Retail payments usually involve transactions between consumers and businesses where it generally have higher transaction volumes and lower average values than wholesale payments. The retail payments in Pakistan comprise of various paper-based and electronic instruments from conventional cheques to modern plastic cards. The system handles high volume and low value transactions through paper based (such as cheque) and non-paper based transactions (such as e-Banking). Over the years, and important trend has been the shift from paper to electronic payments. The statistics show that consumer use of electronic payments in Pakistan has grown significantly in recent years, and the trend will accelerate in coming years due to Vision of SBP on provision of Digital Financial Services (DFS) especially to financially excluded segment of population.
In Pakistan, the payment instruments can be broadly categorized into:
The paper based instruments in Pakistan have generally been the preferred mode of payments. Though there are various modes of paper based transactions available such as cheques, pay order, demand draft telegraph transfers etc., the volume and value of paper-based transactions has largely driven by cheques. These are used for cash withdrawals and for funds transfers through cheque clearing. Cheques are the preferred mode of payment for commercial transactions, as well as for government payments. The share of other paper-based instruments is fairly insignificant in terms of the total value and volume of paper-based transactions. NIFT was incorporated in September 1995 as joint venture between a consortium and is responsible to improve the efficiency of clearing and settlement of paper-based instruments in Pakistan.
To safeguard the interests of general public by reducing the risk of counterfeiting, State Bank of Pakistan 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 is gaining momentum in recent years owed to SBP’s efforts to create an enabling policy environment, and launch of innovative products by banks.
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 payments link to an existing account relationship with a financial institution for both payee and payer. Consumers may use credit, debit, or stored-value cards 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 electronic based transactions growth due to their general acceptability among people.
SBP has been cognizant of the recent development internationally in the area of electronic payments. Since the security of electronic channels has become a major concern SBP has issued Regulations for the Security of Internet Banking which aims to develop a formal Internet Banking Security Framework containing administrative, technical and physical safeguards based on best international practices to mitigate the risks associated with Internet Banking and safeguard the interests of customers. Moreover, to provide and 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.
In Pakistan the payment systems channels are mainly categories as:-
- Automated Teller Machines (ATMs)
ATMs provide consumers an on-line access to account information and allow consumers to make withdrawals and deposits at ATMs. ATM channels are most commonly used electronic mode in Pakistan. ATM network in Pakistan are interoperable and are available 24 hours a day – 365 days a year. Financial Institutions in Pakistan are providing host of banking services including cash withdrawals, funds transfer, payment of utility bills, balance enquiries, statement & cheque book requests, Personal Identification Number (PIN) changing facility etc. at ATM locations.
Internet Banking has become an important delivery channel for banking services enabling banks to offer traditional banking services like access to one or multiple accounts for fund transfers, bill payments and card payments etc through internet. A customer having Internet access, a web browser and a registered account for Internet banking service from banking institution is able to do banking and payments from the comforts of home, office, or virtually anywhere in the world.
POS terminals in Pakistan have been expanding and are used to provide consumers facility to make payments through debit and credit cards. POS network process, route, clear, and settle ATM and on- line POS debit card transactions by linking financial institution card issuers and merchant acquirers, consumers, merchants, and third-party service providers through telecommunication gateways.
Mobile banking is similar to Internet banking in that it provides a fast and convenient way of performing common banking transactions. Many Financial Institutions in Pakistan are providing Mobile Banking facility to customers. Customer can get a registered account for mobile banking from banking institution, to do banking transactions from anywhere that has your mobile telecommunication network coverage.
Branchless Banking has emerged as a new and innovative channel of provision of financial services to customers, especially to financially excluded population in Pakistan. The use of agent by Financial Institutions in partnerships with Mobile Network Operators(MNOs) or using their own platform have been instrumental in providing basic financial services such as fund transfer, utility bill payment, retail payments, donations etc to customers who earlier didn’t have access to banking services at their close proximity. Moreover, the government has been using BB channel to distribute government payments such as Benazir Income Support Programme (BISP), Watan Cards and payments to Internally Displaced People (IDPs) and flood affected people.