The start of year 2021 has witnessed a much awaited rebound by various global economies but the pandemic has certainly left its mark by revolutionizing the trajectory of economic growth. The World Bank has downgraded the short- and medium-term outlook for the world economy for the year 2021. The Covid-19 pandemic has geared up and intensified the significance of digital banking across the globe. The world is rapidly shifting towards digitalization with a growing number of countries developing instant payment systems to dynamically and virtually connect their diverse economic sectors and stakeholders. A new global economic landscape is emerging which is being driven by changes in technology, demographics and the environment. Industry 4.0 Technologies are at the heart of this financial revolution powered by Block-chain, Artificial Intelligence (AI) and Micro Payment Gateways. The defining financial trend around the world is the rapid increase of electronic payments for business and personal transactions. This is complemented by the decline in the use of cash for basic transactions partially accelerated by the Covid-19 pandemic.
An upsurge has been witnessed in the implementation of real-time payment systems to solve and combat various economic and social issues arising from lack of financial inclusion.
Recently, Pakistan has also launched a micro payment gateway called ‘RAAST’ as part of the National Digital Infrastructure Development Strategy in collaboration with Karandaaz Digital. It is aimed at integrating the financial services ecosystem to create synergy resulting in increased access to digital financial solutions for various excluded population segments such as low income, rural and women. This micro payment gateway is based on the principle of interoperability which has been a major hindrance in synergizing the country’s diverse economic sectors. So far, the services being offered through intra- operability existing with financial institutions have suffered due to high cost of service provision or time required. RAAST has been developed as a solution to these problems, offering real-time intra-operability with minimal cost.
RAAST can serve as a platform for accelerating the growth of Pakistan by facilitating small businesses and individuals. Merchants, businesses, individuals, FinTechs and government organisations will be able to send and receive near real-time payments through the internet, mobile phones and agents. RAAST is Pakistan’s first instant payment system that will enable end-to-end digital payments among individuals, businesses and government entities instantaneously.
According to State Bank of Pakistan data, digital payments only account for 0.2% of Pakistan’s 100 billion transactions today, as compared to other peer countries ranging from 1.5% to 7%. This can be primarily attributed to the challenges within the payment ecosystem. Pakistan has low electronic transactions for a number of reasons including low banking penetration, lack of trust and awareness of digital payment methods, limited interoperability, difficult accessibility and high cost of transactions. Since RAAST is an SBP product, it will give trust to people and will definitely elevate the graph of digital payments. Currently, we have an instant payment settlements solution for large value and corporate transactions available with the name of Real Time Gross Settlement System (RTGS) but the retail part is missing. The RAAST will fulfill this gap by facilitating the retail payment settlements with much great efficiency.
According to the statistics published by SBP for October-December 2020 (Quarter-2, FY21) e-Banking channels, i.e., RTOBs, ATM, POS, e-Commerce, banking through mobile phone and Internet and Call Centres altogether processed 296.7 million transactions valuing Rs 21.4 trillion. ATMs processed the majority chunk with 51% transactions.
RAAST will be implemented in three phases including bulk salary payments, bulk dividend payments in the first phase, peer to peer or person to person payments (P2P) including domestic remittances in the second phase which enables the transfer of funds between two parties using their individual banking accounts via mobile application, internet banking, ATMs or any other digital platform. Most attractive thing in P2P is the alias (CNIC, Mobile no. and Email). Account number will be tagged with alias and funds can be transferred by using above mentioned alias. Third and the last phase will cover person to merchant payments for example payment of goods via POS terminals.
RAAST is ISO 20022, which is an ISO standard for electronic data interchange between financial institutions. Micro Payment Gateways offers numerous benefits including financial inclusion for previously ignored segments, economic growth, transition towards paperless economy, enhanced end-user experience, environmental sustainability through Green Banking adoption, reduction of entry barriers for Entrepreneurs, increased choice to consumers and improved digital security for all stakeholders. RAAST can play an instrumental role in moving Pakistan towards a paperless and digital economy which is the basic component of Green Banking and will allow all financial institutions to seamlessly connect to each other via a single link to the central infrastructure, making digital payments accessible across any channel to customers of any financial institution. There are numerous features including instant or near to real time payment, low to no transaction costs for end users, reliability and enhanced security. RAAST can serve as a driver for revolutionizing Pakistan’s financial infrastructure but for our country this is just the start of the journey. The World Economic Forum has identified Digital Power Concentration and Digital Inequality as some of the major threats of the year 2021. In order to fully reap the benefits of this digital initiative, Pakistan must combat the problems of weak and unequal digital infrastructure in various parts of the country, heavily cash dependent economy, general inertia to move away from cards and cheques, low level of digital literacy especially among the target segments of low income and women and a general mistrust among public regarding digital payment options. The Pakistan government needs to work on the basic digital literacy skill set building among all stakeholders in order to ensure the success of this vitally important digital financial initiative. The success of RAAST will be predominantly dependent on the digital proficiency of its target users. Without taking into consideration the abilities and skill set of the people who will be ultimately using and benefitting from RAAST, Pakistan cannot move forward in this journey.
(The writer is the Group Head (Administration, Engineering Projects, BCP & IT) and look after Green Banking at Bank AL Habib Limited, Pakistan)
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Copyright Business Recorder, 2021