Pakistan has announced a new government-run instant digital payment system called Raast or “Direct Way” in a bid to boost financial inclusion and government revenue in the country. According to the State Bank of Pakistan, the moving force behind Raast, the new digital system will be rolled out in three phases culminating in early 2022. Raast would allow merchants, businesses, individuals, fin-techs and government entities in Pakistan to send and receive near real-time payments through the internet, mobile phones and agents.
Developed through a multiyear collaboration between the State Bank of Pakistan and the Bill & Melinda Gates Foundation, with support from the World Bank, the United Kingdom and the United Nations, Raast has a goal of boosting the involvement of women in the formal economy.
The question arises as to what is the efficacy of Raast when several private-sector digital cash transfer systems that do not require a bank account – such as JazzCash, operated by telecommunications company Jazz, and Easypaisa, operated by telecommunications company Telenor Pakistan – are already available locally. A short answer is that Raast would be the first platform to link government entities and financial institutions. It also promises numerous other benefits, which merit examination.
The salient features of Raast include instantaneous payments: near real-time digital payments across individuals, merchants, businesses, and government entities; low-to-no transaction costs for end users; Raast is designed to operate at a cost recovery model to make digital payments affordable to end users of all socio-economic backgrounds; full sector-wide interoperability: Raast will allow all financial institutions to seamlessly connect to each other via a single link to the central infrastructure, making digital payments accessible across any channel to customers of any financial institution; customer-centric innovative products/services; Raast will be built on cutting-edge technological standards, allowing financial institutions to develop innovative and user-friendly digital payment products and services like payment through phone number or email; and reliability and enhanced security; Raast will introduce more secure payment types, ensure that each transaction is authorized by the payer, and offer enhanced data protection and fraud detection services.
To modernize the country’s banking and payment systems, SBP has taken various initiatives such as enabling Fintechs and modernizing payments’ infrastructure
Pakistan currently faces a myriad of financial problems, which hamper its growth as well as place impediments in the fruition of development goals. Primary among them is the weak or low tax base. At the inaugural ceremony to launch the major step towards achieving a cashless economy, the Prime Minister himself lamented that only two million people in a country of 220 million paid taxes, which was not enough for the desired social uplift of society involving the construction of hospitals, schools and providing other basic facilities of life for the common man. Imran Khan informed that only 3000 of the taxpayers pay 70% of the tax. It is notable that his government has taken steps to automate collection of taxes on transactions and also tightened rules on banking but is still falling short of targets. Thus, shifting away from a cash-based economy may be a logical step to broadening the tax base as well as tackling corruption.
Currently remittances from abroad constitute using informal systems like hawala and hundi, which besides being illegal, manage to keep the transaction off the books and encourage money laundering. The instant payment system would not only document the economy, but also generate more taxes to help build the country. Pakistan’s ability to curb illegal financial transactions, including the financing of militant and extremist groups, has been under close scrutiny from international financial watchdog the Financial Action Task Force (FATF). Hopefully, the revolutionary digital system will help Pakistan avoid the hangman’s noose of being blacklisted by FATF.
It is pitiable to see old pensioners including widows of government servants, lining up even in inclement weather to draw their pension from financial outlets and post offices, since they lack the capacity to open bank accounts. Raast will enable government payments, including salaries and pensions, to be made through it, as well as disbursements for nationwide financial support programmes, such as the Benazir Income Support Programme, and the Ehsaas Emergency Cash programme.
This state-of-the-art payment system will be used to settle small-value retail payments in real-time while it would help include the low-income groups and make them part of the mainstream economy. It appears to be in consonance with the government’s endeavour to eradicate poverty, particularly in rural areas and empower financially excluded and less privileged members of society like women.
The State Bank’s efforts should also be lauded, which has been encouraging technological innovations in banking and payment systems for a long time, but in the near past, under the directives of the current ruling dispensation in Islamabad, it has expedited its efforts further to accelerate the pace of digitalization in the country.
To modernize the country’s banking and payment systems, SBP has taken various initiatives such as enabling Fintechs and modernizing payments’ infrastructure. Raast is the first major step taken to implement the National Payments Strategy prepared with the help of the World Bank and announced in November 2019.
According to the data available with the State Bank of Pakistan, digital payments only account for 0.2% of Pakistan’s 100 billion transactions today, whereas the share of digital transactions in the peer countries range from 1.5% to 7%.
Pakistan has had low electronic transactions for several reasons, including low banking penetration, lack of trust, and awareness of digital payment methods, limited interoperability, difficult accessibility, and high cost of transactions.