As predicted by the pundits, the coming of COVID-19 became a trigger point for the proliferation of digital payments in Pakistan, where the value of 1IBFT transactions surged by 45.63% to reach Rs1.95 trillion in July-October 2020, from Rs1.34tr in the preceding four-month period. With the intention of getting a better insight of the rising trend, Mettis Global interviewed the Chief Executive Officer of 1LINK, Najeeb Agrawalla. 

1LINK, which is the first Payment System Operator (PSO)/Payment System Provider (PSP) regulated by the State Bank has been providing a wide range of interoperable secure digital financial solutions ranging from ATM withdrawals to real-time instant funds transfer across banks (1IBFT) to online bill payments, connecting all banks in the country and close to 1000 billers. Facilitating non-banking entities it also deals with Fraud Risk Management Services and owns Pakistan’s only domestic payment scheme ‘PayPak’. It also acts as an issuer gateway for International Payment Schemes (IPS) for Visa, MasterCard, Union Pay and JCB issuers. 

The excerpts below has been edited to clarity 

What kind of trends have you seen in digital payments of late? 

With the advent of COVID-19 and its repercussions, there has been a massive rise in digital payments across the world as more people adopt cashless methods. Over the last year, online payments have seen an exponential rise as banking customers have started to rely more on digital channels than the branch network. 1LINK 1IBFT transactions, in particular have witnessed upwards of 3x growth in volumes with transactions going up by 7x on certain days. 

This has also been an ideal time to expand the bill payments landscape in the digital arena. One major area that has been disrupted through digitization is Person to Government (P2G) collections through 1LINK Bill Payment Service. We have enabled numerous government entities such as the Federal Board of Revenue (FBR), Government of Punjab (GoPb), FBR, Sindh Excise & Taxation, Sindh Revenue Board (SRB), Securities and Exchange Commission of Pakistan (SECP), Government of Khyber Pakhtunkhwa Revenue Authority (KPRA) etc., enabling their customers to pay their taxes through hassle-free services on a 24×7 basis through the internet/mobile banking and alternate delivery channels (ADC) of 1LINK members in a secured manner. Further, we have recently signed the Government of Balochistan to the same process. 

1LINK has processed over Rs1.7tr last year under P2G payments and more than Rs1tr this year already. With 1BILL live at majority banks, we enable convenience and hassle-free utility bills, top-ups, loans, and credit card payments through its members’ ADC and over-the-counter channels.

Who is driving the activity in this space?

Pakistan is at the cusp of an exponential growth in the digital payments space as new players are bringing innovative use cases while mature players are extending their scope of digital services. The government and regulator are actively pushing forward the digitization agenda and entities like 1LINK are playing their role to expedite and simplify the process, enabling players to accept and process online payments. The growth will come with a collaborative approach and the industry players need to join hands to grow the pie. As a country, if we are able to increase the volumes then the country could evolve into the next level of digital payments.

One oft-cited reason for the limited penetration of digital payments is the cost associated with it. How can that be brought down? What role can Raast potentially play here?

This is not entirely correct as cost is just one aspect of the overall canvas, and there are other factors such as accessibility, awareness and usability which impacts the uptake of digital channels. That said, it is true that cost seems to be the foremost aspect which discourages people from converting to digital as cash transactions are still cheaper and free (as cost of cash which is estimated to be over 4% is absorbed by banks and SBP) while digital transactions are charged to customers, resulting in unfavorable positioning of digital payments. 

 Costs can be brought down with some policy-level interventions whereby tax and other benefits are tagged to digital payments while cash transactions are made costlier and discouraged across the board. The other possibility of reducing costs is through developing healthy competition and the same is going to happen with the entry of RAAST, which will push the open banking agenda of the regulator and with the introduction of EMI framework, new entities are bringing in cheaper and better services for the consumers. Last but not the least, digital payment services require constant development and innovation, and this can only be sustainable if the players in the market are able to generate commensurate revenues.

Despite massive growth in digital payments, paper transactions still account for more than 70% of the volume. What kind of measures can help reduce this number?

At 1LINK, we believe that digital payment channels are imperative due to the ease and security they provide and there is much that still needs to be done to grow this landscape. Although the concept of paperless transactions is not new and there has been considerable effort and investment going into the growth of online payments, financial institutions are still struggling to implement it efficiently. Much of it can be attributed to the lack of internet penetration, the resistance of customers in the adoption of digital payment methods, and the higher comfort and trust level with paper. 

However, with the trajectory of internet penetration moving upwards, and the proliferation of mobile devices, the journey towards digital payments is surely picking pace. Some of the key steps that need to be taken by financial institutions to encourage this migration include making the digital experience simple, redirecting customers to online channels and making paper-based transactions such as cheques and cash relatively more expensive than their digital counterparts.

One of your main products is PayPak and we have seen that SBP has also been aggressively pushing for it. What does having a domestic card scheme mean for the country’s financial inclusion?

Domestic schemes are often used as a financial inclusion tool. In many countries, cards branded with a domestic scheme are offered as an entry product to those joining the formal banking system for the first time. The same happened in Pakistan: majority of banks (with a few exceptions) issued PayPak cards to basic banking account holders. But when the regulator intervened and instructed through their circular that the domestic payment scheme must be the default card, banks started offering PayPak to their entire customer portfolio. 

PayPak was launched in line with the National Financial Inclusion Strategy (NFIs), with a vision to grow the debit card base and expand the financial service to unbanked/underbanked by providing them an easy alternative to carry cash and bring digitization in the economy. To increase the proliferation of PayPak in Pakistan’s debit card market, 1LINK has introduced a comprehensive loyalty program whereby cardholders can benefit from a life coverage of Rs100,000 in case of death (accidental as well as natural). Additionally, under this program, PayPak cardholders can avail deals and discounts at 18,000+ merchants nationwide, 365 days a year. The unparalleled value addition for customers offered through this program is aimed at aiding the vision of making PayPak the card of choice for all.

Access to a well-functioning domestic financial system empowers individuals allowing them to better integrate into the economy, bring financial stability, and actively contribute to improving their livelihoods. A domestic payment scheme preserves national sovereignty by providing 100% control over the payment flow as all the transactions process within Pakistan and reduces unnecessary flight of forex as processing fees. Lastly, the International Payment Schemes (IPS) have worked decades to reach the current enjoyable position and we need to give PayPak reasonable time to scale and proliferate. PayPak as a scheme charges a very nominal one-time and annual fee for the issuance of cards while the IPSs tend to have obscure pricing which involves licensing and issuance fees, transactional charges, volume-based fees, etc., which makes the overall proposition quite expensive for the banks.

Being the main intermediary for digital payments, what initiatives is 1LINK taking to create an enabling ecosystem for tech companies?

1LINK’s vision is to be Pakistan’s world-class payment system of choice, by leading and operating a boundaryless digital payments grid and related ecosystems. We aim to provide digital financial solutions through sustainable innovation while keeping in view the heightened levels of fraud and security risks faced by the industry. At 1LINK, we follow the co-opetition approach and hence, are committed to collaborate, cooperate and/or co-exist with relevant players for the common goal of growing and digitizing the payments landscape of Pakistan and invite all to join hands to speed up the progress on digital payments. Our transaction rails are available to banks and non-banks to build their use cases for digitizing payments.

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