Interoperability, Policy and Regulatory Challenges in Digital Financial Services:
The case of Pakistan
Muhammad Arif SarganaDirector (Economic Affairs)
Pakistan Telecommunication Authority1
Enabling the Digital Evolution in PakistanS
ecto
r G
row
th
2001
1990-91
2004
2007
2014
1st GSM
Operator
“Mobilink”
Launched
Services
TWA
becomes
2nd under
sea fiber
optic
carrier
after
PTCL
1st
Spectrum
Auction
Telenor &
Warid
NGMS
Auction
(3G/4G)
CMPAK
“ZONG”
Acquires
Paktel
2 Cellular
(AMPS) issued
to Paktel &
Instaphone
1992
2016
Award
of
850Mhz
Spectru
m for
3G/4G
2
2003-04
UFONE
Started its
Operations
as 2nd GSM
Operator
2002 Deregulation
2 Cellular
licenses
14 LDI
licenses
84 FLL
licenses
93 WLL
licenses
2017
NGMSA
Auction
in May
2017
TPSP
licensing
launched
GOVERNMENT’S COMMITMENT TO DIGITAL FINANCIAL INCLUSION
3
Key Initiatives
National Financial Inclusion Strategy (NFIS)
National Payment Gateway
Rules for Payment Service Providers/Payment System Operators
Prevention of Electronic Crimes Act, 2016
Data Protection Law (in process)
NFIS Targets by 2020
50% of Adults with a transaction account from 16%
25% of women with a transaction account from 2.9%
10% of adults to save at a formal Financial Institution compared to current level of 1%
Increase SME lending from 7% to 15% (% of total bank credit to the private sector)
5
DIGITAL FINANCIAL SERVICES (DFS)
6
Stakeholders Coordination for DFS
7
Coordination / MoUs/ Joint
working groups , regulations and
goals
Financial Regulator
Telecom Regulator
Securities and Exchange
Commissions
National registration /
Database Authority
Financial Institutions
Telecom operators
Micro-insurance providers
Technical Service
Providers
Applications / solution providers
27 million m-wallet accounts
402,710 m-banking agents
US $2.4 billion transacted through
mobile banking
2016-17
14,069 bank branches
12,515 ATMs52,854 POS machines
37 million plastic cards
140 million BVS SIMs
Unique database for e-services
43 million mobile broadband subscribers
Less costly smartphones
Approx. 80,000 SECP registered companies
Nearly 2 million merchants / shops
Switches
(1-LINK, MNET),
(only 1-Link is linked to mobile payments)
Digital Financial Services in Pakistan
8
INTEROPERABILITY (TPSP LICENSING)
Telenor
Telenor Bank
Easy Paisa
(Oct 2009)
CMPak
Askari Bank
Time pey (On time)
(Nov 2012)
PMCL
Mobilink Microfinance
Bank
Jazz cash
(Dec 2012)
Ufone
U-microfinance Bank
U-Paisa
(Jul 2013)
Partnerships of Mobile Operators with Banks
9
Telenor, Mobilink and Ufone have also full ownership of partner
banks
Central Bank and Telecom Regulator Join hands
10
Joint Regulatory Framework
11
• MoU for mutual cooperation signed between SBP and PTA
• Joint PTA – SBP Regulations for Technical Implementation of Mobile Banking and Interoperability, 2016– Applicable on mobile operators, TPSPs and financial institutions– Licensing and authorization by PTA and SBP to TPSP (Third Party
Service Provider)– Easy terms & conditions including nominal fee
• First TPSP License at Final Stages of issuance
• PTA and SBP are active members of the NFIS Council, Steering Committee and Technical Committees
Provides detailed mechanism for technical implementation of one-to-one and any-to-any model of m-banking
Existing models (one to one) will continue with their arrangements without the requirement of separate license
All TPSPs are required to acquire a license from PTA and authorization by SBP
All TPSPs and operators to enter into Service Level Agreements (SLAs) with SBP authorized FIs.
12
Salient Features of Joint Regulations
A joint PTA and SBP committee to resolve the disputes between the parties, and to protect consumers’ interest.
Operators and TPSPs shall put in place an effective and comprehensive consumer protection mechanism against risks of fraud, loss of privacy, delays in service provisioning etc. to the consumers.
Quarterly Review of market dynamics, regulations and SOPs
13
Salient Features of Joint Regulations
Switching and routing all interbank Wallet to Wallet and Wallet to
bank account fund transfers
Maintaining logs of routed transactions, security and privacy of
information passing through its systems and providing high quality
of service, availability of resources, network redundancy,
security/secrecy, authenticity and non-repudiations of financial and
technical transactions
Setting up unified USSD channel platform to open and access
mobile account(s) offered by any of branchless banking provider of
his choice e.g. Asaan Mobile Account (AMA), accessible to
subscribers of all cellular mobile operators and facilitation for any-
to-any model
Rollout obligations on TPSP with respect to installation of
necessary infrastructure and readiness for connectivity with mobile
operators and financial institutions.
14
Salient Features of TPSP License
Opportunity for the technical service providers and operators / banks to come forward with their advanced interoperability solutions
Availability of interoperability on payments and across platforms
Serve the current demand in the industry for another switch with enhanced and innovative interoperability solutions
Ensure quality of service / regulatory oversight
Security of transactions and systems
Consumer protection
Dispute resolution15
Benefits of PTA & SBP Joint Regulations
16
REGULATORY, POLICY CHALLENGES & WAY FORWARD
Regulatory Challenges
• Overlap of regulatory ambits (PTA, SBP, CCP)
• Significant growth of Broadband but Penetration is still low (22%)
• Lack of accurate and reliable ICT Usage Data
• High Share of OTC Transactions
• Low activity of mobile wallets
• Low digital literacy and Lack of local content
• Lack of awareness and adaptation to digital financial services
Way Forward• Expansion of the communication infrastructure
– Efficient use of spectrum resources
– E-payment Gateway
• Implementation of Interoperability (TPSP licenses)
– Issuance of licenses
– Ensure interconnection among the CMOs and FIs
– Resolve inter-operator issues
• Asaan Mobile Account campaign
• Continued collaboration between Regulators
• Security and Stability of the Payment system infrastructure
• Local content development
– DFS based Mobile App Awards
– Incentives to the local developer community18
Thank You