ACCORDING to the World Bank, in 2017, only 18 per cent of Pakistanis had an account with a financial institution. Access to financial services — storing money securely, accessing competitive loans to smooth consumption or purchase assets, availing insurance to weather financial shocks, sending money to relatives with minimal fees, making and receiving payments quickly and affordably — is increasingly recognised as a basic need in a modern economy.
For the poor, financial inclusion can build resilience, provide a safety net, and make daily financial transactions more convenient. For a daily wager, for example, sacrificing a day to visit a BISP centre or to pay utility bills may mean a significant loss in wages. The majority of Pakistanis lack access to payments services that would allow them to conduct such transactions efficiently and at a low cost.
This is where many hope Raast will make a difference. Prior to Raast, Pakistan’s payments infrastructure constituted PRISM (for large value transfers) and 1Link (owned by a consortium of private-sector financial institutions to enable connectivity between them). Neither of these catered to the daily transactions ordinary citizens make. For example, using IBFT to send money to a relative through a bank account can cost as much as Rs150 per transaction (the State Bank has temporarily ceased these charges during the pandemic). For many, this is unaffordable and renders small transactions (such as sending a small sum of Rs500) untenable.
Raast offers opportunities for inclusion, but is not without risk.
While such problems have been solved piecemeal (for example, through mobile money providers), a single unifying payments infrastructure will enable speedy delivery of new use cases — facilitating different types of transactions — and entry of new international and local financial services providers into the Pakistani market as barriers to entry are lowered — new entrants can now link up to an existing, low-cost payments infrastructure.
In technical terms, the benefits of a system such as Raast stem from ‘interoperability’. Interoperability enables many of the services we use in our daily lives. For example, Gmail users can send emails to Hotmail and Yahoo users; Ufone users can make calls to Jazz and Telenor users. This ability of different service providers to enable transactions with each other greatly increases convenience and uptake.
Interoperability works similarly in the financial sector. If there is a system in place where customers of a particular bank can not only transact with other commercial banks, but also with telecoms, microfinance banks and fintech start-ups, that enhances the value proposition, and also levels the playing field by breaking network dynamics.
While Raast is an important enabler, there are other critical pieces of the puzzle that the State Bank would have to carefully design. These include governance arrangements and economic decisions that must incentivise providers to participate, innovate and cater to the underserved.
In the age of big data analytics, there is a downside to the increasing digitisation of financial services. The financial sector uses increasing amounts of data to assess customers and determine their viability. A common but alarming example is the use of personal data in credit score assessments or health insurance. While using innovative data sources — including social media content, browser history, location data — allows for the inclusion of customers who may have traditionally been excluded from the banking system and hence lack a digital and financial footprint, it also increasingly encroaches upon their personal lives. Coupled with opaque algorithms, the new generation of digital financial services may not only violate customer privacy, but also introduce new forms of discrimination and exclusion.
As Pakistan strengthens its digital financial infrastructure, introducing data protection legislation — in consultation with industry as well as human rights groups and consumers — is becoming ever more critical. Consumers must be empowered to understand their digital footprint, how their data is used and the options available to them. At the same time, limitations must be placed on how the industry can mine, store and use customer data.
On a related note, Raast should be launched and publicised as a public good that has been built to financially empower the citizens of Pakistan, rather than to surveil them for tax collection. Raast is not the solution to our tax collection woes and, in a country where trust in the state as well as in financial institutions is low, this should not be used for anti-corruption rhetoric but to create a consumer-oriented financial system, which offers a wide range of relevant services to enhance financial resilience of individuals, small businesses and the economy.
The writer is a development and technology policy consultant.
Published in Dawn, January 17th, 2021