Interview with Faisal Khan, Payments Consultant
Aamer Abedi, RemitONE’s Marketing Director, interviews Payments Consultant Faisal Khan on the Pakistan Remittance Initiative, financial inclusion and newcomers to the money transfer space.
Aamer: The Pakistan Remittance Initiative is being hailed as a model all receiving markets should embrace to encourage formal remittance channel adoption by individuals and MSBs and ensure a robust economy. what are your thoughts?
Faisal: PRI has certainly done the remittance industry a lot of good. Its free-send model is one that we should be proud of. This is, unfortunately, where the good ends. PRI can do far more to improve the current offering. Most notably, the promised rebate payout of 25 Saudi Riyals on the free-send model needs to be cleared. Backlogs of over a year have become the norm. This sends all the wrong signals to potential partners. I would put the blame squarely on PRI & SBP for not fighting its case tooth and nail to recover the rebate money from the Ministry of Finance.
Another area of grave concern is the selective and biased process by which PRI awards MTO tie-ups with banks in Pakistan. There is much undue favouritism and many MTOs and banks willing to join the initiative have their applications ignored on PRI’s desks for months, or are met with a painfully slow response indicative of the PRI’s lack of support. This needs to change. Tie-ups should be approved within weeks so the country can benefit from additional remittances.
Moreover, the issuance of Exchange Company Licenses has been frozen for well over 7 years now. The SBP’s failure to allow more exchange companies to enter this field is something that urgently needs scrutiny.
Lastly, at present the reporting system provided to PRI is ad-hoc and antiquated. PRI in conjunction with FMU (Financial Monitoring Unit) do not have elementary visibility into transactions nor do they have the ability to correlate data. It is imperative that SBP/PRI implement an adequate reporting system to thwart money-laundering efforts and transactions structured through different channels.
Despite its admirable objective, PRI currently operates in a very passive capacity. In the initial days PRI was active and involved but somehow they relegated their position to the back-seat and are now merely processing paperwork at a snail’s pace.
Aamer: Contrary to what the regulators and banks in sending markets say, MTOs often help facilitate financial inclusion. It is actually stringent measures imposed by regulators and banks from send-markets that leads to financial exclusion. How much truth is there to this statement?
Faisal: MTOs are the lifeline to remittances. They have unparalleled grassroots access to diaspora communities. MTOs should be welcomed, trained, facilitated and appreciated rather than being ostracised from the financial circle (as is evident worldwide). MTOs today find it immensely difficult to access banking services, which is near impossible in the United States, Canada, UK, larger parts of Europe and Australia/New-Zealand because of perceived risks that money transfer businesses pose.
With steps like Operation Chokehold in the United States and programs that mimic exclusionary policies in other countries, it is becoming a serious issue. FinCEN (Financial Crimes Enforcement Network) recently raised the concern that MSBs should have access to banking services, though for now this seems to be lip service.
If regulatory pressure is imposed on MTOs/MSBs, money will go underground. Money always finds the route of least resistance, and if the official route has friction and inertia attached to it, money will channel from a formal, documented economy to an informal, undocumented economy.
I feel the situation will get a whole lot worse before it gets better. There would be a lot of unnecessary consolidation in the industry before it starts blooming again.
Aamer: EasyPaisa is a great success story in Pakistan, just as MPESA is in Kenya. Do you think end-to-end cross-border mwallet solutions will finally kick off this year? Do you see MTOs in the UK being able to send mobile money onto Telenor or Mobilink users’ mobile phones in the near future?
Faisal: Wallet operators in Pakistan are still operating and maintaining non-agnostic wallets. So far, there has been a walled garden approach to each wallet operator and interoperability is yet to be seen. There is no doubt that wallets in Pakistan is predicted to have grown to 40 to 80 Million users. I am confident that direct-to-wallet remittances will start this year and start gaining traction.
Aamer: Do you think the PRI framework will be restrictive to send-MTOs as they attempt to send mobile money to MNOs and MVNOs?
Faisal: Yes, the framework is restricted but I would somewhat agree with the restriction. When P2P (Person to Person, which involves a financial intermediary) morphs to P2P (as in peer-to-peer, for direct value transfer without a financial intermediary), it opens the country to a whole lot of money laundering and terrorist funding risks. As long as the sending part utilises a licensed platform to send money, PRI should have no objection towards a tie-up.
Aamer: Banks from send markets like the UAE are showing a lot of interest in providing self-service kiosks to migrants, enabling them to send money without having to visit Exchange Houses. Overseas Pakistani banks are also showing a lot of interest in offering this service to Pakistani diaspora in send markets. Your comments?
Faisal: Kiosks are a great way to do value-transfers. I think they complement ATMs, and they certainly complement feature phones where apps cannot be deployed to do say facial recognition, etc. Kiosks are the perfect balance that can be used for remittances using the WPS (Wages Protection System) Card that all employed personnel in UAE carry, onto which salaries are disbursed. Awareness and education would be paramount for remitters, as the bulk of the remittances are done by blue-collar workers and hence the aptitude of the remitter has to be taken into account.
Aamer: There are international remittance hubs tying up with MTOs and MVNOs facilitating money transfers and making it easier for business to rapidly tie up with each other. Do you think this trend of competitors using each other’s networks will only increase with time, making the industry more transparent and healthy? Or is there some serious consolidation through mergers and acquisitions on the horizon?
Faisal: Hubs represent an additional layer. It takes money to move money, we all know that. Hubs provide a shorter time to market than one-on-one arrangements. I think hubs have a limited life since payment networks and especially payment protocols are evolving at rapid speeds, so that eventually we will see frictionless value transfer on the Internet in general, rather than specialized networks that piggy back on the internet. Two examples are Ripple and the Stellar protocol, not to mention Bitcoin (though that does pose a few challenges).
Aamer: Facebook has recently launched the money transfer Play application for its US customers. WeChat is a major success story in China, where mobile user behaviour is different to that in the US. WeChat is used for both money transfers and m-Commerce payments. Do you think Play can replicate WeChat’s success? Or will this be a Google Wallet like situation?
Faisal: I think Facebook entering into payments has been long cited by many. It is absolutely unique since they have access to 1+ Billion people worldwide that can potentially be financially included. What separates Facebook from the others is that Facebook is the primary social media platform whereas others are payment apps. WeChat’s success is limited to China only. Facebook intends to a whole lot more than just paying friends. They will surely enter into the world of micropayments, merchant processing on their e-com fabric and much more. I don’t think Facebook’s play with Messenger Pay is going to mirror the failure of Google’s Wallet (which, by the way, is going through a metamorphosis phase). Messenger Pay is the first step. Other steps would include bringing WhatsApp into the payments arena and extending out to low-hanging fruit markets (Canada, UK/EU, ANZ) whilst increasing payments offering options in the US.
David Marcus and his team have a unique opportunity, a once in a lifetime chance to play this right, and they are in no hurry. Remittances will eventually come onto the Facebook platform but probably not for the next 2-3 years.
Aamer: Transferwise, WorldRemit, Remitly and several others have appeared on the scene, proving the vibrant nature of the online remittance space. But these service providers still leave out the unbanked. There is still a significant gap in the market. Do you think the traditional operators are being given a run for their money or can they still sleep peacefully at night?
Faisal: Safe to say, yes! Incumbent players are being challenged and will continue to be challenged. Unbanked, Banked and everything in between will be changed. We are in the middle of a change wave, where we have gone from 2-3 days payments, to 1 day payments to near real-time payments. Our eventual goal is internet payments (sub 15 seconds), end-to-end.
I think there are enough niche players who are looking at all the frequencies in the money-transmission spectrum and trying to figure out how to achieve maximum market share for that particular payment niche.
Expect more disruption in the space of the incumbents.