It was with much fanfare that Prime Minister Imran Khan unveiled the State Bank of Pakistan’s micro-payments gateway named Raast. Forward-looking statements were given as to how it was the right ingredient in enabling financial inclusion for the masses and triggering a wave of digital payments.

Raast is basically the backend of the financial industry, a centralised system that will connect all banks, non-banks and even billers through application programming interface (APIs) and offer real-time settlement of payments. Once the rails are built, it’ll make interoperability much simpler and cheaper, thus allowing new innovative solutions to emerge.

“Say a fintech wants to come in and offer payments. Currently, they will have to individually go to all banks, often by leveraging connections, and then on-board them. All of this can be avoided by simply connecting with Raast where those players will already be linked,” explains Ali Sarfraz Hussain, the CEO of Karandaaz Pakistan, the organisation which developed the gateway.

To make an interbank funds transfer, one needs details like the bank name and account number. But Raast will have a directory function linked with one’s phone number to shorten the process

Unsurprisingly, the new players are excited. “Apparently, Raast does solve two fundamental issues for fintechs in Pakistan. Firstly, the interoperability. And secondly, allowing real-time transactions at near-zero costs, which is a barrier that had to be removed. We are looking forward to having access to the API’s soon,” says Talal Ahmad Gondal, CEO of TAG, a startup that got its in-principle approval a few months back.

“It is a step in the right direction and if execution is done properly, it has the potential to be a game-changer as we have seen similar solutions work in both emerging and developed markets. Raast could be the trigger for digital transformation of financial services in Pakistan.”

Obviously, the access to those APIs will only be available to the regulated fintechs — basically payment service operators/providers and electronic money institutions (EMI) — which will need to first get through a tonne of paperwork before reaching Raast. So while the integration hurdles have been addressed, a significant obstacle facing startups within the financial services space is the regulation and the delays caused by it.

Explaining that timeline to get a nod from the regulators, an industry expert says that it starts from applying for the in-principle approval where the entity concerned submits the plan, business case etc., subject to which a green light is given in around three months, down from what used to be six. Then around one to two months go by for the SBP’s inspection to get pilot-ready, which generally takes three to six months. This is followed by yet another inspection and pending that decision, you can finally go towards the commercial licence. As far as I am aware, no EMI has reached that stage yet or at least hasn’t marketed it.

Even otherwise, there are some questions about Raast that need answering. “A lot of things are still unclear about the gateway, such as who’s going to run it? Since United Payments Interface parallels are being drawn, are we going to set up a separate entity like them (National Payments Corporation of India) that looks after it? Similarly, is the directory service going to be centralised or federated — i.e. will each bank have its own? Or whether the identification alias will be for the individual or for each account?” asks the expert. “It remains to be seen how quickly the banks connect with Raast. My guess is it would be around two years to get all the use cases ready,” they add.

Also, one can’t help but think that if real-time settlement is the offering, then how does the new system differ from the existing gateway, PRISM? Or for the interoperability part, 1LINK’s switch services are already in use? What sets Raast apart from the two?

For starters, unlike PRISM, Raast will be accessible to not only banks and a few very large corporates, but also non-banking entities such as the Central Depository Company, governmental departments or fintechs. The idea is to trigger major volumes and low-ticket transactions, basically a solution meant for the masses and for that its throughput is a lot higher.

Admittedly, the cost of digital payments has historically been fairly high in Pakistan, especially the interbank funds transfer. But after the coronavirus outbreak, those charges were waived off and triggered an unprecedented increase in 1IBFT. This again brings us to what makes Raast unique then, considering that those transactions are free for now at least?

“There is a major difference in the interface. Presently, to make an interbank funds transfer, you need lots of details like bank name, account number (that too with exact digit specifications) etc. On the other hand, Raast will have a directory function linked with, say, your phone number and all one needs to do a transaction is enter that along with the amount,” explains Mr Hussain.

Published in Dawn, The Business and Finance Weekly, January 18th, 2021