ONLINE banking is growing despite heavy odds which have restricted its pace of market penetration to realise its full potential.

As the usage of the internet and smart-phone is expanding, e-banking is also spreading its footprints. More and more people are carrying out diverse financial transactions via internet or smart-phone applications including account-to-account transfers, payment of utility bills and settlement of business-to-business fund claims.

In the quarter of October-December 2015, third party account-to-account transfer witnessed a big 42.5pc rise in the number of transactions through the internet but when we look at the number itself (less than 1350) it gives us an idea of how shallow is the penetration of internet banking in the country. By using other yardsticks like payment of utility bills and account-to-account transfer or mere payments through the internet we get the same impression.

‘One of the impediments to faster growth of online banking has been a very cautious approach of the SBP in permitting and approving online banking tools’

In none of these types of banking transactions via the internet, the number of transactions crossed 1,500, according to the latest SBP statistics. Worse still, all the above-mentioned categories of transactions collectively totalled about 1,550 in case of mobile phone banking.

So it is safe to say that online banking has a long way to go.

However, in some areas progress is far better. For example, by December 2015, the number of users of ATM cards stood just a shade below 4.9m (including 3.7m users of ATM cards of microfinance banks) and the number of debit card users totalled around 26.5m. Where the lack of online banking infrastructure, along with other handicaps, is really pinching is a very low number of credit card users (1.4m as of December 2015), industry sources say, adding that in addition to infrastructural issues, high interest rates and low quality customer services also serve as a dampener to credit cards growth.

As for the number of online bank branches is concerned the progress in this regard has been very satisfactory and by end-December 2015, about 95pc of all the 13,000 plus bank branches had gone online.

But, here again, it’s the quality of services available at such branches that matters and making a bank branch online doesn’t necessarily means a drastic cut in the time consumed in completing these transactions. Customers often claim they still have to go to spend a lot of time for opening a bank account or making a deposit or withdrawing/ transferring money from their accounts. Senior bankers say they receive such complaints mainly because the staff at bank branches are either inadequately trained or technical problems are not fixed on time.

E-banking transactions, however, continue to grow despite all odds.

The fastest quarterly growth (21pc plus) was recorded in real time account-to-account fund transfer followed by 11pc and 10pc growth in real time cash deposits and cash withdrawals during October-December 2015. Pakistan real time interbank settlement mechanism (PRISM), another hallmark of online banking, also continues to grow and in October-December 2015 it posted 5pc quarterly increase in the number of transactions and 19pc rise in the amount of money involved.

Central bankers say both the number of transactions and the amounts involved are sure to surge after the issuance of the SBP advice in January that requires banks to ensure PRISM facility at their branches. Using this facility, a customer can send Rs100,000 or above, they say. Banks have also been advised to create increased awareness among people about this facility through ads in the print media and publication of brochures and display of banners and signboards.

“The level of awareness on how to use online banking services is low and the ability of banks to tap fintech potential is also limited,” says a senior executive of Habib Bank, explaining why online banking constitutes only a tiny part of overall banking.

One of the impediments to faster growth of online banking has been a very cautious approach of the SBP in permitting and approving of online banking tools, IT experts of banks say. Central bankers, on the other hand, defend their position by pointing out that the SBP takes a very cautious view of banking efforts in promotion of online banking for two reasons.

“The first reason relates to ensuring accuracy and secrecy of data and the second relates to ensuring that banks are meeting our reporting requirements,” says a senior central banker.

As far as data accuracy and secrecy is concerned, the SBP will continue to ensure them at all costs even if banks and financial institutions find compliance difficult. But for making reporting requirements simpler, the central bank issued, on March 16 this year, a ‘master circular’ to facilitate banks, microfinance banks and switch operators “so that instead of ensuring compliance of multiple circulars and circular letters they can comply with the requirements of this master circular in one go.”

Online financial service providers say, and bankers admit, that infrastructure of online banking needs faster development. They particularly point to two key areas, the number of automated teller machines and point of sale (POS) machines. At the end of December 2015, there were 10,736 ATMs and 50,072 POS machines in the country. They say that for a country of 200m people, these numbers need to be raised manifold to give online banking a real boost.

And, industry sources say that this is not possible till the time the SBP eases conditions for setting up payment system operator companies. Individual IT experts and IT companies interested in launching fintech start-ups say that the SBP regulations for establishing payment system providing companies are too demanding. Currently only two such companies — 1Link and MNet — meet most of the industry’s demand. Industry sources say that relaxed rules for setting up new companies can lead to more competition and ultimately benefit the end users.

Published in Dawn, Business & Finance weekly, May 2nd, 2016