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There has been talk aplenty on how Covid-19 has ushered in digital transformation in Pakistan. Not so fast! BR Research discussions with key stakeholders suggests that businesses that already had digital transformation underway had indeed upped their game during the lockdowns. But what about the others sitting on the fence? While Covid-19 may have sensitized wary stakeholders in the public and private sectors on the need for digital transformation, they still require guidance on the next steps forward.

In the SBP’s latest annual report, there is a much-needed discussion on the need to enhance digital connectivity in Pakistan, especially after the lessons learnt during the pandemic. The special section dedicated to this theme has struck the right tone in that existing digital infrastructure had helped the country get by during the lockdowns, but a lot of work still needs to be done, mainly in terms of boosting digital infrastructure, inculcating digital skills, addressing gender and regional divides, encouraging digital interoperability, and onboarding of more financial and government services to digital platforms.

On the demand side, as highlighted by BR Research earlier, issues concerning digital inequality, affordability and literacy are exacerbated by existing income, gender, and regional inequalities. (Read more: “Demystifying digital divide,” published August 7, 2020). Until broader society becomes less inequitable and until there is broad-based, inclusive economic growth, the digital “uptake” and “usage” will remain constrained. The good work, however, continues through programs on financial literacy and digital skills. But a turnaround may need a generation effort. Besides, there is need for a more realistic approach to regulating online content. (Read more: “Don’t discourage digital literacy,” published October 13, 2020).

The SBP report also seems to acknowledge the rather less-optimistic view on the demand side. As a result, the onus is on the supply-side to grow some muscle. One of the authors’ key recommendations is to “upgrade” digital capacity and bandwidth so that the country is able to usher in 5G and IOT, enable high-frequency bands to encourage big-data and analytics, and spread broadband to under-served and un-served regions.

However, a persistent problem is that the federal government in Islamabad views spectrum allocations and auctions as a money-making tool. And PTA can only do so much to advise a government or plan for itself. The ongoing litigation regarding license-renewal process of three mobile network operators underscores the need for a predictable regulatory regime. (Read more: “On telecom FDI,” published October 20, 2020).

Another important policy recommendation concerns the development of mobile-wallet ecosystem for financial services and e-commerce transactions. But it is arguably a hard thing to promote m-wallets in an environment where cash is the king, where m-wallets are not interoperable, where merchants don’t wish to be documented, where banks miserly allow e-commerce payments through even debit cards, and where smaller online marketplaces are wary of digital-payment on-boarding processes and costs.

On the digital financial services (DFS) front, the authors acknowledge that unless service providers are fully integrated with each other via the 1-Link network, it would be hard for the DFS ecosystem to flourish. The solution, they write, is to offer “incentives” to DFS players to become “cooperative”. It isn’t clear what incentives the authors had in mind. But short of a regulation requiring a certain level of interoperability within the ecosystem, the DFS players will most likely be content relaxing in their own walled gardens. It is time to think about introducing something on the lines of UPI next door. (Read more: “Wanted: a common payment interface,” published June 28, 2019).

The authors also seem hopeful that if POS-based transactions carried a lower tax and if imports of POS-related digital equipment are to be allowed in tax-free and duty-free, it may help expand POS network. But such measures are out of central bank purview. In any case, SBP has taken mission-oriented regulatory steps to encourage development of overall digital payments ecosystem. Some stakeholders complain that SBP is too cautious, or that it doesn't go far enough, but hey, a central bank has bigger fish to fry as well.

On a related note, it is clear through background interactions that there has been vacuum at the top when it comes to taking custodianship of developing the digital economy. The SBP has had to take on the role of the cheerleader of the digital ecosystem, in part due to its interface with banking and payments, but also due to the limited interest historically shown by other government authorities, especially in telecoms and commerce domains. One hopes that the implementation of the maiden E-commerce Policy will fill this void by providing a cross-sector, forward-looking, and pro-consumer regulatory mechanism.