111 510 510 libonline@riphah.edu.pk Contact

Digital financial services

The last decade and a half has experienced an exponential growth in mobile phone density in Pakistan, which stood at around 70% (March 2016, PTA). Much of this proliferation is attributed to affordable call/SMS rates as well as cheap yet user-friendly mobile phone devices (particularly smartphones), which is a prized possession for everyone regardless of the consumer’s social, economic or educational rank.

In view of the above, the stage seems to be well set to for rapid innovation and upgradation in Digital Financial Services (DFS). Unfortunately this is not happening, despite the introduction of mobile money transfer services some years ago. The reason for this stall in progress is not because the potential beneficiaries of DFS have any issue with the idea, instead the fault lines resisting this upscaling process run elsewhere – the users of DFS at the senders end.

Owing to the economic and demographic landscape of our country, the low-income segment of society (labour class, daily wagers, skilled, semiskilled workforce) have limited job opportunities in the formal economic sector, so they generally end up working in the informal sector of economy.

The informal sector is poorly regulated; hence, the incidences of labour exploitation are common, eg, forced labour, underpayment or late payment of wages, even human and labour right violation. These tactics are used as a subjugation tool so the labourers remain at the mercy of their employer. A majority of job providers in the informal sector have spheres of political influence due to which they are able to get away with these unfair practices, particularly in rural and semi urban swaths of the country. It does not take long to deduce that by opting for DFS, many job providers feel that they will lose control over the labour working for them.

The other important factor is a lack of education in the labour class for whom the mobile phone is nothing more than a communication device. It is nevertheless encouraging to note that despite their illiteracy, users in this segment are able to send and read text messages in Roman Urdu. As an emerging trend, however, mobile money transfers are slowly gaining popularity. These days, labourers and other people belonging to the so-called illiterate class are now receptive to the idea of getting more from their mobile phones by sending or receiving payments, either as domestic remittances to their relatives across the country or other financial services.

Money transfers service owe its existence to collaboration between banks and telecommunication companies (telcos), when compared to traditional banking channels, the service is costly; however, it is far more reachable and convenient for low-income users.

I share the story of my domestic aide who migrated from Gilgit-Baltistan a decade ago seeking work in bigger cities. Each month, after receiving his salary, he would head out for a few hours and return in the evening. When I inquired about this pattern, he informed me about his trips to the city bus terminal in order to send money to his family in Bunji town through private bus or truck drivers. He said the nearest bank branch from his home was more than 20 kilometers away and it was not easy for his wife to travel that distance to collect the money, with the added risk of losing the funds on the way back.

On the following pay day, I asked him to consider sending the money via DFS channels being offered by various Telcos in conjunction with banks. He expressed his ignorance about any such service and rejected the idea citing various reasons such as the fear of losing his money and long delays in payment. He only agreed to give it a try once I promised to make good his losses, if any, as a result of using DFS.

He went to the nearest retail money transfer service provider and was back in less than an hour with a smile on his face stating that his wife had already confirmed the receipt via mobile phone, which otherwise use to take up to five days. If the above development is any pointer of things to come, we are not far from the day when the lower and lower-middle classes adeptly use a variety DFS tools, eg, receiving wages from employers, settlement of small time household purchases, taking out small loans, saving money within the DFS framework, and procurement for agricultural and business purposes, just to name a few.

It must not be overlooked that DFS is a lot more than just a money transfer tool, and more like a public utility service, similar to public transport system. This is because DFS has the potential to transcend the economic and social diaspora of any country whereby everyone from the elite to the underprivileged, from businesses to the end-consumer and from the government to the various beneficiaries, can universally reap the benefits of this system.

The story of my aide points out a major obstacle in the effort to make DFS ubiquitous, which is the lack of awareness about DFS among the masses; this is despite frequent media campaigns by telecom operators that provide these services. Creating awareness and sensitising the masses is an evolutionary process; however, this process needs be fast tracked, which calls for a highly inclusive countrywide campaign to educate people at both sides of the DFS spectrum, ie, originators and receivers of transactions.

To expedite this process, relevant professionals and stakeholders in the corridors of power among the government and corporate sector (eg telcos and financial institutions) must effectively use platforms available to them to support the potential benefits of DFS and highlight the disadvantages of not using it. The real test, nevertheless, lies in promoting and convincing the potential beneficiaries of DFS and that is where the intellect, experience, the right approach and dedication of the opinion makers comes into play.

Ahmed Hassan, "Digital financial services," Business Recorder. 2016-05-08.
Keywords: Economics , Corporations growth , Technological innovations , Economic development , Political participation , Social service , Social distance , Pakistan , DFS , PTA