Wanted: a common payment interface

Not having a ubiquitous payment scheme has been a source of discomfort among freelancer community and e-commerce stores. While it doesn’t look like PayPal will start operating in Pakistan for cross-border payments settlement anytime soon, it is also not clear why the financial sector here isn’t investing in developing a universal payment scheme locally that can handle transactions within Pakistan at lower fees and with more data privacy.

Amid a clutter of digital banking applications and platforms launched by conventional banks and branchless banking service providers, the digital payment scene in Pakistan lacks what can be called a reasonable degree of interoperability. The back-ends of these mobile applications are not integrated with each other, resulting in silos of digital interactions as one service provider’s wallet cannot transfer money to another firm’s wallet.

This state of affairs doesn’t help on-board either customers or merchants, who feel that cash-handling is efficient than being part of a compartmentalized digital ecosystem that imposes costs of non-collaboration on the users through high fees and multiple steps to making transactions.

Next door, this problem has been handled to a reasonable degree through a state-led initiative that aims to have a common payment interface. Under the Unified Payments Interface (UPI), India’s public and private sector banks, mobile wallet companies, and sundry Fintech firms have integrated their back-ends and developed mobile applications with a similar interface that is both simple and easy to use.

The UPI has served to remove the “friction” in making digital payments. For instance, a user doesn’t need to top up on UPI platform (unlike an m-wallet) to make a payment, as the UPI is directly linked with the user’s bank account or m-wallet. And it is easier to use compared to an m-wallet or Internet banking. A user just needs to enter the other person’s mobile number or a UPI ID and then make a payment or request a payment. UPI is secure as it is linked to a mobile number and needs two-factor authentication.

The platform has really taken off in India since its 2016 launch. Now close to a 150 banks and many non-banking entities are found on the UPI channel. From a non-existent base three years ago, UPI is now averaging over 700 million monthly transactions, with a value above $22 billion. That value figure is about a third of total digital payments’ market in India, as per a recent PWC estimate.

Pakistan can learn from UPI’s success in leveling the playing field and pushing the financial and telecom institutions to integrate their networks. It is time to make it easier and faster for two people, no matter which bank account or m-wallet or cell number they use, to do transactions with each other over mobile. Without opening up these walled gardens, the SBP will find it hard to grow the scale of digital payments.