RAAST: digital payment platform in Pakistan
RAAST: What is it and why is it?
What is RAAST?
Raast is Pakistan's first instant payment system. It started in 2021 and further rolled out in 2022. It was created to ease the digital payment method between peers. It has been in discussion between financial experts as the next BharatPe (It is an app that enables users in India to pay micropayments without any charges and through a simple scan of a QR code. It can work with different apps through a unified payment interface). Pakistan is one of the countries with great potential for micropayments as conventional banks are too busy dealing with their government customers. According to an article posted in Dawn News by Mohiuddin Aazim, the government has borrowed Rs. 238 trillion from local banks in almost six months from July 1, 2022 to November 18, 2022. Raast was launched as a gateway payment method that could be used instead for unified payment methods used in India.
How it works
Raast was introduced to lower the transaction cost of small and micro payments made between the peers. The vision behind Raast was to create a platform that can make the small payments between vendors and the customer easy. It was basically taken from India where a small stall owner can accept payment through QR code. According to the quarterly report released by State Bank of Pakistan for first and second quarter of year 2023, transactions done through Raast have increased 82.2 percent with the rupee value of 214 million rupees. In terms of transaction growth, the system has seen increased growth of 147 percent in one term. But the question is does these numbers really matter?
Problems with RAAST
There are multiple issues with the idea of Raast as a payment method. Some of which will be discussed below
Banking platform
Raast was made to assist small business owners as a payment method. According to an MCB banking officer “Bank users can use RAAST to transfer and receive funds in their accounts by using their bank’s mobile app.” This is the place where the problem starts. According to the data of The World Bank, only 20.98 percent of people (15 or above) in Pakistan has account ownership or mobile wallet account (just for comparison it is 77.53 in India). That means only one of the five people in Pakistan has a working account available. With a literacy rate hardly above 50 percent, it is not easy to include new customers to bank accounts and mobile wallets.
One way method
Raast is used as a transaction method where a customer can send money to a vendor without any charges hypothetically. This means a business owner can receive money in his account without any restraints. But that is where the second problem occurs. This means that someone with money in his or her account can find it difficult to make those withdrawals. In the case of mobile accounts such as Easypaisa or Jazzcash, he might have to pay to get the money out of his account. One can argue that he or she can do payments to other vendors through Raast payment as well. But as it was discussed above most of the people do not have access to any kind of banking system. Things are not so good for conventional bank users as well. Someone owing a specific bank card can only do transactions in that bank's ATM for free, otherwise he or she has to pay an extra fee for each withdrawal. In case of similar banks, there are few banks with huge ATM networks with United Bank owing about 1500 branches to about 800 owned by Habib Bank. According to the data shown by The World Bank, Pakistan has 11.11 ATMS per 100,000 people. Combining this with demonetization of currency and inflation, a typical big bank customer has to wait from 15 to 30 minutes to get his or her withdrawals from ATMs.
So, starting Raast just as an online transaction method without providing regulations could decrease the overall usage of the platform.
Targeting wrong audience
Raast was made to improve the overall financial system of Pakistan. But the question is, was it really necessary? After Pakistan was hit by Covid-19, most of the transactions are done using IBFT as the government has removed the interbank transaction fees for all the people. Raast is made in combination with the banking industry. That means if someone owns a bank account, he or she can access Raast.
A section on RAAST was included in the Karandaaz Financial Inclusion Survey 2022 (KFIS 2022), which monitors a number of characteristics of financial inclusion, including access, usage, awareness, literacy, and barriers to formal and informal financial services. The information in the KFIS 2022 is a useful and relevant resource that enables us to monitor its development, map out its prospects for the future, and provide recommendations for stakeholders to take into account and put into practice. According to the KFIS data, RAAST users are more likely to be male, urban, educated, employed, and banked than non-users.
This means that most of the people using Raast were already connected to the banking industry one way or another.
Complicated process
There are two kind of people in Pakistan, one who use Tik Tok, that does not need any login. And others are Instagram, that requires login. These terminologies are used to make things simple. According to oosga.com, there are 13.91 million users of instagram in Pakistan while the number of Tiktok users is 25.2 million. This gives an idea of how people in Pakistan prefer simple processes. Now someone with several accounts, let's suppose, have Raast connected to one of the accounts he or she does not use anymore. It will cause problems in the process.
Governments neglection
State Bank of Pakistan is a government based entity. This implies that Raast was one of the setup by government of Pakistan. But starting an idea and making it successful are two different things. Setting Raast should not be a difficult process as it was a platform that was integrated in already existed network just as One time password (OTP). The government of Pakistan owns huge corporate sectors countrywide in form of Pakistan State Oil (PSO) and Pakistan Railways. Both of these institutes have monopolies in their sector. It is because government decides the oil price and most of the railway network in owned by government itself. Both of these players are depending more on cash based transactions on individual levels by either cash only options or credit or debit card payments. This means that a simple person or even an educated person won’t get any exposure to Raast in any form from these systems.
What could be done
As I am not an expert in the financial sector or banking industry, my insight will be limited to my current exposure. But with my knowledge, I could provide some ideas that could work.
Removing withdrawal fees
By a regulation, SBP should make all the interbank ATM withdrawal transactions free of cost. This will help the current customers to deposit the amount rather than keeping most of it in the form of cash. For example, if I have Rs. 100,000 cash available, I would prefer to hold it with me in cash form rather than depositing it in the bank because I would have to wait in line for both depositing and then withdrawing my money from the system. One successful example of this is Easypaisa, it rolled out not in the form of mobile wallets rather in the form of payment method. This regulation will ease the burden on big market players of the banking industry and will help people to rely on banks.
Forceful implementation of policies
When someone tries to pay for petrol at a petrol station, they charge you from 1 percent to 2 percent as bank charges. Most of them have written it as a banking policy to charge people. This means if someone is filling his or her car with Rs. 1000 petrol, he or she has to pay 10 to 15 rupees. Although it is not a huge amount, it means he or she is paying more using a card system than using a cash basis. Government is the one who sets all the oil prices and have huge customer base in the form of PSO. The government could discourage cash based transactions on petrol stations by imposing a small tax levy on cash based transactions that means the prices are already in the oil price and a discount will be paid to customers using any kind of banking or mobile based transactions. Similar could be done in all other sectors where cash is used frequently.
Rethink Raast
Raast may be a new gateway for payment but it seems useless in the current market. Government should rethink this and there is nothing wrong in doing so. Jazzcash did the same by changing itself from Mobicash. Government could make Raast as a full fledged mobile app with every Pakistani as a customer. Government does not need a new method to implement this as it already has a huge database in the form of NADRA available. Every CNIC (Computerized National Identity Card) can be a bank account number and biometric can be used to access that cash from any financial institute without even a mobile message or OTP. This could help people with no bank access to have some banking system. Some might argue that it would violate Anti-money laundering rules but the government can make rules to tackle it through senders rather than receivers. That means more regulations for the sending side than the receiving side.
Overall Raast was not a necessary system for the existing banking industry as it was already well established and the mobile wallets like Easypaisa and Jazzcash did exceptionally well in making it more and more available. If the government really wants to make a UPI system like BharatPe, it should make things easy for the receiver rather than the sender.
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