VZCZCXRO8657
RR RUEHLH RUEHPW
DE RUEHIL #2744/01 3200426
ZNR UUUUU ZZH
R 160426Z NOV 09
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 5950
INFO RUEHBUL/AMEMBASSY KABUL 1118
RUEHLO/AMEMBASSY LONDON 1746
RUEHML/AMEMBASSY MANILA 3211
RUEHNE/AMEMBASSY NEW DELHI 5712
RUEHAD/AMEMBASSY ABU DHABI 3570
RUEHLH/AMCONSUL LAHORE 8109
RUEHKP/AMCONSUL KARACHI 2507
RUEHPW/AMCONSUL PESHAWAR 7156
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEAIIA/CIA WASHDC
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 03 ISLAMABAD 002744 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV ETRD KCOR PGOV PREL PK
SUBJECT: Mobile Banking in Pakistan - Challenges and Prospects 
 
REF: ISLAMABAD 1992 
 
¶1. (SBU) Summary: In a series of meetings in Karachi and Islamabad 
in early October, the Treasury Attache and an advisor from 
Treasury's Office of Terrorist  Financing and Financial Crimes 
discovered that some of Pakistan's commercial banks and microfinance 
banks have a growing interest in providing mobile banking services 
and bolstering financial inclusion.  Moreover, the State Bank of 
Pakistan (SBP) and other government regulators have developed a 
solid regulatory framework to ensure that proper consumer and 
illicit finance safeguards are in place and to help the sector grow. 
 Banks eager to roll out mobile financial services want to expand 
their product offerings in the remittance market (reftel) and hope 
that the SBP will allow them to close underperforming branches. 
They are most optimistic about mobile banking's potential in Punjab 
and Sindh provinces.  End Summary. 
 
Background 
---------- 
 
¶2. (U) In a country of some 176 million people, there are only 
approximately 22 million active bank accounts in Pakistan. 
Furthermore, bankers estimate that only 6 to 8 million people 
control those 22 million accounts.  The main contributing factors 
for this phenomenon are lack of physical access to banks, lack of 
appropriate services for poor customers, and voluntary financial 
exclusion. 
 
¶3. (U) Although there are multiple variations, in its most basic 
form, mobile banking uses networks of agents to service withdrawals 
and deposits and uses the mobile phone network to transmit payment 
messages.  Customers can use their mobile phone to check their 
balances, send money to other mobile phone subscribers, and pay 
bills.  The telecoms are not providing a financial service in their 
own right, but are working on behalf of banks. 
 
¶4. (SBU) For banks, mobile banking has high start-up costs, with 
little promise of an immediate return on the investment.  The bank 
must purchase software, advertise the service, recruit agents and 
bear the costs of customer due diligence and account setup.  Tawfiq 
Hussain, President and CEO of Samba, a Saudi Arabian bank with a 
small presence in Pakistan, admitted that he had little interest in 
launching mobile banking because he found the start up costs too 
high to attract customers who would only conduct remittances. 
 
Banks and Telecoms at Odds 
-------------------------- 
 
¶5. (SBU) In Pakistan, telecom companies are necessary participants 
in mobile banking, but SBP regulations insist on a "bank-led" model 
where commercial, Islamic, or microfinance banks are controlling 
partners.  Moreover, the SBP puts the responsibility on the bank to 
ensure proper customer due diligence, adherence to banking 
regulations, and soundness of the business plan.  While appreciating 
the compliance responsibilities for banks, the Director of Wireless 
Policy at the Ministry of Information and Technology, Mudassir 
Hussain, argued that SBP regulations were too strict for even the 
most basic mobile and branchless bank accounts. 
 
Telecom Market Tightens 
----------------------- 
 
¶6. (SBU) Many telecom companies are aggressively pushing their 
existing or potential banking partners to sponsor mobile banking 
programs.  In the highly competitive domestic market, Pakistan's 
telecom companies are seeking new revenue sources and ways to retain 
customers.  According to the Pakistan Telecom Authority's Chief of 
Economic Analysis Arif Sargana, most of Pakistan's telecom companies 
are heavily in debt, and because of the difficult financial 
situation faced by Pakistani consumers, overall growth in mobile 
usage is not expected to exceed one percent for at least the next 
year. 
 
¶7. (SBU) The telecoms' financial situation adds to existing tension 
with the banks over revenue sharing and customer ownership.  Slow 
growth means that the telecom companies will need to earn more money 
per customer to increase revenue, likely leading to a greater 
 
ISLAMABAD 00002744  002 OF 003 
 
 
reliance on add-on services such as mobile banking to generate 
revenue. 
 
Banks See a Variety of Opportunities 
------------------------------------ 
 
¶8. (SBU) Despite the high start-up costs, banks see opportunities to 
either enter or expand their presence in the mobile banking market. 
In separate discussions, executives from Habib Bank Limited (HBL), 
United Bank Limited (UBL), Citibank, Arif Habib Bank (ARB), and 
Tameer Microfinance Bank expressed different views on how mobile 
banking could be profitable. 
 
¶9. (SBU) The CEO of ARB thought mobile banking could help capture 
more of the growing remittance market, which reached a record $806 
million in September or a year-on-year increase of 22 percent, and 
collect fees from new customers.  ARB believes that reaching 
remittance customers through mobile banking could build customer 
loyalty and a stable deposit base.  ARB is interested in courting 
poor customers in Sindh and Punjab, provinces the bank has 
identified as a strategic priority.  The CEO said that the small and 
medium enterprise (SME) sector was largely unbanked, and suspected 
many SME owners prefer to stay outside of the formal financial 
system because they can evade taxes and the local and national 
bureaucracy.  The Managing Director of Tameer Microfinance Bank, 
Nadeem Hussain, views its mobile banking program as a possible means 
of expanding microfinance in Sindh and Punjab.  He thought similar 
microfinance projects in NWFP and Baluchistan too high risk. 
 
¶10. (SBU) Citibank Country Manager Arif Usmani said Citibank was 
developing its mobile banking program in three phases.  In the first 
phase, mobile banking will facilitate domestic remittances, bill 
payment, and person-to-person funds transfer.  In the second phase, 
mobile banking will facilitate international remittances.  In the 
third phase, Citibank mobile banking will facilitate cashless retail 
transactions.  Citibank entered into this arrangement with the 
Pakistani telecom Mobilink because Mobilink is a large client and is 
in financial trouble.  Citibank is in the midst of a pilot now and 
is aiming for a broader launch in November. 
 
¶11. (SBU) UBL is the most active in the new payments space, having 
already launched a successful payment card program that delivered 
$300 humanitarian assistance to over 250,000 Individually Displaced 
Persons in NWFP.  UBL has launched several creative pilot mobile 
banking programs that rely on small and medium retailers to serve as 
agents.  The bank has 20 retailers in Karachi involved in the pilot, 
which is focused mostly on bill payment.  UBL does not see much 
business potential in Balochistan, FATA or NWFP, but it is willing 
establish operations there if someone pays account setup, account 
maintenance and transaction costs. 
 
¶12. (SBU) HBL maintains the largest branch network in Pakistan, with 
1400 branches.  HBL officials said that many of its rural branches 
only provide deposit and withdrawal services and that these branches 
lose money.  HBL officials hope that a successful mobile banking 
program would encourage the SBP to ease banking requirements, which 
currently force banks to open 20 percent of new branches in rural 
areas and prevent banks from closing branches if the branch closure 
would result in an area becoming unbanked.  HBL has been in 
discussions with two telecom providers about creating a mobile 
banking product.  It has also been in discussions with gas stations 
and Pakistan Post about establishing an agent network.  (Note: HBL 
also bid on the payment card program that the GOP awarded to United 
Bank Limited.  End Note.) 
 
Comment: 
-------- 
 
The appetite in Pakistan's banking sector for mobile banking creates 
an opportunity for USG or other entities to work through the banks 
to deliver assistance. If an opportunity existed, multiple banks 
would likely bid for the chance to establish a mobile banking 
network in support of USG or other efforts in Pakistan, thereby 
bringing more Pakistanis into the banking sector.  One example would 
be an innovation fund that would leverage Pakistani private sector 
investments in branchless banking technology. Currently, post is 
reviewing the best options to reinvigorate microfinance and improve 
 
ISLAMABAD 00002744  003 OF 003 
 
 
the access to banking services with its foreign assistance program. 
Mobile banking offers an attractive model for further exploration. 
End comment. 
 
PATTERSON