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RAAST: Transforming Pakistan's Payment System for Digital Financial Inclusion

 

Introduction:

Pakistan finds itself at a critical juncture in its quest for digital financial inclusion. Recognizing the significance of this moment, the State Bank of Pakistan and Karandaaz Pakistan, in collaboration with the Bill and Melinda Gates Foundation, have developed RAAST, a state-of-the-art payment system. This four-year endeavor marks a major milestone in enhancing the country's financial markets outreach and unleashing the full potential of the payments system. With its world-class capabilities, such as interoperability, open API-based connectivity, real-time settlements, directory function, and high throughput, RAAST ensures low transaction costs, enabling swift settlement of low-value transactions.

Advantages and Potential:

Pakistan is well-positioned to take a significant leap forward with RAAST due to several factors. The country boasts high cell phone penetration (80%) and broadband usage (41%) alongside a supportive regulatory framework. The 2022 Karandaaz Financial Inclusion Survey (K-FIS) highlights a 9-percentage-point growth in financial inclusion from 2020 to 2022. Furthermore, the State Bank of Pakistan's Annual Payment Systems Review for 2021-22 indicates a substantial expansion of the digital payments ecosystem, with mobile phone banking transactions surging by over 100% and internet banking witnessing a 51.7% growth.

Use Cases and Future Plans:

RAAST has already launched two fully functional use cases. The first use case focuses on bulk payments, routing all dividend payments made by the Central Depository Company (CDC). The second use case, Person to Person (P2P) payments, has processed over 132 million transactions worth PKR 2.6 trillion, with more than 31 million unique RAAST IDs. The next step involves the imminent launch of the Person to Merchant (P2M) payment module, which will open up new avenues and business models, promoting efficiency, cost-effectiveness, and transaction security. Notable examples include the integration of interoperable QR codes and support for installment-based payment services.

Addressing Challenges:

While the progress is promising, challenges must be acknowledged. Firstly, consumers bear additional costs when making credit or debit card payments, with vendors charging up to an extra 2.5% per transaction to discourage card usage. Recent discontent between oil marketing companies (OMCs) and the government led to petrol stations ceasing to accept card payments. Secondly, merchants are concerned about falling within the tax net when accepting digital payments. Formalization, however, reduces opacity, empowers the state to deliver effectively, and necessitates the establishment of a central fraud detection system integrated with RAAST to safeguard against digital fraud and ensure cybersecurity.

Advantages of Cashless Transactions:

Global evidence underscores the benefits of transitioning to a cashless economy, including a boost to the size of the formal economy. The growth in digital transactions attracts innovative fintechs and digital financial service providers, who offer sophisticated financial services. RAAST, as a payment system, serves as the foundation for open banking, enabling data gathered through its platform to support services like credit scoring and enhance regional financial connectivity and cross-border trade, both globally and with regional partners. A well-governed RAAST, equipped with the necessary capabilities and agility to accommodate innovation, is crucial for achieving universal digitization.

Conclusion:

Pakistan's journey toward digital financial inclusion reaches a critical milestone with the introduction of RAAST, a cutting-edge payment system developed through collaborative efforts. RAAST's advanced functionalities, interoperability, real-time settlements, and open API-based connectivity position Pakistan for significant progress in the realm of digital payments. Addressing challenges related to transaction costs, merchant apprehensions, and cybersecurity is crucial for the system's success. Embracing cashless transactions will undoubtedly propel the formal economy, attract innovative financial service providers, and strengthen regional and global financial connectivity. RAAST, with its robust governance and adaptability, is poised to play a vital role in realizing Pakistan's vision of universal digitization.

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