For the longest time, the country’s private sector has often used the government’s inefficiencies as an excuse for its own mediocrity. Be it the hue and cry over taxes or the demands of trade protection, Pakistan Inc. has developed a particularly rent-seeking behaviour.

In some respects, the startups are not too different. After all, they also take birth in the same corporate culture. Though they may not yet have proper lobbies to make their case with the government and get some goodies, these young organisations often blame their own lack of success on a lack of governmental support. So naturally one wonders if regulations and the business environment were more conducive, would our entrepreneurs have done things drastically different?

That’s a hypothetical scenario with no definitive answer. But based on the performance of our diaspora elsewhere, there is scant reason to think so. Sure, you can find some engineers making a few hundred thousand bucks or executives here and there, but there’s no major representation of Pakistani entrepreneurs, except a handful few, even in countries where the environment is much more favourable. One proxy for this is how many Pakistanis have founded a unicorn or are at the helm of Fortune 500 companies. As you’d expect, the number is quite small.

What if the regulatory environment was better here? Would the tech companies have fared any differently?

Anyway, forget the diaspora. What if the regulatory environment was better here? Would the tech companies have fared differently? Obviously, there is no exact way to know. But how about we look at an area where progressive rules were introduced and see if that made a significant difference to the dynamics of that industry?

Luckily, we might be able to do that. For the past few years, the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) have been fairly active in pushing for liberalisation. One such instance is the Payment Systems Operator/Payment Systems Provider Rules issued in late 2014.

The SBP defines PSO/PSP as an “authorised party that is a company registered under Companies Ordinance 1984 and is engaged in operating and/or providing payment systems–related services like electronic payment gateway, payment scheme, clearing house, ATM switch, POS gateway, e-commerce gateway etc. acting as an intermediary for multilateral routing, switching and processing of payment transactions”.

Since the introduction of the rules, 11 entities have received at least an in-principle approval from the SBP with the first being granted to 1LINK on Sept 30, 2005 for the ATM switch, interbank funds transfer and utility bills. Foree was the latest to receive the nod for payment aggregation on Aug 10, 2020. Other names on the list, for various services, include Virtual Remittance Gateway (VRG), Webdnaworks Ltd, National Institutional Facilitation Technologies (Nift), Avanza Premier Payment Services, TPL Rupiya, Infotech, Mobidirect, Zing Digicomm and Euronet.

Of these 11 organisations with some form of approval, only four are actually live: 1LINK across four areas, VRG for electronic payment gateway, Webdnaworks for white label ATMs and NIFT for paper-based instruments’ clearing only. Interestingly, two of these — which also happen to be the most active players — had already been operational and thriving ages before the PSO/PSP rules were even envisioned. On the other hand, some of the (newer) names into this line have been stuck at the in-principle approval stage for as long as almost four years.

The question arises: what exactly is causing these entities from being stuck for years? Could it be a lack of funds? Possibly, but given the size of some of the companies on the list, this doesn’t seem like a great explanation. I mean if they already have Rs200 million of the paid-up capital — a requirement to keep their status intact — then at least some progress, say, to the pilot stage, should have been made.

A source in the industry says that in the initial years, the SBP was more lenient in granting approvals. It then made the process more stringent and started asking for more documents and pressing on questions. It has again been relatively eased in the last year or so, he adds.

One factor in the comparatively lacklustre interest in PSO/PSP now could be the subsequent introduction of Electronic Money Institutions Regulations in 2019, which might be seen as more lucrative. Unlike the former where an entity needs to sign banks — a nightmarishly long process — the latter lets the non-banking finance companies distribute (electronic) money. Things are moving ahead at a far better pace for them, where five of the seven EMIs with in-principle approval have already received the nod to commence pilot operations — all in 2020. But there is no overlap of names in the PSO/PSP and EMI lists.

It also seems likely that some of the players at the time went for the approval just in case, with the intention of figuring out things later on. They may not be interested in pursuing this business anymore. Perhaps they figured out the kind of capital its operations would require and backed out or maybe had issues within the core team.

None of this is to say that legal bottlenecks do not exist within Pakistan or the broader structural issues don’t make running businesses a challenge. But the world over, within tech, regulation moves slower than innovation and scaling businesses, something that’s been largely missing from Pakistan. The success of Telenor Microfinance Bank led the way for the overall branchless banking landscape, not the other way round. Suggesting that things will continue to be in limbo until some magical formula is figured out is just seeking refuge in excuses, which the local corporates have made their permanent residence.

Published in Dawn, The Business and Finance Weekly, , March 15th, 2021