GIVEN the structural imbalances and the rampant rent-seeking prevalent in the economy, an argument could probably be made that most traditional private sector firms either have no incentive to offer innovate products, or their costs have spiralled to an extent where this is largely impossible for them.
Either way, banking is one sector where this stagnation is evident. Most banks are only too happy minting money off the risk-free spread, which averaged 6pc in CY14.
Nonetheless, a few banks are trying to diversify their operations and client bases and are investing heavily in the digital space to streamline general banking activity and to also reach out to the large unbanked population.
One such initiative, undertaken by Standard Chartered Bank (SCB), aims to improve efficiencies in the cash management operations of the corporate sector — ranging from multinationals to large corporates and smaller establishments.
“Cash management is the heart of every company,” said SCB’s head of cash products, Karin Flinspach, during a recent discussion with journalists in Karachi. “If you don’t collect what is due to you and you don’t pay, sooner or later you’d be out of business. But it’s also important that you do it as efficiently as possible.”
Last year, the bank launched its automated cash management solutions for corporate clients in 29 countries; Pakistan was the first ‘live client’.
A couple of interlinked factors are at play here that merited this choice. The first is demographics: over 60pc of the population was aged between 15-64 years in 2013, according to World Bank data. Secondly, the number of cellular subscribers stood at around 136.5m, and 3/4G subscribers at over 9m. And thirdly, only 10pc of the population has bank accounts.
Standard Chartered is targeting 8pc annual volumetric growth in the cash and trade business in the country
The confluence of the three means that in order to bring more people, particularly those in rural areas, into the banking system, banks have to try novel approaches. One of the most popular banking products that facilitates this is ‘mobile money,’ which allows individuals as well as companies, development organisations and government departments to send cash to people in far-flung areas in a secure manner.
“[One area] where mobile money can be very useful for corporates is payroll. So you have a contracted [and widespread] workforce that has difficulty in opening a bank account, but you can make the payroll payment electronically to the mobile wallet of that person,” said Flinspach.
But for a company, making payments is just one side of the equation. Providing details about ‘virtual accounts,’ Shalini Lall, SCB’s regional head of product management for the Middle East and North Africa (MENA) region, said it is equally important for a firm to keep track, in real-time, of the plethora of payments it is receiving from dealers and others, so it could prioritise its sales consignments.
Real-time tracking is also particularly important for smaller companies, “whose cash flow is often [more] tightly managed”.
Lall added that at the regional level, Pakistan fares really well in terms of digitisation. “More than two-third of our clients are on the platform, using it either for reporting, payment, or for initiating a transaction.” She added that in the MENA region, only the UAE fares better than Pakistan, with over 90pc of the bank’s clients there on the digital platform.
The bank is targeting 8pc volumetric growth in the cash and trade business in the country. In 2014, according to Lall, the bank’s Pakistan operation recorded around 8pc growth on the payment side and 6pc on the collection side, in terms of volume.
However, the recent rout in commodity prices as well as low interest rates has had an impact on the overall value of transactions. Despite that, she said the bank is continuously investing in upgrading its infrastructure. “Transaction banking for the bank as a whole is very big business. In the Middle East, North Africa, Pakistan region, it is the biggest business for the bank.”
“Digitisation and automation are good. But you have to wonder about their scope in the corporate sphere in a country like Pakistan, where even the [relatively] smallest of business owners considers themselves to be big Seths. Why would a businessman or a [small- to mid-sized] company go for such fancy products when he finds nothing wrong with his own payment, collection and reconciliation mechanisms,” opined a senior banking sector watcher.
When asked about this seeming inertia prevalent among traditional businesses, Salar Khan, managing director and head of corporate and institutional clients at SCB Pakistan, said there is also an element of education when it comes to convincing local corporates to switch to automated solutions. He argued that companies realise that efficient receivable management often allows them to cut back on unnecessary borrowings, which in turn is reflected in lower finance charges.
“Once you educate them and [show them] that financial benefit, I see local corporates actually developing much faster because they’re an untapped space, relatively speaking. But it requires a lot of time spent to show the client that it’s in their interest,” admitted Khan.