State Bank of Pakistan in collaboration with Karandaaz and Bill & Melinda Gates Foundation, marked the beginning of 2021 with a digital leap forward following the launch of Raast — Pakistan’s first instant payment system that permits end-to-end digital payments among general public, businesses and government entities. The initiative is part of ‘Digital Pakistan Vision’ aimed at financial inclusion of poor segments and women of our society in the formal economy and improving tax collection. Raast is not an application or a product, rather it is a back-end payment system similar to 1link, which intends to take all banks of the country on board to offer the general public an optimal digital payment experience. All banking applications and portals will offer payment through the Raast mechanism. For this purpose, all banks will be taken on board for offering payments through the Raast mode.
Since one banking institution alone cannot develop financial infrastructure for all its customers, therefore, banks collaborate with companies offering payment solutions to enhance their services and cover all their customers. Raast is a system which works on the concept of intra-operability through which payment solutions aid bank customers in withdrawing money from even those ATMs that do not belong to their respective banking institution. Raast is aimed towards resolving the problems present in account-to-account intra-operability among banks. The faster payment system is going to be used not only to settle small-value retail payments in real-time but will also provide cheap and universal access to all the players within the financial industry, including banks and fin-techs.
The Inter Bank Fund Transfer system is under-utilized in Pakistan due to high fee and complicated procedures. Intra-operability should be a seamless experience and that is exactly what Raast plans to achieve. There will either be a low fee or no fee at all on the intra-bank fund transfer through Raast, which can act as a huge incentive for consumers. The government can use Raast to pay stock dividends, government salaries and payments under the Ehsaas program. Person-to-person use of the system will allow the transfer of amounts between two individual accounts. Moreover, Raast can be used for merchant payments. Raast will soon launch a merchant scheme just like Visa with excellent efficiency because it has the capacity to work on multiple settlement processes per day and merchants will receive their amounts on the same day.
Pakistan has had low electronic transactions because of low banking penetration, lack of trust and awareness of digital payment methods, limited interoperability, difficult accessibility, and high cost of transactions. According to the data available with the State Bank of Pakistan (SBP), digital payments only account for 0.2% of Pakistan’s 100 billion transactions today, whereas the share of digital transactions among the peer countries ranges from 1.5% to 7%. The introduction of Raast is a great step forward for Pakistan as it will help reduce transaction time for digital payments. It will also help steer the adoption of digital payments in the country as it will lead to additional efficiency in the digital payment infrastructure of Pakistan. It will be completed in three phases culminating in early 2022. Raast also has a goal of shifting away from a cash-based economy which may be a logical step to broadening the tax base as well as tackling corruption and poverty.
Covid-19 has also been witnessed as a blessing in disguise as in case of Pakistan, promotion of formal and digital channels played a major role in driving remittances up. International air travel restrictions also helped divert remittances from informal to formal channels. Contrary to global trend of decline in workers’ remittances flow to the recipient countries, an unprecedented growth was seen in Pakistan where it was recorded above US$2.0 billion per month during the past seven months.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi-based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]