OPINION
Uzair Younus Can RAAST usher in the promised fintech revolution?
no-cost platform, would make cash a more burdensome mode of transactions versus digital payments. The coronavirus pandemic has already changed consumer habits in Pakistan and around the world, and Raast will only reinforce these behavioral changes. As this system scales up, digital-first fintech providers are likely to step in and innovate for the masses, disrupting old-economy banks that have failed in their duty to promote financial inclusion. This disruption would further accelerate consumer adoption, generating a virtuous Easy to sign up for and a possible self-reinforcing cycle that formalizes payments, enhances access to credit, and provides on-ramps for citizens to participate in the formal game-changer, the SBP’s top-down savings market. approach might prove fruitful A similar story has played out across the border in India, where the Unified Payments Interface (UPI) has driven a fintech revolun Thursday, February 3, the State Bank of Pakistan tion. PhonePe, the leader in the digital payments ecosystem in India, instructed banks to provide free person-to-perhas digitized over 25 million kiranas, allowing them to have digital son (P2P) payments services under Raast, the storefronts, credit histories, and automated sales and tax data, all of country’s digital payments system. The launch which makes it easy for millions of small businesses to formalize and of this service is a major milestone: Pakistan was digitize. As a result, India’s fintech ecosystem raised over $9 billion in a first mover when it came to a digital identity 2021 alone, a record amount. system but fell behind peer economies in leveraging digital identity Pakistan is moving in a similar direction, but accelerating this to enable payments. A ubiquitous digital payments ecosystem, shift requires policy makers to have a forward-looking approach which provides instant, reliable, and zero-cost transfer facilities to that does not just stop at the Raast rollout. Digital payments will citizens, can help transform the country’s economy and catalyze not become ubiquitous so long as barriers to accessing internet data new investments in financial services. remain high. According to a recent Tabadlab report, only 9 percent of For decades, the country’s policymakers have tried, with cell phone towers are connected to fiber; the gap presents a $6 billion limited success, to document the economy. These efforts have been investment opportunity in the country. To realize this opportunity, made by successive governments, civilian and military, but they the policy environment must be tweaked to reduce the tax burden all have been unable to incentivize citizens and businesses to be on purchase of low-cost mobile phones and internet connectivity, transparent about their economic dealings. A major issue indeed incentivize investment in fiber connectivity, and unlock financing to is a culture of evasion, which is reinforced by a state that is unable make it cheaper for the private sector to invest in digital connectivity. to provide efficient services which reinforce the social contract. The government should also consider bold proposals that lower However, we must not discount the fact that the country’s financial the overall cost of a digital transaction. For example, payments made services ecosystem has been broken, which means that it has been through Raast could have a lower sales tax rate, thereby incentivizeasy and convenient to transact in cash and not bother with the ing the consumer to demand that a business accept digital payments. complications of operating in the formal economy. Such a proposal has already been tested in Punjab in the restaurant This is why Raast has serious potential: the adoption of industry and has shown success. The short-term loss of revenue, in digital payments at the micro level, through a convenient and this instance, would be offset by accelerated digitization of payments in the consumer economy, providing the state with a more holistic view into the size of the overall economy, which can then be taxed at a lower overall rate to generate higher revenues. Another policy intervention that must be paid is with regards to sharing of credit history developed through analysis of The writer is Director of payments data: this can unlock financing for small and medium businesses, who currently face tremendous the Pakistan Initiative barriers in access finance through traditional banking channels. By providing these entrepreneurs with at the Atlantic Council, a access to finance based on their digital payment history would incentivize them to switch away from cash. Washington D.C.-based This would kill two birds with one stone, as entrepreneurs would both document themselves and adopt think tank, and host of formal finance to invest in and grow their business. the podcast Pakistonomy. Raast opens an exciting new world full of possibilities for the Pakistani economy. To build momenHe tweets @uzairyounus. tum, policy makers ought to look beyond the next few months. Such an approach can create an enabling environment that can bring about a fintech revolution in Pakistan, empowering consumers and small businesses, and also formalizing the economy. n
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