Some years ago, one could not have imagined that sending money to loved ones would literally be at the tip of one’s fingers, because for a long time, writing out a cheque or running to an ATM were the only options available. Considering that the lower-middle class or the comparatively less-educated segment of the society are not keen on or familiar with or even a part of the conventional banking system, sending and receiving digitalised or electronic money has emerged as a popular way to do monetary transactions in our society.
The rise of person-to-person apps or app to bank transactions have not only made thousands of lives easier, but it is certainly one of the reasons for the boom in small businesses, through microfinance banking. Many people feel more comfortable completing personal or business transactions through digital payment methods, because of their flexibility, convenience, and security.
Our relationship with money is changing. When you can manage all the transactions from mobile, you don’t need to take assistance from a person. JazzCash and Easypaisa are leading examples of fintech [short for financial technology] in Pakistan. In the last five years, pushed by the pandemic, there has been a dramatic increase in e-payments.
Thirty-two years ago, Liaquat Ali came to Karachi from Chakwal to earn a living. For Ali, the Easypaisa, a Pakistani mobile wallet, is a blessing. Earlier, he used to send money through Pakistan Post or he had to spend money to travel back home to give money to his family in person. But now that he has his number registered on the micro banking app, he sends money electronically and his family receives it instantly.
There are more than nine million users of each mobile wallet service provider, i.e. Easypaisa and JazzCash in Pakistan, who use their services on a daily basis. More than one million people use the services monthly to send and receive money with very little charges as compared to conventional banks.
Being one of biggest fintechs in Pakistan, JazzCash is a complete transactional app where customers can not only transfer funds but make payments, mobile top-ups, apply for a ready cash loan for up to Rs 10,000 and much more. It is targeted mainly at the unbanked population who have a mobile connection.
Being more than just a conventional bank app, it enables account opening in four simple steps with no requirement for additional details. As your registered mobile number is your account number, there is no hassle of remembering long account numbers. JazzCash provides three categories of account levels with account limits starting from Rs 25,000 to Rs 200,000.
While conventional banking requires visits to the bank for account opening and cheque book collection, for electronically sending money, people just need to have a mobile number. Using that, they ask a nearby mobile shop to create their account, and send money to whoever they want to. At the receiving end, the shopkeeper gives the money to the recipient.
Easypaisa has made Ali’s life so much easier, because he does not have to travel to Chakwal to personally give money to his family. “Conventional banks never help with anything and keep asking for documents to verify my income,” says Ali. “Why would I need a bank account? Why would I go to a bank or ask my wife to go to the bank if she can easily get the sent money from a shop that is right next to my house?”
Why conventional banking customers don’t shift to micro banking?
Users of conventional banking are basically different from those who use micro financing because, the former are mostly educated and salaried people or they are business people. Both types eventually fall into the tax-payer category or people with monitored transaction history. Being educated enables them to use conventional banking facilities as well as the digital banking system.
“I don’t want to deal in cash given the law-and-order situation especially in Karachi,” says Shahzeb Ahmed who works for a private company and earns well. “For me, the purpose of using micro banking is to send money to my household staff or to anyone who does not have a bank account.”
He adds that the general perception about Easypaisa and JazzCash are that they target people who are illiterate or do not have required documents for opening a bank account. “These may include domestic workers, housewives, women and men who earn through online businesses from home,” says Ahmed. “In this way, they can easily get their accounts made and proceed with transactions.”
Online payment methods
Online shopping and payments are mostly done through micro banking accounts by using Easypaisa or JazzCash as a mode of payment. For women independently running online businesses, it can be easier to get money than taking help from a male member of the family who has a bank account to provide bank details for the payment to be sent in. “I have both Easypaisa and JazzCash accounts and it is easy for me to get my payments now,” says Sara Aziz who runs an online clothing business. “Previously, cash on delivery was a hassle. Either the delivery people would steal my money or the customer refused to pay. Since I got myself an account through my mobile number, I simply ask for advance payment and it has helped me boost my business significantly.”
Conventional banking is not single women-friendly
The young entrepreneur also points out how it is difficult for a single woman to open a bank account without a male family member’s validation or without salary slips that one can only have with a proper job. Hence, micro banking is their best option.
The downside
Micro banking not only enables a big chunk of people to send money through easy transactions, the charges for doing so are minimal compared to conventional banking. For instance, in conventional banking, the Inter Bank Funds Transfer (IBFT) charges are Rs 250, after the defined limit of Rs 25,000 a month. On the other hand, micro banking transfers are low and the shopkeeper mostly charges somewhere between Rs 50 to Rs 100 to handover the payment which is his cut. Since the customer does not have many options and wants to avoid going to a bank, they happily let the shopkeeper take his cut. The micro banking accounts cannot deal in huge sums over Rs 20,000 to Rs 50,000 a month. These accounts are not monitored and the transaction history is not regulated the way it is done in banks.
Raast ID
To regulate route all transactions through one central system, the State Bank of Pakistan (SBP) came up with Raast ID, a simple identifier (currently mobile number) that you link with your bank account. Instead of sharing bank account numbers, you can now share your Raast ID with others and start receiving funds in your linked account. This way the SBP has regulated all banks to shift their customers under one system, for the purpose of monitoring so that a data can be maintained.
Banks are supposed to provide monthly transaction data to SBP, but there have been certain discrepancies. For instance, if there were a million transactions a month, banks would only send data of 700,000 transactions. So Raast ID brings it all under one umbrella.
“A Turkish and Russian company designed the system for SBP,” says Salman Nasir, a technical consultant who works on Raast ID development with private banks. “At first SBP just asked the top five banks to get their customers registered on it, but gradually Raast was launched on a larger scale with all banks and microfinancing apps getting on it.”
Since a Raast ID is a bank account linked to a mobile number that is registered through the user’s CNIC, only one bank account can be linked to it at one time. “Raast offers free transactions up to half a million a month and the sender will not be charged a single rupee,” says Noman Mukhtar, business director at an IT firm. “But without using Raast, you will be lumped with IBFT charges.”
Nasir points out that the concept is similar to Easypaisa and JazzCash, where an account can be linked to a mobile number. Customers are opting for Raast because it offers real-time reversal or instant transactions. The limit for free transaction to any account is Rs500, 000 a month and there are plans underway to increase this limit.
Being an inclusive app, JazzCash promotes diverse channels of funds transfer for its customers providing optimal services either free of charge or at a minimal cost. At 12 million, JazzCash has the largest Raast accounts.
Across the world, people feel uncomfortable about sharing account numbers, even though one can easily debit an amount using account number details. But with a Raast ID, one only has to share their contact number and account details can be easily masked, and helps people to preserve the safety and security of their accounts.
“The idea of introducing Raast is to break the monopoly of 1Link system because banks usually don’t provide full data, while SBP cannot maintain a huge data,” explains Nasir. “But with Raast, every transaction channels through and notifies SBP. When one registers on Raast, SBP gets all the necessary data which can be used to maintain transaction history as well.”
In the future, SBP has plans to 1Link accounts to emails and to enable Raast to be used with multiple numbers. But for now, it is limited to one mobile number linked to one account and one CNIC for that account. So someone who has multiple accounts, can only link their Raast ID to one bank account.
Digitalisation not only brings ease for customers, but also cuts costs for banks in terms of rent, a well-maintained premises, air conditioning, security guards, and tellers etc., to facilitate customers.
Since every system entails a cost to be maintained and to survive, in future, Raast may not be free and additional charges may be slapped on.
Since people in our society have a deeply ingrained preference for cash deals, and a fear of tech solutions, potential customers can be tapped as long as internet facilities, and an accessibility and awareness of fintech service is created by all stakeholders.