infrastructure backbone that connects lower-income clients with a number of financial service providers in a transformative way. The paper specifically discussed the impact of m-banking in Kenya, but its findings are arguably applicable to other countries, including Pakistan, where there are over 100 million mobile phone subscribers and 66% of the population live on less than $2 a day.
In 2009, Telenor Pakistan, one of Pakistan’s largest mobile operators, partnered with microfinance institution Tameer Bank to launch EasyPaisa, the largest m-banking (or “branchless banking”) initiative in the country. According to Jake Kendall at Next Billion, in March 2011, 1.3 million customers processed 1.9 million EasyPaisa transactions and $39.2 million in transaction flows. He added, “Easypaisa has conducted more transactions in its first 18 months than any mobile money deployment worldwide except M-PESA [in Kenya],” having served 10 million unique customers.
Pretty impressive, I’d say.
But why turn to mobile banking in the first place? In an article for Foreign Policy, Christine Bowers noted, “The World Bank estimates that in many countries, over half the population – the ‘unbanked’ – has never had a bank account.” The poor, she said, are often terrified of banks, “since they’re often humiliated or ignored when they try to enter them.”
In Pakistan, with a population of 187 million, there are only 12 million bank accounts. Banks often intimidate many lower-income Pakistanis, who find them confusing and tedious. Another reason for a low number of bank accounts? There are currently only 9000 bank branches in Pakistan – not enough to serve the entire country’s population. Without this formal access to banking, many low-income communities resort to other means, including the use of the post office, money orders, and even leveraging the underground movement of money.
Enter EasyPaisa, which is accessible to customers everywhere, regardless if they are a Telenor mobile subscriber. EasyPaisa shops are around the corner, accessible, and transactions are instant. Since the launch of this initiative in 2009, EasyPaisa has grown from 2500 to 12,000 shops throughout Pakistan – more access points than the entire banking sector combined. Tameer, with its focus on low-income communities, brings its customer base and license for banking, while Telenor Pakistan is the GSM operator that is able to leverage its distribution network (Telenor has a strong GSM customer base among Pakistan’s rural areas).
While EasyPaisa’s original intended purpose was to provide the poor access to finance, early adopters of branchless banking seem to be a mix of different income classes, since those customers tend to understand the value of and use of mobile banking, often resorting to it for convenience purposes. However, this does not mean that the intended low-income customers are not serviced by m-banking. According to CGAP, which carried out 327 interviews with EasyPaisa customers at 10 locations across both rural/semi-urban and urban Pakistan, around 41% live on less than $2.50 per day (the globally considered poverty line), while 69% live on less than $3.75 a day. Of the users surveyed, over 90% rated EasyPaisa as highly effective (almost no one rated it as ineffective).
The findings ultimately show that the initiative has achieved strong penetration among Pakistan’s poor and unbanked population. Kendall in his aforementioned Next Billion piece noted, “This offers promising evidence that EasyPaisa could be an effective vehicle for increasing financial inclusion among Pakistan’s poor and unbanked populations if it can successfully migrate to an account-based, rather than OTC-based service.”
It also means that the environment is ripe for other initiatives to address the same issue of the unbanked poor in Pakistan. So far, Shorebank International, an impact investing firm, has partnered to support UBL Omni, which is located in over 580 cities and towns across Pakistan. Other mobile service providers are attempting to launch similar initiatives. The broader vision, of course, is ultimately affording the poor the dignity and the access to financial services that they did not previously have. EasyPaisa has so far been a pioneer in this market, but as other initiatives increase their presence, financial inclusion will potentially expand.