March 2, 2003

Chip-based smart cards have revolutionized the concept of e-commerce. Unfortunately, the structure of the government in Pakistan is the greatest impediment in transforming our cash-based society into an electronic money-based one

WHEN Napoleon and his “Grande Armee” were retreating from the Russian Campaign in 1822, his impotence in means of communication was no more different from that of Alexander the Great in 4th century B.C. After a lapse of over 2,000 years, signalling was still dependent upon flag or fire. From Napoleon to Hitler, the technology progressed slowly and steadily, and Hitler was defeated by lack of communication means in the Second World War.

Man’s desire to communicate his ideas discovered a channel of electromagnetic waves in this period. The amazing discovery of electro-magnetic waves facilitated the rapid dissemination of information in the post World War II era, and its growth out-paced development in any walk of life. The information prelude swept through our day-to-day life as well. Its growth at breath-taking pace drastically changed the way we communicate, produce, consume and distribute value and goods.

Digital transformation at breathtaking pace started in the developed world in the second half of 1990s. Pakistan is a late starter in the area. However, it has witnessed tremendous growth in adopting the most modern state-of-the-art technologies during the last two years. Internet usage is spreading like an epidemic and the facility expanded to 1,082 cities/town in Pakistan from just 29 locations two years ago. But the concepts of on-line banking, electronic payment or e-commerce are non-existent in the diction of more than 1,000 locations out of these 1,082 locations. Our pace of adoption of this technology in day-to-day life is very slow. We are like the snake whose head is in the 21st century but the entire body is in the 19th century. Pakistan is facing monumental social challenges and is hampered by inefficient bureaucracy, political strife and the legacies of a highly centralized system of governance.

The present structure of governance is the greatest impediment in our transformation to an IT-ready society. We have to develop a level of information technologies appropriate to our level of development, so that we too can benefit from the opportunities brought about by advanced technology. In this sense, to establish an enabling environment for IT development, well-designed and comprehensive IT development strategies must be formulated and implemented with particular focus on IT readiness, legal/regulatory framework, promotion of international trade through e-commerce, IT-enabled trade and investment policy formulation, telecommunications and other infrastructure development, institutional capacity building, human resource development, rural and social development, e-governance and the enhanced role of the private sector.

Pakistan is probably the only country in the world with such penetration of the Internet and computer, and where people are not ready to adopt an IT-enabled environment. In a world where the magnetic chip has made life easy and chip-based smart cards are facilitating day-to-day businesses and reducing cost at an immense pace, we lag behind. A smart card contains a powerful computer chip that can perform various functions and store significant amounts of data. This card is the key in convenience of payment. The future belongs to the smart cards. It will reduce transaction cost of financial companies, as well as utility corporations for collection of dues. Everything is moving towards the tangible benefit of cheaper, faster and better.

In the future, cardholders will be able to load several smart-card applications — Mondex e-cash, credit, debit, loyalty points programmes, student ID and more — onto the same multi-application smart card. With e-cash, each time the card is used, the amount is deducted from the balance and transferred to the merchant’s account. The Mondex chip not only holds your cash value, but also contains highly-sophisticated security features that protect that value and offer far greater security than the traditional magnetic stripe cards. More sophisticated ‘smart cards’ are being tested around the world.

In late 1999, American Express launched a US smart card project that packs digital certificates on a chip. The Blue card carries a credit application on a magnetic stripe alongside a chip that consumers can use for added security when shopping on the Internet. In Japan, a trial project was launched involving some 200,000 chip-based credit and debit cards. The next generation of cards will be embedded with a tiny microchip. This will offer more functionality than today’s magnetic stripe technology. In France, three groups are testing separate e-purse systems that will be part of multi-application card programmes. In Singapore this year, the Standard Chartered Bank plans to issue at least 50,000 Visa-branded multi-application smart cards that customers can use for banking, bill payments, stock trading and electronic commerce on and off the Internet. They will be able to use it in tandem with their personal computers, mobile phones and at multi-media kiosks. In the future, we’ll see more sophisticated microchips offering a greater scope of services. With these new chips, we’ll be able to obtain foreign currency, movie tickets, postage stamps and airline tickets without wasting time and energy. New technologies such as eye and finger-print scanning will tighten security.

The government could be of great help in establishing electronic links between the people and government, the people and business, business and government, government (departments) to government (departments) and business to business. Using chip-based technologies for these purposes would help facilitate paper-less trading and electronic cash culture for the overall benefit of the economy. For example, the government departments are printing nearly 250 million utility bills each year. The accumulated billing of these utility bills issued by these companies totals over Rs400 billion, including Rs150 billion billing by WAPDA and Rs60 billion billing by the PTCL. It puts a heavy load on currency circulation as well as on costs incurred on printing of new currency notes.

The stored-value card system could be of great help for consumers and will save a lot of transaction cost for these corporations. The chip-based bill payment system would help save immense money, time and energy, all of which could be spent better elsewhere. Each utility bill costs over Rs20, from printing to delivery. Developing an electronic cash system facilitated by the Internet can help reduce the cost of each bill by one-fourth, to a mere Rs5. The benefit would trickle down to the people. This will eradicate cash-flow problems associated with paper money, and help save costs as well as increase personal convenience.

It is imperative to make a beginning and the private sector should come up with viable proposals. The cash-based society needs to be transformed into an electronic money-based society. In Singapore, motor vehicle tax is also being paid through the smart card. Every vehicle that enters in the boundaries of Singapore has to install a device working with a stored value card.

This device, through a sensing mechanism with poles on both sides of the roads, deducts progressive road usage tax from a stored-value smart card. The more you use the road, the more tax you pay. The cost of collection of toll tax in Pakistan is corruption-prone and the cost of collection is too high. The motorway could have been easily transformed from manual collection to smart card-based collection that is easy to collect and can save a lot of money and energy.

WAPDA can also be transformed to this chip-based technology. Smart card-based computerized meters can easily be installed in big cities, initially. This could save the cost of meter reading, bill printing, distribution and collection. The consumer would also be relieved. The problem of theft and line losses would also be minimized considerably. The NADRA project is an example of sheer wastage of resources in the IT sector. After three years of hectic efforts, it is unable to collect database of the population. The quality of data and its usage for different purposes is awful. Even passports, driving licenses, etc, could not be linked with the NADRA database. The organization’s working is hardly distinguishable from its predecessor, the Directorate of Registration, except for lesser efficiency at an even higher cost. There is a dire need to understand the efficacy of the new chip-based technology.

The IT sector has the potential to absorb investment of up to US$15bn over the next five years, and the private sector has great opportunity to capitalize on it. It is true that the Pakistan Government had declared IT as one of the four drivers of the economy, and allocations for the sector witnessed 700 per cent growth in a timespan of three years. But practical implications in the system of governance are hard to be sensed. IT-friendly government actions and policies are coming thick and fast, and everyday there are new developments related to one or the other sector of the IT industry. Unfortunately, we still need a change in the mind set of our ruling elite.

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