In Pakistan there are four payment gateways:
- HBL’s CyberSource (VISA)
- MCB MIGS (MasterCard)
- UBL’s payment gateway that gets routed via a processor in Dubai
- Bank Alfalah MIGS (MasterCard)
There was an effort by NIB Bank to acquire MIGS processing services, but VISA would not give acquiring rights to NIB. Infact VISA has made it clear, no more acquiring rights would be offered to other banks in Pakistan.
So having said this, I’d like to make a declaration: Traditional Online Acquiring will not work in Pakistan. In fact, if you look back and see the market share of CNP acquiring, it will be dismal. Extremely dismal.
The reason all these models will fail in Pakistan, is the whole concept of acquiring (btw, I’m open to take a wager on this).
Acquiring is underwriting risk – i.e. extending credit. Let that sink in for a minute.
Every merchant on-boarded for CNP acquiring is a processed risk assessment on the merchant themselves, their business, etc.
What does this mean in simple English?
Well for starters, the merchants that would be acquired would have to be an established business, with some form of a running financial history. They would also need to have an NTN and registered for Sales Tax if that is applicable to their business model.
Now, just fathom this. How many businesses (including online shops) are actually registered with FBR, having NTNs and also paying sales tax?
Let me tell you. The number is ridiculously low. Don’t believe me? Go and buy electronics (where sales tax is applicable) from various online retailers and see which one actually implements it into your sales receipt.
Look at the following setup. Small and medium sized merchants have two options. Accept cash with no deduction or somehow qualify for credit card acquiring and pay 3.5% + FED (Federal Excise Duty) as processing charge and safely accept cards.
What do you think they will opt for? It’s cash for sure.
Small and medium sized merchants, who in Pakistan number in 100,000s, are not registered with FBR or have an NTN. Most of them are supposed to pay GST, but do not.
Do you think they are itching to get VISA/MasterCard acceptance? No, they are not. Not by a long shot, if they have to go and register themselves with various government entities.
Merchants in Pakistan are price acceptance sensitive. They will always seek what is more frictionless and near zero-fees (which is cash). Any payment mechanism that forces merchants to register or go through the hoops for qualifying to be a merchant, will pretty much be a concept that would be dead on arrival.
Traditional banks are thinking otherwise. (Hence, my offer for the wager still stands).
Walkaway question to ask: Can something compete with cash as far as digital money acceptance is concerned?