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Pakistan is at a critical juncture of its journey of digital financial inclusion. It is critical that the Central Bank and the industry reflect and take stock of the country’s digital and real-time payment system. This reflection is important to identify challenges and opportunities that lie ahead and realize the full potential of the payments system.

RAAST, a state-of-the-art payment system, is the result of a four-year-long collaboration between the State Bank of Pakistan and Karandaaz Pakistan with support from the Bill and Melinda Gates Foundation. It is a major milestone in transforming the payment system and enhancing the financial markets outreach.

The capabilities and functionalities it offers are world class e.g., interoperability, open API based connectivity, real-time settlements, directory function and high throughput. All these aspects ensure that the cost of transactions would remain low thus allowing low value transactions and their swift settlement.

The leap that Pakistan is poised to take through RAAST is based on several factors. The country has high cell phone penetration (80%), high broad band usage (41%), and a regulator-supported system. Moreover, the 2022 Karandaaz Financial Inclusion Survey (K-FIS) reveals that financial inclusion in Pakistan has grown by 9 percentage points from 2020 to 2022. Further, SBP’s Annual Payment Systems Review for 2021-22 highlights a significant expansion in the digital payments ecosystem. Mobile phone banking surged by over 100% to 387.5 million transactions, while internet banking witnessed a 51.7% growth to reach 141.7 million transactions.

To-date, two use cases are fully launched – first the bulk payments i.e., one to many and second Person to Person or P2P payments. Regarding the first use-case, RAAST has routed all dividend payments made by the Central Depository Company (CDC). RAAST’s P2P module has processed over 132 million transactions worth PKR 2.6 trillion, registering over 31 million unique RAAST IDs.

As a next step, Person to Merchant or P2M payment module will be launched in few weeks. P2M will open new avenues and spur new business models bringing efficiency, cost effectiveness and security in financial transactions. Some examples include innovative initiatives such as interoperable QR codes and supporting services requiring payments on installments.

It is also crucial to remain cognizant of the challenges. First is the cost borne by the consumers making payments via credit or debit cards with vendors charging up to an additional 2.5% on each transaction to discourage the consumer from paying via cards. Recently, petrol stations across the country stopped accepting card payments as discontent between the oil marketing companies (OMCs) and the Government over payments increased.

Second, the merchants in general fear that accepting digital payments will bring them into the tax net. Formalization reduces opacity and enhances the agency of the state to deliver in several ways through properly structured incentives. Furthermore, it is crucial to focus on safeguarding mechanisms for preventing digital fraud and ensuring cyber-security. A key step towards this will be establishing a central fraud detection system integrated with RAAST.

There is ample global evidence that going cashless improves the size of the formal economy. Growing digital transactions attract innovative fintechs and digital financial services providers to offer sophisticated financial services.

Payment system such as RAAST is also the foundation for open banking. Data gathered through RAAST can support services such as credit scoring and enhance regional financial connectivity and cross border trade globally and with regional partners. A well-governed RAAST with requisite capability and agility to respond to the demands of innovation will be important in the journey towards universal digitization.

Copyright Business Recorder, 2023

Dr. Shamshad Akhtar

The writer is currently the Minister for Finance, Revenue and Economic Affairs

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