Payments in Pakistan

The bitter truth is simple: There aren’t any mobile payments in Pakistan. Period.

I had to think long and hard on this one, just to be double-sure, and the answer is still just that. None.

Call me a pompous ass, but as a resident outsider, with no vested interest, the viewpoint I have is very clear – and bitter.

The Ground Reality

I’m not talking about the closed-loop P2P payments made on EasyPaisa or MobiCash, I’m talking about how we can pay for food delivery at the door, or pay online with my debit card or have an app, where I can just load my money, from which ever bank account method I choose and be able to pay anyone. Be able to set up an online store and begin accepting payments that I can pull and not request the user to push.

Today, 10th of December, 2015, Pakistan does not have an agnostic, domestic online / mobile and offline payment system.

We have telco-led mobile wallets, we have internet banking, we have (questionable) payment gateways, we have closed loop card system (of which many people simply have not heard), and we have Quaid-e-Azam on paper, i.e. cash.

  • What we don’t have is a localized PayPal equivalent.
  • What we don’t have is true interoperability in Payments between banks and telco-led mobile wallets.
  • We don’t have a pull-mechanism for payments (called ACH pull, nomenclature notwithstanding – more on this below)
  • What we don’t have is the ability to handle and distinguish between local and international merchants for CNP (Card-Not-Present) transactions on the Internet today using our debit card.
  • What we don’t have is a cross-platform switch API sandbox even for startups to test their system (let alone go to market for production).

Here are some (raw) statistics for you, I’m still compiling them in whatever little time I can devote to it.

  • Most of my friends, family and colleagues who earn more than Rs. 100,000+ do not have any sort of a mobile wallet. I’ve yet to find a close friend or associate who uses a mobile wallet like EasyPaisa at least 4-5 times a month.
  • On a personal survey done with over 431 people that I personally know, only 3 people had EasyPaisa (or equivalent mobile wallet), and that too because they worked in an ancillary industry. On the opportunity pyramid or the pyramid of wealth, the mobile wallets usage are only on the lower echelons of society and horizontally.
  • Cash on Delivery is still king.
  • Most people I know, who buy online, pay either IBFT (interbank funds transfer) or Cash.
  • Elementary data for A-to-B payments and their accompanying personas are simply not available, either on a private and/or government level.
  • Almost no one in my circle trusts entering their debit card data online.
  • Most debit cards in Pakistan (the bulk of which represents Pakistan’s banked population) cannot be used online.
  • Banks in Pakistan (majority of them) can either turn ON or OFF, CNP transaction for an account holder. They cannot, at present differentiate between local and foreign merchants, GeoIP, BINs or MCC.
  • Reversals can take 45 days or more. The banks in Pakistan by de facto give the benefit of the doubt to the merchant and wait for the 45 day (maximum) mandatory period to see if the merchant will collect the payment or not.
  • Erroneous reversals can take 60-90 days or more.
  • Fraud based reversals, same case, 60-90 days.
  • Localized CHIP+PIN mobile POS solution that treat the transaction as an ATM (cashless) transaction are still not possible.

Separately, here are other problematic issues with the on-ground system:

  • ACH (or IBFT) Pull mechanism is not out yet. It is slated to be turned on sometime in the 1st half of 2016, but the guidelines have not been opened for public comment.
  • It is also rumored that the IBFT will be on commercial accounts, before it is available for personal account.
  • A consumer protection mechanism is not available. A mere circular will not do. A complete framework has to be authored regarding consumer protection of payments, which at present do not exist.
  • Domestic Debit & Credit Cards issuance is extremely low. Turkey for example has about 120+ Million cards issued for a population of 80 million. Pakistan has about 25 Million for a population of 190 Million.
  • Domestic POS deployment is again low; we have about 41,000 POS terminals. Turkey has 2.3 Million, Iran (which has various sanctions on itself) has 4 Million POS terminals with a population of 80 Million.
  • Domestic Debit Cards are closed by default for all CNP transactions. Only some banks will entertain them for CNP transactions, but one has to call ahead.
  • At present, no loading mechanism exists for “add card” on any open app. Scalar approach will not work. Vector-based payment offering for adding funds/cards on the app level again do not exist.
  • In Europe, with the Payment Services Directive II (PSD2), the banks and financial institutions are being mandated to open their API. Key word here is mandated. In Pakistan, no bank is willing to open their APIs, not even for purposes of obfuscated, non-transacted data API access outside the firewall for, say, purposes of compilation of PFM charts & graphs.
  • If one were to obtain a PSP license or a PNO license, to issue e-money/wallet, you still have to find a bank with a branchless banking license (which makes no sense). I’m not arguing that you have to work with a bank – that requirement is true worldwide, but the wallet issuance can only be done by a bank with a branchless banking license and that too is subject to regulatory approval (even if you have a PSP/PNO license).
  • On the E-Commerce front, lets not even go there. 1Link has a redirect page in year 2015 (how 1997 can you get!)
  • Total number of locally issued online merchant accounts (based on my research it is less than 500 – the number is far lower). Then again you have the issue of Debit cards and CNP.
  • SBP retains the right to cancel any closed loop payment system (this is within their purview), so if one were to even make a large scale – singular closed loop system, that too is subjected to review and approval.
  • PrePaid Debit Cards draft rules are out (here is a copy), which wasn’t open to public review. (why? go figure! Vested interests maybe).
  • Agent (or Authorized Delegate) framework is totally missing. There is (at present) no legal framework to assign an agent process by a financial institution, that would allow an Authorized Delegate to get licensing coverage for purpose of launching their own product/service.
  • Banks need to have a framework to be able to provide both virtual branch status and access to middleware (APIs?) to 3rd party operators for purpose of being able to offer financial services, including e-money storage.
  • The application process at SBP is not fenced by a timeframe.
  • Clarifications need to be given regarding the mobile-money (e-money storage) and branchless banking. Insofar as I can tell and have read up. the branchless banking license remains as the key for launching any mobile led services, in addition to the licenses issued by the PSD.
  • Deploying a POS network should not require licenses, as long as one can simply interface with any existing acquiring bank.
  • The OFX – Open Financial eXchange framework needs to be incorporated so that non-transaction data (obfuscated data) can be provided to 3rd parties.

In the meantime, Collaboration?

While others are talking about agnostic wallets, and what not, the problem is too many channels are open to this idea, yet no one is willing to collaborate.

Everyone is now talking about their own little private Idaho. No one wants to have an overlapping payments fabric. 1Link is key here, but even 1Link’s design is now being subjected to review, i.e. various parties are now looking into how to revamp 1Link by driving the effort via their member bank sponsors. This is no secret – everyone wants to mold 1Link to their tune.

Pure plug-and-play access for billers is not available. Same can be said for CNIC ID verification. It is available, but then becomes a game of Who do you know?

Interoperability amongst the mobile carriers is still not there, nor is it expected to come about in the next 12 months. There is a lot of talk on domestic and international forums, but the inner reasons are still to maintain and grow their own walled gardens (for the carriers).

The Regulator Problem

It is no hidden secret that my love for State Bank of Pakistan (specifically Payments Systems Department) is like oil and water.

We just don’t mix.

The incompetent dodos occupying the various positions at the office have killed any catalyst mechanism for the fintech industry to take off.

Read my articles on the same:

While countries like India, Singapore, UK, EU, US, Chile, etc. are trying to heavily invest in fintech and promote the fintech industry, the n00bs at SBP-PSD, well what can I say, they will just kiss-asses of what other dominant departments will say and continue to further the “Yes Sir” policy.

The department has become so impotent that it simply cannot defend its own cause and mission within the bank. My various friends at SBP tell me so.

The regulator is just not doing anything right. The same mentality from the IT Department has been juxtaposed to the PSD. They are subservient to vendor driven solutions and vested interests, which then translates to policy/law.

In short: SBP-PSD has handicapped the payments, startup and entrepreneurship environment in Pakistan.

SBP’s view point that is voiced on various public forums is that “we are here to regulate”. By all means regulate, but do not discriminate. As part of their regulatory approval, they’ve essentially said you need a license (to drive). Furthermore, SBP lays the condition that if you have a small car, you’re not welcome. You need a Mercedes to drive, else, no driving for you.

Mr. Regulator – you’re simply not looking out for the smaller players. Vested interests? Absolutely!

So what is needed?

This is the proverbial $64 Million question… I’ll answer this in an upcoming post on what I and many other folks in the payments landscape think is needed for Pakistan for a mushrooming payments ecosystem.

 

 

Comments

comments

3 thoughts on “Payments in Pakistan”

  • Nicely put together. This is what the current situation is. I also have my doubts over the wallet revolution that will sweep the way payments r made. We have 3 internet payment gateways in Pakistan now UBL, HBL and MCB. Together around 300 local merchants. Users from around the world can use their VISA and MasterCards on these merchants. The volume and value both have grown in last 2 years. Unfortunately local debit cards are blocked to transact on these merchants. Will look forward to ur next article.

  • Good depiction of present situation. Internet Payment Gateway is here , acceptability of credit card is not an issue at all, its the CNP debit card which is an issue. HBL has introduced the world renowned IPG solution via Cybersource. POS has been neglected area by the banks,; HBL has deployed record number of POS and mPOS after its luanch of acquring business last year. Agnostic Mwallet and its 1Link linkages are important. The digital face of Pakistan banking industry needs a serious uplift; Big 5 and other progressive banks need to join hands to lobby and fight their case with the regulator and make internal changes to bring about the enablers.

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