Ordered to sit at home because of the coronavirus epidemic to avoid infection social contact has been outlawed. Apart from touching other people, we even start being afraid to touch door knobs, handrails and other surfaces. Cash money, anyway known to be dirty, is now suspected to be a carrier of the virus and able to transmit it. The logical consequence would be to avoid paying cash and thus never touch notes and coins again. What an opportunity to force-feed the introduction of digital cash in Pakistan!
Digital payments/ cash are technically defined as any payments made using digital instruments such as cards, computers or mobiles. In digital payment, the payer and the payee, both use electronic modes to send and receive money. No hard cash is used.
At the urging of the World Bank (WB) the State Bank of Pakistan (SBP) has set out a digital-focused, national payment systems strategy designed to boost “financial inclusion”, particularity for women and the poor who until now have remained more or less untouched by digital financial media. Only 21% of adults have a transaction account today and of these only seven percent are women. Cash still dominates Pakistan’s economy, with most wages paid in paper money and merchants largely unable to accept digital payments. The new policy move comes at a time when our economy needs new impetus and financial inclusion would make access of people to financial services like bill payment and loans easier thus boosting business and creating new jobs. In collaboration with the private sector, SBP decided to increase the number of digital access points for making easy payments and plans to install additional one million digital access points over the next three years. The boost of transparent cashless digital transactions is also expected to instil greater confidence in international investors to do business in and with Pakistan. The service wishes to empower customers, allowing them to make payments or purchases, virtually from wherever they want, without having to worry about the medium. With online payments rapidly gaining popularity, the gap is there for the company to exploit, although it must ensure all operations run smooth.
For Pakistan, cards alone are not enough and mobile phone devices probably will become the primary tool for payments. A society with such a young demography and increasingly tech-savvy generations ensures a unique role for mobile payment services. Such services called ‘fintech’ short for financial technology-refers to technology-led innovation in financial services, which aims to exploit the gaps in coverage and affordability of the services offered by the mainstream financial sector. This will pave the way for such development of e-commerce and new media of payment. According to recent statistics, over 80% of the Pakistani people own a mobile phone, and the figure is only likely to go nowhere but higher. Incidentally the new electronic payment scheme does not need a smart phone, it can function on any feature phone as it does not need internet.
Among the expected benefits of a cashless society and digital payments is that such development will lead to less crime, as theft or illegal transactions typically take place with cash leaving record. Digital records of every payment make it much harder to hide income and evade taxes, money laundering will be limited as well. Current payment systems settle payments within 24 hours after a transaction is made, although the host receives the payment instantly. When introduced real-time payment systems will complete this process in seconds, which will lead to a manifold rise in the volume of small transaction. This technology currently exists in only 10 to 12 countries of the world, more time is required for its introduction in Pakistan.
In its initial years, digital lending was more related to digitization of back office processes, which were done manually in financial institutions. With the increased popularity of machine learning and the internet, the concept of digital lending now involves complete digitization of the loan disbursement process, including the ability of the algorithms to make decisions of accepting or rejecting a loan application. The new digitalization will allow to apply for and be awarded a loan right through one’s mobile phone! Another area of digital lending includes crowd funding and peer to peer (P2P) lending, which has not been able to get any big names in Pakistan until recently. Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the internet while peer to peer lending allows individuals to lend and borrow money without having a financial intermediary sharing risks and rewards.
Even with all the developments, a number of roadblocks still lie in the way of an effective e-payment system in the country. Apart from the physical provision of the right apps and payment points the possibility of mistakes and even fraud is not excluded from the use of digital payment. Cyber security is an issue as well. In order to create trust in digital payment fraud has to be excluded or made very difficult and consumer rights have to be strengthened. There are consumer protection laws at the federal and provincial levels of the government, and by virtue of functional equivalence provided to the electronic transactions by the Electronic Transactions Ordinance 2002, these laws are also applicable for e-commerce transactions. The major problem is of a lack of awareness amongst the people about the rights they have when transacting online and about the scope and extent to which their activities are covered under the various protection laws. With consumer protection perceived to be weak in Pakistan, there is impression that end buyers may have little recourse available in case of payment disputes or instances requiring return of goods/ services acquired via the e-commerce channel.
Still at the beginning digital payment in Pakistan has immense potential to revolutionize the payments infrastructure in our country. More than a dozen digital payment company have received licences from the State Bank of Pakistan to operate in the country. “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,” said World Bank Country Director for Pakistan Patchamuthu Illangovan in a recent tweet. When he said this the coronavirus pandemic was not yet around. While the virus is keeping us at home it should not be a problem for the financial and digital specialists to keep working on the digital payment implementation.
