It was with a lot of fanfare that Prime Minister Imran Khan launched the micro-payments gateway called Raast of the State Bank of Pakistan. Forward-looking comments were made about how it was the right ingredient for the masses to allow financial inclusion and to start a flood of digital payments.
Raast is effectively the financial industry’s backend, a centralised mechanism that links all banks, non-banks and even billers through application programming interface (APIs) and offers real-time payment settlement. It would make interoperability much easier and cheaper once the rails are completed, thereby allowing new revolutionary ideas to appear.
Say the Fintech needs to come along and offer payments. Presently, they would have to go to all banks separately, mostly by exploiting ties, and then on-board them. “All of this can be avoided by simply connecting with Raast, where those players are already connected,” explains Ali Sarfraz Hussain, CEO of the company that created the gateway, Karandaaz Pakistan.
One wants information such as the bank name and account number to allow an interbank funds transfer. But to minimise the operation, Raast will have a directory feature linked to one’s phone number.
The new players are, predictably, nervous. Raast seemingly solves two basic problems for fintech firms in Pakistan. Interoperability, first of all. And secondly, allowing for near-zero real-time purchases, which is an obstacle that has yet to be lifted. Talal Ahmad Gondal, CEO of TAG, a startup that received its in-principle approval a few months ago, says we are looking forward to getting access to the API’s soon.
It is a step in the right direction and it has the ability to be a game-changer if implementation is handled well, as we have seen similar solutions run in both developing and developed markets. The digital transition of financial services in Paki could be caused by Raast
Clearly, only regulated fintechs, essentially payment service operators/providers and electronic money institutions (EMI), who first have to get through a lot of paperwork before hitting Raast, would have access to those APIs. Thus, though the barriers to incorporation have been resolved, the regulation and the delays created by it are a major challenge facing startups within the financial services space.
Explaining the timeframe for having a nod from the regulators, an industry expert says it begins by applying for approval in theory where the company involved submits the proposal, business case, etc., according to which a green light is issued in around three months, down from what used to be six. Then about one or two months go by to make the SBP pilot-ready for the review, which normally takes three to six months. This is followed by another inspection and you can finally go to the commercial licence pending that decision. As far as I know, no EMI has yet entered that point or has not promoted it, at least.
Even if not, there are some questions that need to be answered about Raast. “A couple of things, like who’s going to run it, are still uncertain about the gateway? Since comparisons to the Unified Payments Interface are being drawn, are we going to set up a different agency like them that takes care of it (National Payments Company of India)? Likewise, would the directory service be consolidated or federated, i.e. is each bank going to have its own? Or if the identification alias is for the person or for each account? “the specialist asks. It remains to be seen how easily Raast is connected to the banks. “My guess is that getting all the use cases ready would be about two years,” they say.
Even, one can’t help but assume that if the offering is real-time settlement, then how does the new method vary from the present portal, PRISM? Or are 1LINK’s switch services already in use for the interoperability portion? What separates Raast from those two?
For starters, unlike PRISM, not only banks and a few very large corporations will be able to access Raast, but also non-banking entities, such as the Central Depository Company, government departments or fintechs. The aim is to cause huge volumes and low-ticket sales, essentially a solution designed for the masses and a much better throughput for that.
Admittedly, the cost of digital payments in Pakistan, especially the transfer of interbank funds, has historically been fairly high. But after the coronavirus epidemic, those charges were waived and an extraordinary 1IBFT rise was caused. This takes us again to what makes Raast special then, given that, at least for now, such transactions are free?
“In the gui, there is a huge difference. Currently, you need lots of information such as bank name, account number (also with exact digit specifications) etc. to allow an interbank fund transfer. Raast, on the other hand, will have a directory feature linked to, say, your phone number, and all you need to make a transaction is to enter it along with the sum, explains Mr. Hussain.