- Lately there has been a lot of chatter regarding launch of a payment interface by the Central Bank, which has aptly been branded as ‘Raast’, and is being heralded as the ultimate solution to all payment related problems.
- If built, and leveraged well, ‘Raast’ can truly catalyse a paradigm shift regarding how transactions are executed in the country, enabling hefty economic dividends in the process.
Lately there has been a lot of chatter regarding launch of a payment interface by the Central Bank, which has aptly been branded as ‘Raast’, and is being heralded as the ultimate solution to all payment related problems. If built, and leveraged well, ‘Raast’ can truly catalyse a paradigm shift regarding how transactions are executed in the country, enabling hefty economic dividends in the process.
But what does a payment interface do anyway. There are thirty-three scheduled banks regulated by the SBP. Each Bank has its own payment system, where they receive payments, make payments, and so on. When an ordinary account holder deposits a cheque in a bank (of another bank), it takes a few working days for the clearing to take place, and the amount to be credited. Such operational delay is largely due to manual consolidation of cheques, and then clearing by a centralized entity. The question remains that why all of this can’t be automated? Why can’t all thirty-three banks talk to each, and the amount can be credited within a few seconds (or even minutes), rather than a few days. It is because these the payment systems of these banks don’t talk to one another, unless specifically in the case of ATMs, where they are all linked together through 1Link.
Assume a payment system to be like a pipe. With this analogy, each Bank is operating its own pipe. The size of the pipe varies, but it is an independent pipe, which is not connected to other pipes except through 1Link, which has its own limitations, and is an expensive proposition. Extending the same analogy, a payment gateway is one big pipe, which allows all Banks to connect to that one big pipe. Suddenly, all banks through this one big pipe can now talk to one another – obviously through predetermined protocols. That big pipe is the ‘Rast’ here, and it will now be possible for entities to connect to the big pipe and enable fast, and efficient payments at little to no cost. Payments will not be monopolised by Banks anymore, and it will be possible for other entities to develop and provide more efficient payment services by using the big pipe.
Let us look at another use-case here, like buying fruits and vegetable from the market – a pre-dominantly cash based transaction, where the buyer and seller, as well as the extended value chain uses cash to conduct transactions. If through this big pipe, it is possible to pay digitally without incurring any additional cost, and through an easy and intuitive interface, the buyer and seller both would theoretically avoid the cash drag. Although informal sector will continue to avoid such transactions, but once enough demand and traction is in place, there will eventually be a transition.
The infrastructure for a payments stack is now being put into place – however, that needs to be built on top of an identity stack, with the latter playing a crucial role in making the customer onboarding process simple, and intuitive. An identity stack largely covers leveraging a digital identity which already rests with NADRA to catalyse customer acquisition, while ensuring that the customer onboarding process is frictionless. Currently, other than the extremely mundane Level-0 accounts, the account opening process is lengthy and inefficient, and for just conducting basic transactions over the counter, multiple CNIC copies are required. These are the kind of inefficiencies that the identity stack must address, before payments can really take off.
Cash has been a drag on the economy. Reducing prevalence of cash in the economy will yield an economic dividend, the impact of which can be much higher than any other direct policy intervention. A payments interface builds the necessary rails to nudge the transition towards a cashless economy. A lot more needs to be done particularly on the identity stack, as well as on the regulatory front before it can start bearing fruit. As always, the focus needs to be on expanding the pie, rather than extracting a greater share of an already contracting pie.