Since its creation, Pakistan has only seen two major innovations in the payment space. The first happened in 2008 when Tameer Bank in conjunction with Telenor launched the ‘Easypaisa’ service. The transformation of Kiryana stores into branchless banking agents suddenly made domestic payments convenient, secure and transparent. About 90,000 locations were available for consumers as opposed to 12,500 bank branches.

Easypaisa was followed by many other players and the over-the-counter service was upgraded to mobile wallets. This was huge from a financial inclusion perspective as currently there are more than 46 million wallets and over 10 per cent of our GDP being moved in transactional volume.

The second such revolution is the introduction of Raast by the State Bank of Pakistan (SBP). It is expected to have an even larger impact on financial inclusion over the next five years. A similar service in India called the Unified Payment Interface (UPI) has grown 123 times from 2m transactions in 2016 to 246m in June 2018. Similar growth is expected in Pakistan as the use cases and financial exclusion scenario has many parallels.

Once people in your phone contact list have linked their mobile wallets or bank accounts through a payment app, you will be able to transfer funds instantly regardless of which bank their account is in through a simple message using any messaging platform which is integrated with Raast

So, what is Raast? How is it different from the current payment systems: Pakistan Real-time Inter-bank Settlement Mechanism (PRISM) and Inter-Bank Fund Transfer (IBFT)? Why is it considered revolutionary? And why is it expected to have such a material impact on financial inclusion?

Raast is a payment railroad launched by the SBP which will allow any entity that is connected to this service real-time online transfers with instant settlement. It is connected to the current PRISM (Real Time Gross Settlement) payment service. It is different from the current payment railroads in three principal aspects.

Firstly, PRISM and IBFT are limited to either banks, payment systems operators, equated monthly instalments (SBP licensed institutions) and/or their customers. Raast will not be limited to the existing players; the SBP will define a new regulatory regime which will allow hundreds of entities to avail this service. Participants will no longer require a $2m license to avail this railroad.

The second big difference is contextual messaging and interoperability. Once an entity/individual has attached its bank account to a payment app, transfers using the state-of-the-art ISO (International Organisation of Standardisation) 20022 messaging will allow a sender to use any identifier they prefer, mobile number, name etc to make the transfer. The onerous requirement of filling in multiple fields required to make an IBFT transfer will be history.

Currently, such a user experience is only available within the same eco-system, for example, Jazz to another Jazz mobile holder. The SBP has mandated all commercial banks to change their core banking system to enable a push or pull transaction within five seconds. So far, 12 banks are already operational and another 12 are expected to be ready by 30 June, 2021.

The third aspect is the pull transaction. A pull transaction allows the receiver (on the customer’s consent) to debit a customer’s account. This is how standing instructions and direct debits are managed.

The SBP has envisioned three main use cases for this service. However, as has been experienced in other countries, fintech and banks have developed many other use cases based on this payment infrastructure.

The first use case is that of bulk payments: one debit, multiple credits. The public sector use cases here are dividend payments, government salaries and the Benazir Income Support Program. Imagine all government salaries being made digitally. This use case can of course be extended to the private sector where the formal and informal salaries and wages can be processed from this platform.

The second and most popular use case is that of a person-to-person payment. This will be launched in June 2021. This is what will have the biggest impact on financial inclusion. Once people in your phone contact list have linked their mobile wallets or bank accounts through a payment app, you will be able to transfer funds instantly regardless of which bank their account is in through a simple message using any messaging platform which is integrated with Raast. Open your contact list, select a name and transfer the desired amount. Three click process. If sufficient funds exist in your account you will get instant confirmation, as will the beneficiary. As simple as that.

The third use case is the most innovative and will become available in June 2022 when all banks are fully integrated with Raast. This is the request-to-pay or pull transaction. Imagine a kiryana store owner sending a voice note to its customer seeking permission for a debt. Imagine subscriptions services for your newspaper, insurance premiums also being paid in this manner. Raast will also have the ability to pull payments using QR (quick response) codes.

Raast is expected to have a major impact on financial inclusion due to the ease with which entities and individuals will be able to make and collect payments.

The writer is a tech entrepreneur

Published in Dawn, The Business and Finance Weekly, January 25th, 2021


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