Raast Instant Payment System, A Step forward for Digitizing Payments in Pakistan

In recent years, digital technologies have changed the way people perform their day to day activities and tasks. From shopping to commuting, socializing to making payments, technology has created a world where now things get done on the click of a button. Even once considered bizarre way of doing business, websites and smartphone apps now dominate our daily activities and transactions.

Fortunately, the same technologies have also been transforming the payments and banking systems. Now, shopping for clothes or other items, or booking of tickets, consumers are benefiting from digital payment systems for making and receiving payments at higher speed, with convenience, and at lower cost. The payments are faster and transaction takes place almost instantaneously. The world is moving away from the legacy time lapse of two to three business days for clearing a check to a global standard of faster payments with near real time provision of the funds for payees on a 24/7 basis.

Historically, Pakistan has had low electronic transactions due to a number of factors some of which include:

• Low banking penetration

• Lack of trust and awareness of digital payment methods

• Limited digital bank offerings

• Limited interoperability, accessibility and ease of use in current payments infrastructure

• High cost of transaction

• Lack of digitization of government departments

Innovations in the area of digital payment systems presents an excellent opportunity for the regulators and policy makers in Pakistan to solve issues of financial access and high cash usage which will ultimately help in documentation of the economy.

To address these issues and further augment the uptake of digital payments in the country, State Bank of Pakistan has taken various initiatives for the modernization of Payment Systems in the country. This includes the upgrade of Real Time Gross Settlement System (RTGS), regulatory interventions for private sector participation in the market, issuing policy guidelines such as Regulations for Electronic Money Institutions (EMI), and ensuring security of payment channels and instruments, etc.

In line with these initiatives, SBP along with Karandaaz has developed a new system for processing instant payments. This new system called "Raast" will address payment systems infrastructure related issues. Raast is an Urdu word which has very important connotation for Pakistan. One it means the direct path or the shortest distance between two points. Second, it identifies with the right path to choose. And that's the message being conveyed here: when you use Raast for making payment in your day to day transactions, you move away from cash and gets included in the formal financial system. Use of cash promotes informal economy and helps illegal activities. On the other hand, by using Raast, one is doing the right thing by transacting using formal digital financial services and contributing to Pakistan's economy.

Raast Instant Payment System is an advanced retail payment system developed based on international standards such as ISO 20022 and other digital financial inclusion Principles like the Level 1 Principles. It will become the core component of Pakistan's payment infrastructure and will allow every individual to send and receive their payments instantly in a safe, secure manner.

Raast Instant Payment System will be:

1. Fast-Provide the end-user a near real-time payment experience

2. Low cost-Operate on a cost recovery mindset to provide low transaction cost to participants

3. Interoperable-Allow payments from and to any channel

4. Simple-Improve adoption and convenience through a universal payment ID (e.g., mobile numbers, CNIC or an alias may be used in lieu of complex account numbers)

5. Secure-Provide ample verification options to ensure the funds are safe and the system is also well protected and ensure security, data protection, and authentication throughout the ecosystem

6. Highly Accessible-Allow simpler and broader onboarding for payment entities such as banks, payment system operator and payment service providers, merchants, government entities via APIs and ensure system processes transactions 24/7 in real-time

7. Innovative-Allow participants to design new payment and financial services/products

The Raast Instant Payment System will be rolled out in a phase manner. In the first phase, the system is ready to enable instant transfer of bulk payments such as dividend payments of CDC directly into the bank accounts of investors. Subsequently, the second phase will follow, in which Raast Instant Payment System will enable onboarding of government entities to digitize payments and receipts such as salary, pensions, and payments to Ehsaas and BISP beneficiaries.

In parallel, SBP will digitize all person-to-person payments (P2P) using mobile phone numbers in place of account numbers by July 2021. This will be followed by the third and final phase of Raast roll out plan by early next year when merchants and small businesses will be enabled to receive instant payments from their customers through different payment modes such as Request to Pay (RTP) and QR payments functionality.

The launch of Raast is a big stride towards achieving greater efficiency in sending and receiving payments and digitization of the economy and ensure more transparency.

Copyright Business Recorder, 2021