With the launch of Raast, banking in Pakistan is entering into the 21st century. The technology platform is being provided by the regulator, and some say that it should have been done by private sector. But is there any private player that can spend millions of dollars and provide these services for free for number of years?
In many economies (such as India, UK, Brazil) a similar process is followed. China has a monopoly, and is not the best example. At some later stage, the private sector aggregators will leverage Raast platform and complement the ecosystem. The highway is paved. It is a matter of time to generate traffic.
There is nothing wrong to have multiple payment gateways in a country. Raast is not going to eat the whole pie of ILink or NIFT. It is just that the pie has been increased and there is enough for all to make use of. There are countries where multiple gateways exist. Raast will have (near) real time settlement in consumer accounts just like RTGS (Real-time Gross Settlement) with the final settlement in central bank money, using RTGS thereby doing same day settlement. The same is not possible in existing gateways in Pakistan.
The SBP had been working on the platform since 2016. One of the major objectives of Raast platform is to support bulk payments for government entities that have huge volumes. In the first phase, bulk payments will start with one organization sending payments to many individuals. These payments will include salary, pension, dividend etc disbursement almost instantly.
Currently, dividend payment is on board while AGPR will be on boarded shortly. There are around 134 AG offices across Pakistan. Currently, the SBP team is coordinating with AGPR (Accountant General Pakistan Revenues) in supporting the payments by establishing connectivity between Raast platform and AGPR. The Ehsaas programme rollout will follow as soon as they are ready.
In the second phase, person-to-person transactions will be launched. Right now, one can transfer funds to the others using IBFT (Inter-Bank Funds Transfer) provided by 1LINK. But the settlement does not take place on the same day. It is not that easy to use IBTF. One needs to have understanding of using Internet banking offered by banks. In Raast, alias can be used – the amount can be transferred by putting in mobile number, CNIC, email or any other form.
Further, onboarding of clients is difficult on IBFT. For instance, school fees or clubs’ monthly payment are difficult to perform. At the backend, actual settlement takes one or more days. This creates a settlement risk. For managing financial stability and systemic risks, RTGS is used at the backend to support Raast. In the third phase, Request to Pay (RtP) will come on board. The receiver can request to get payment and at the backend, Raast system will enable this. QR codes will come in play at this stage.
Raast also has API (Application Programming Interface) based processing enabling easy onboarding of entities and processing of transactions. It will make its own conduit for any particular form of transaction based on well-defined protocols. For example, in case of Ehsaas payments, a pre-validation may be performed for the existing beneficiaries and once confirmed, the banks may send the payments to beneficiaries’ accounts.
The long term success of Raast is to transit into the open banking solutions by having interoperability. Right now, systems are operating in silos. Mobile wallet providers are mere capitalizing on their client base. Across the board, the user experience is not good with high cost thereby discouraging the users from using these systems. Raast will enable wider interoperability across systems in Pakistan.
Earlier efforts to make systems interoperable were not successful as banks were not simply interested. In 2014, SBP came up with PSO (Payment System Operator) and PSP (Payment Service Provider) regulations. The idea was for private sector to take lead. One problem was that banks were not interested. For example, banks didn’t think to expand base of IBFT; rather they were more interested in the fee payments charged on it. The volumes didn’t grow; and banks kept on making fee income. Due to Covid, SBP waved the IBFT fee and the value of transactions almost doubled. Low fee and (near) real time settlement would enhance both demand and supply of cashless transactions under Raast.
Once all the three phases of Raast are rolled out, the next phase would be open banking. Here, private sector would take the lead. In this case, all kinds of transactions can take place digitally at low cost. The private sector fintech and aggregators will come and innovate. Banks don’t have any incentive to innovate.
NADRA is one big aggregator that has to come on board. It is imperative for E-KYC (Know Your Customer) and to reduce the cost. Right now NADRA charges tens of rupees on each verification. It’s a bottleneck for spreading the digital transactions. NADRA should see this as a public utility and reduce the cost to a few paisas.
Pakistan is late as compared to others in rolling out the payment gateway. But SBP is targeting to complete the three phases in 2 years. Other countries have taken more time. There is need for government to join hands to change some regulations, and expect private sector aggregators to come on board. This phenomenon of interoperability can potentially end the monopoly of banks, aggregators or gateways.
The question is how long will Raast take to rollout to full. In India, UPI was not an immediate success. The players were not interested to join. They were happy in silos. Then google came and got non-banking access to UPI (Unified Payment Interface). That had changed Indian digital onboarding. In case of Pakistan, the EMI regulations are better and less strict. Here, the regulator is hopeful that local players will take the lead.