Is the future dark for branch banking in Pakistan?
Branch banking in Pakistan
Branch banking in Pakistan is the traditional model of
banking where customers visit physical branches to conduct transactions, open
accounts, and access other services. These branches are typically located in
urban and semi-urban areas and are staffed by bank employees who can assist
customers with their banking needs.
In Pakistan, most of the commercial banks have a nationwide
network of branches, with a mix of urban and rural branches. Branch banking
services include deposit and withdrawal of cash, account opening, issuing and
encashment of demand drafts, pay orders, and cheques. Banks also offer various
types of loans, credit cards, and other financial products through their
branches.
There are over 16,000 branches of banks in Pakistan
including government, commercial and micro finance banking institutions which
are staffed by thousands of people, making it a major employer in Pakistan.
Decline of branch banking in Pakistan
In recent years, anecdotal evidence shows the number of
staff in bank branches in Pakistan is on constant decline. The branches which
had a usual staff of 10 to 12 people are now manned by 4 to 5 people only. A
large number of services including utility bills payment, money transfer, and receiving
cash payments have been replaced by digital transactions either through banks
or fintech companies. This has resulted in declining number of people who visit
banks to meet their financial needs.
Threats to branch banking in Pakistan
In recent years, with the advent of technology, banks in
Pakistan are also offering digital banking services such as internet banking, mobile
banking, and ATM services to supplement the traditional branch banking. This
allows customers to conduct transactions and access services from the comfort
of their homes or on the go, reducing the need to visit a physical branch.
Branch banking is facing a number of threats, both internal
and external. Some of the main threats include:
Digital disruption: With
the rise of digital banking and online financial services, customers are
increasingly turning to online channels to conduct their banking transactions,
which can lead to a decline in visiting at physical branches.
Increased competition from
fintech companies: Banks are facing increased competition from fintech
companies and other non-traditional financial services providers, which can
make it harder for them to retain customers and grow their business.
Cost-cutting measures: Banks are looking to cut costs
and improve efficiency, which has led to the closure of underperforming
branches and the consolidation of banking services. In many areas in Pakistan,
there is a rising trend of merging of bank branches to cut costs.
Cybersecurity threats:
As more transactions are conducted online, banks are at an increased risk of
cyber attacks, which can lead to data breaches and financial losses.
Compliance and regulatory
challenges: Banks are subject to a wide range of regulations, and failure
to comply with these regulations can lead to fines, penalties, and reputational
damage.
Economic downturns: Economic
downturns can lead to an increase in loan defaults and a decline in consumer
confidence, which can negatively impact the banking industry as a whole.
Changing customer
preferences: Changing customer preferences and banking habits can also pose
a threat to branch banking, as customers may opt for more convenient and
flexible banking options, such as online banking, mobile banking and other
digital channels.
Expenditures of running a bank branch: Running a bank
branch requires a lot of expenditures which are constantly on rise. In
Pakistan, most of the bank branches in located in rented buildings and rents
are increasing every year. Then there are costs of electricity and other
utilities that add up the financial impact on a bank.