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Payment systems in Pakistan have evolved significantly over the last decade, driven by the development of new payment instruments, electronic payment infrastructure and changing consumer needs. This development has resulted in rapid shift from the use of traditional paper instruments to a diverse range of electronic payment instruments, supported by efficient and reliable clearing and settlement infrastructure.
As a result of these developments, Pakistan now has payment systems with the following main features:
Latest developments in digital financial sector may be accessed at Digital financial Services
The roles and responsibilities of the SBP in payment systems are mainly governed by the Payment Systems & Electronic Fund Transfer Act 2007. Consequently, Digital Financial Service Group, comprised of Payment Systems Policy & Oversight Department and Digital Innovation & Settlements Department in the Bank has been entrusted to oversee and regulate payment systems in Pakistan besides operating the PRISM+ System.
On November 1, 2019 Governor State Bank of Pakistan Dr. Reza Baqir launched the National Payment Systems Strategy.
Financial Market Infrastructures (FMIs) that facilitate the clearing, settlement, and recording of monetary and other financial transactions can strengthen the markets they serve, play a critical role in fostering financial stability and hence contribute to a strong economy. Central banks typically seek efficiency and safety in the National Payment Systems (NPS), including retail payment systems, services and payment instruments. In this context, SBP through World Bank’s Financial Inclusion Support Framework (FISF) program, prepared a strategy for the Pakistan’s NPS which would support both the National Financial Inclusions Strategy (NFIS) and the financial stability of the country.
The objectives of this strategy are to make recommendations to design an NPS complying with international standards and best practices and tailored for the specific circumstances and needs for a safe, efficient and inclusive NPS in the country. The dual objective of enhancing financial stability to contribute to economic growth and supporting financial inclusion are the overarching goals of this strategy.
An RTGS system is defined as a gross settlement system in which both processing and final settlement of funds transfer instructions can take place continuously (i.e. in real time). As it is a real-time settlement system, the system affects final settlement continuously rather than periodically at pre-specified times provided that a sending bank has sufficient covering balances or credit. Moreover, this settlement process is based on the real-time transfer of central bank money. An RTGS system can thus be characterized as a funds transfer system that is able to provide continuous intraday finality for individual transfers.
The need for RTGS system in Pakistan was recognized as a response to the growing awareness of the need for sound risk management in large-value funds transfer systems. RTGS systems offers a powerful mechanism for limiting settlement and systemic risks in the interbank settlement process, because these risks affects final settlement of individual funds transfers on a continuous basis during the processing day. Further, RTGS can also contribute to the reduction of settlement risk in securities transactions by providing a basis for delivery-versus-payment (DVP) mechanisms. Therefore, RTGS is very essential while considering risk management in payment and settlement systems.
The RTGS in Pakistan has been named as Pakistan Real-time Interbank Settlement Mechanism (PRISM). Pakistan Real-time Interbank Settlement Mechanism (PRISM) System is Pakistan’s only Large Value Payment System. It is a Real Time Gross Settlement System (RTGS) which provides a central platform for the settlement of large-value interbank funds transfers, Government Securities, retail clearing and customer transfers (over a certain minimum amount limit). It was launched in July 2008 and has expanded its operations significantly. At present there are 42 Direct Participants of PRISM comprising of Commercial Banks, Development Financial Institutions, Micro-Finance Banks and Central Depository Company (CDC). PRISM system Operating Rules (2009) was issued to provide the level playing file to the participants.
The main purpose of introducing the RTGS systems is to handle the large value interbank funds transfers on Gross Basis and in Real Time. Interbank funds transfer systems are arrangements through which funds transfers are made between banks for their own account or on behalf of their customers. Of such systems, large-value funds transfer systems are usually distinguished from retail funds transfer systems that handle a large volume of payments of relatively low value in such forms as cheque, credit transfers, automated clearing house transactions and electronic funds transfers at the point of sale.
The payments of these interbank financial transactions are prone to Settlement risk which refers to the risk that the completion or settlement of the interbank funds transfer system as a whole, will not take place as expected. Settlement risk comprises both credit and liquidity risks. Two major sources of these risks are (a) a time-lag between the execution of the transaction and its final completion and (b) a time-lag between the completion of the two legs of the transaction i.e. any lag between payment leg and delivery leg.
Retail payments usually involve transactions between consumers and consumer to businesses. It generally involves higher transaction volumes and lower average values than wholesale payments. The retail payments in Pakistan comprise of various paper-based and electronic instruments/channels from conventional cheques to modern plastic cards. Over the years, an important trend has emerged which involves a shift from paper to electronic payments. The statistics show that use of electronic payments by consumers in Pakistan has grown significantly in recent years, and the trend is expected to accelerate in coming years due to SBP efforts for provision of Digital Financial Services (DFS) especially to financially excluded segments of the population.
In Pakistan, the payment instruments/channels can be broadly categorized into:
The paper based instruments include various modes of paper based transactions available such as cheques, pay order, demand draft, etc., the volume and value of paper-based transactions has been largely driven by cheques. These are used for cash withdrawals and for funds transfers through cheque clearing.
To safeguard the interests of public by reducing the risk of counterfeiting, SBP has issued guidelines on Standardization of layout and Security features of Cheques, Pay Orders(Pos) and Demand Drafts( DDs). This is also aimed at addressing the risk of fraud, forging in paper-based instruments. Moreover, to facilitate customers, Banks/Microfinance Banks(MFBs) have been advised to devise a centralized mechanism for the verification of genuineness of POs and DDs. In this regard, Banks are required to Set up 24/7 helpdesks / call centres, so that the person in possession of instruments is easily able to verify the genuineness of the instrument.
The growth of electronic based payment instruments has been gaining momentum in recent years owed to SBP’s efforts to create an enabling policy environment, and launch of innovative products by banks, MFB, EMIs and PSOs/PSPs.
Electronic retail payments in Pakistan consist of various instruments and channels for payments such as payment cards, Real Time Online Branches (RTOBs), banking through Call Centre/Intra Voice Response (IVR), internet and mobile banking. Usually, these payment instruments link to an existing account relationship with a financial institution for both payee and payer. Consumers may use credit, debit, stored-value cards or wallets/accounts, QR code etc. to initiate retail payments in face-to-face or remote transactions. Real time online branches (RTOBs) and ATM transactions have been the major contributor to the growth of electronic based transactions due to their general acceptability among people.
SBP has been cognizant of the recent development internationally around electronic payments. In order to ensure use of efficient and secure electronic payment instruments, SBP issued Regulations for Prepaid Cards with the aim of providing an enabling regulatory framework for prepaid card issuance and providing a level playing field to all the banks/MFBs Further, to set forth the minimum information of originator and beneficiary to be required in a payment message being used to initiate/process an Electronic Fund Transfer (EFT), EFT Regulations were issued.
In Pakistan the payment systems channels are mainly categories as:
Digital payments only account for 0.2% of Pakistan’s 100 billion transactions today, whereas the share of digital transactions* in peer countries ranges from 1.5% to 7%. This can be primarily be attributed to the challenges within the payment ecosystem, which include:
The core of MPG’s mission is to transform the reach, security, speed, quality of, and trust in digital payments available to individuals and institutions in Pakistan. It was designed with the abovementioned challenges in mind and will introduce multiple enhancements to the digital payments ecosystem in Pakistan, including:
The key features that enable MPG to offer these advantages include:
*As a share of total annual transactions
Raast is Pakistan′s first instant payment system that will enable end-to-end digital payments among individuals, businesses and government entities instantaneously. The state-of-the-art Pakistan′s Faster Payment System will be used to settle small-value retail payments in real time while at the same time provide a cheap and universal access to all players in the financial industry including commercial banks, microfinance banks, government entities and fintechs (EMIs & PSPs).
To create an enabling regulatory environment and bring systemic harmony, introduce standardization and setting benchmarks, SBP issued Rules for Payment System Operators (PSOs) and Payment Service Providers (PSPs) in 2014. The purpose of PSOs/ PSPs is to provide an electronic platform for clearing, processing, routing and switching of electronic transactions. It can make agreements with Banks, MFBs, other PSOs and PSPs, Merchants, e-commerce service providers and any other company for the provision of services mandated to the PSO and PSP under the rules.
PSOs/PSPs are important components of Financial Market Infrastructure (FMI) and they are defined in the Rules as “Authorized 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”.
PSOs/PSPs authorization is be granted in three stages.
PSOs/PSPs are required to maintain a capital of at least PKR 200 million (Rupees Two Hundred Million Only) or any other amount as may be prescribed by SBP from time to time. Further, PSOs/PSPs will not act as custodian of consumer’s money or perform any banking function(s) as defined in BCO, 1962
State Bank of Pakistan, with the objective to promote digital payments, foster innovation in payments industry, increase financial inclusion in the country and provide Regulatory framework to non-banking entities in payments landscape, issued Regulations for Electronic Money Institutions (EMIs) in 2019 (and later revised in 2023) under the powers conferred to it by Payment Systems and Electronic Fund Transfers Act, 2007.
The EMIs are entities that offer innovative, user-friendly and cost effective, secure, low value and interoperable digital payment instruments like wallets, prepaid cards, and contactless payment instruments. Since the issuance of these Regulations, the EMIs have played a crucial role in digitizing retail sector payments in the country.
Under the Regulations, Prospective EMI applicants are granted EMI license in three stages viz In-Principle approval, approval for Commencement of Pilot Operations and the Final Approval i.e. License
Payment Systems have significant importance in any country since they help in efficient conduct of trade, commerce and other economic activities. The stability of financial system is derived from safety, competitiveness and efficiency of the payment channels and corresponding instruments. The use of electronic means of transactions facilitates the masses in affecting transactions instantly. However, it has its own risks as well, if the security of the payment infrastructure, channels or the instruments is compromised. The SBP’s oversight role of Payments Systems is aimed mainly at ensuring that existing systems are safe, resilient, and maintain the confidence of consumers. With the gradual growth in electronic banking, its security has gained importance due to rising threats and vulnerabilities associated with it. Thus, SBP, under its objective to promote modern and robust Payment Systems has taken a number of steps in recent past. These include issuance of
Payment Systems Department at State Bank of Pakistan has taken number of initiatives for the benefits of Pakistanis living abroad enabling international financial transactions more modern and secured. To develop and maintain robust payment systems mechanisms for the growth of international remittances and support trading activities while focusing economic growth with a special emphasis on this region is one of the core objectives of SBP’s vision and strategy 2020. Since 2012, SBP is the Secretariat of SAARC Payments Initiative (SPI) taken by the SAARCFINANCE Group in 2007. In 2008 the SAARC Payments Council (SPC) was established under the SPI to take forward the vision of SPI i.e. improving and developing modern payment and settlement systems and mechanisms in the SAARC region.
The SPI Secretariat conducted bi-annual meetings on rotation basis in SAARC countries to discuss underlying issues and developments. This Forum is striving to provide reliable and harmonized systems to the people and business communities of the region so that they can use payment instruments such as plastic cards on low and high-value standard payment channels for their day-to-day and business payments without any delays. Like other regions such as EU SBP through this Forum has also started knowledge and capacity building in the area of payment and settlement systems. For this purpose, numerous seminars have so far been conducted on payment systems security, future of Virtual Currencies, emerging issues in Large-Value Payment Systems (RTGS), issues in Correspondent Banking, emerging role of non-banks in payment systems, modern Retail Payment Systems, current role of Committee on Payment and Market Infrastructures (CPMI) etc.
To comply and maintain international standards and recommendations on payment and settlement systems, various projects by the SPC are also underway such as SAARC development report on payment systems, SAARC countries Payment Systems Matrix, discussion on projects under the concept of Single Harmonized Payments Mechanism in the SAARC region, Payment Systems Risk Mitigation Matrix etc.
Payment Systems Policy & Oversight Department (PSP&OD) publishes Payment Systems Review on Quarterly and Annual Basis. The Statistics is available at:-
RTGS Participants can cancel any unsettled transaction if required by clicking “cancel transactions” icon in Transfer table of DEPO/X
PRISM Participants after verifying the nature of disconnectivity should Contact RTGS PM Office at State Bank of Pakistan for instructions..
PRISM Participant can reconcile their Funds or Securities balances based on Statement Report issued by SBP BSC Karachi Office.
Reconnect the system and check the status of the transactions. In case of any issue RTGS PM Office should be contacted.
PRISM Participants are required to arrange funds within 15 Minutes after Multilateral Net Settlement Batches (MNSBs) for clearing are posted in PRISM System.