Daily Times

As a reflective exercise, this article allows for a birds’ eye view on the journey being taken by all payment service providers, and particularly VRG Pakistan as they strive to make use of the State Bank’s PSO/PSP license and literally, ‘take banking to the streets’ and under-developed areas via the e-wallet solution [*2262#] and AMA Scheme.

In this context, we attempt to bring stakeholders’ attention to the concept of ‘Using Technology Where Bureaucracy Fails’, as this is one of the core concepts behind the ‘Revolution In Digital Affairs’. The slogan ‘Revolution In Digital Affairs’ [RIDA] is proposed to form a basis of communication between stakeholders interested in the next 20 years of development within the mobile financial services industry. From the military context in which the term originates, the ‘Revolution in Military Affairs’ applies to new concepts, technology and strategies that can be viewed as game-changers. New methods such as unconventional or hybrid warfare completely set conventional warfare onto a new trajectory, and this approach to financial services in a development and poverty alleviation context is intended to facilitate the same outcome.

The COVID crisis and the primary government strategy of redistribution, in the form of emergency funds has created a scenario of heightened and urgent need for digital finance solutions. The dire situation involved masses of aid recipients flocking to cash centers, sometimes without the necessary confirmation text, in order to seek aid which could only be disbursed after thumbprint verification in crowded, unsanitary settings. Alongside the crowded environment, there were injuries and even death due to stampeding. To add insult to injury, recipients were quite easily defrauded of their small payments through agents who positioned themselves as middle-men taking fees for confirming the scans. This event stands a case study for the ages, highlighting the utmost urgency for adopting DFS as the primary channel for aid disbursements.

Tariq Malik (former Chairman of Nadra) and his co-author (Alan Gelb, Research Fellow at the Center for Global Development) in a recent article suggest that the existence of the EHSAAS programme an indicator that Pakistan has the tools for a Digital Financial System. Their position, that BISP/NADRA serves as indicative of Pakistan’s DFS-readiness, is inaccurate, these schemes only show that the money is there- our contention is that the process must be improved. The most critical aspects such as security of payment method, and allowing multi-channel access to funds requires a suite of payment functions and technology such as prepaid instruments, and then MPOS and ATM terminals. This will all need to be provided by an external party which will minimise the need for either agents or usage of cash centers. The only thing to be taken forward as part of the existing system is the NADRA database being used for KYC, which then becomes parallel to India’s Aadhar system.

The importance of having a locally driven agenda which provides direction and leadership for the mobile financial services sector post-pandemic is an immensely valuable thing, showing that the nation is capable of unifying its efforts to solve common problems

There was no clear elucidation of technology options to the government, as evidenced by the rudimentary tech usage during the COVID disbursement processes. The existing scheme via BISP, EHSAAS and their usage of NADRA can be taken for their KYC value, but need to be built on as far as the actual distribution loop is concerned, which requires digital mechanisms. The use of an NIC verified SIM through NADRA when coupled with usage of a USSD channel for User Interface is certainly an effective tool for mass onboarding. As per Malik and Gelb, once this approach is popularised, there will be mass appeal for e-wallet solutions across the country, which will be delivered by VRG. Malik & Gelb opine that there will be a surge in demand for mobile wallet solutions across the country, and we add that the exploitation by store-front mobile banking agents will equally cease. The layer of users built upon this formula for basic functions can eventually be upgraded into full digital banking wallets, which will then receive salary disbursements and naturally include users into the tax bracket- the ultimate goal of regulators for decades. A tax issue, in the form of a 15% provincial sales tax for branchless banking retailers serves as a major impediment for development, vetoing any concessions granted at federal levels. This bottleneck in the market opens space for alternate third party providers who can offer access to branchless accounts through other means. With this in mind, the opportunity to integrate mobile payment technology into social protection schemes has been described by Malik & Gelb as a black swan event for Pakistan to expand is mobile money market, requiring a multi-stakeholder, collaborative approach to the situation, involving banks, mobile operators, both regulators, NADRA, BISP and payment technology providers/fintechs. The incentive to pursue this line of thinking through joint projects can be referred to as the ‘Revolution in Digital Affairs’.

The importance of having a locally driven agenda which provides direction and leadership for the mobile financial services sector post-pandemic is an immensely valuable thing, showing that the nation is capable of unifying its efforts to solve common problems. This proposed ‘Revolution In Digital Affairs’ strategy includes a rigorous mutual effort among any and all liable concerned stakeholders, requires setting aside private ambitions in place of ‘National Social Responsibility’, and then initiating phase wise projects to allow bridging the gap in deploying presently available technology and increasing the incentives and also means to transact, disburse aid and salaries in a cashless way. As cited by Ikram Sehgal, World Bank Country Director for Pakistan Patchamuthu Illangovan in a recent Tweet has stated quite explicitly, “To unlock the $36-billion digital finance potential of Pakistan, it needs a high-level commitment, faster payment gateways, lower costs and fast-track licensing for the fintech sector and digitisation of government payments”. Through doing this, a mechanism will emerge to collect taxes from, provide opportunities for, and increase adherence to rule of law and societal norms for a largely underserved and perhaps ‘under-governed’ majority of the population (Syed Nameer Ahmed, a Research Consultant at a Financial Services Technology Group).

The writer is a Research Consultant at a Financial Services Technology Group