Tuesday March 21, 2023

Photocopy nation

October 30, 2022

Rarely has a visit to a bank, or a government entity providing services been complete without having photocopies of identity, and other relevant documents.

In many circumstances, the relevant entities already have an entrepreneur providing photocopy services only a few places away. No one knows what happens to those photocopies; we make a dozen sets, submit them, often containing confidential and privileged information, and suddenly it gets deposited somewhere. There is a high chance that no one even looks at it the second, or third time, and the same is possibly eventually sold on a per kilogram basis.

A lot of this paper and human effort can be avoided by leveraging technology. A visit to a bank to either deposit or withdraw funds is often never complete until a photocopy of the CNIC is provided. Almost every bank branch already has a photocopy machine, and a dedicated resource just to manage the same.

The regulator has mandated that over-the-counter transactions are accompanied by a photocopy of CNIC, without any regard to the materiality of the amount. It is often that a person may have to pay a utility bill or school fee, and they may have to provide a photocopy of their CNIC for a largely innocuous transaction.

A casual excuse here is that it is one of the many draconian steps financial institutions had to take to comply with the requirements of the FATF. However, nowhere in any FATF directives can one find a reference to photocopied identity documents. It is often about verifying the identity of the individual doing transactions – the same can also be done through technology, but we largely prefer the more inefficient way of doing things. There is a reason why productivity in the country has largely stayed flat or declined over decades.

There are more than 15,000 branches of various banks in the country, which handled more than 300 million transactions over the counter as per the latest available data on a quarterly rolling basis (the SBP has discontinued providing data for the same from Q2-FY22 onwards). A ballpark estimate suggests that we may use roughly 110 tons of paper to make photocopies just for over-the-counter banking transactions, increasing not only the bank’s financial cost but also services costs for the customers of the bank, as well as the environmental cost.

If there are more than 15,000 branches, then it is safe to assume that the number of photocopy machines in those branches is almost the same, which requires the utilization of paper, printer toner, and regular maintenance. This is essentially an economic sub-segment that is being supported by anachronistic regulations. Ballpark estimates, we probably spend about Rs300 million just to make photocopies for identity documents, that are rarely ever reviewed again, or serve any serious purpose whatsoever.

There is a much simpler way to do all this. It requires connectivity with NADRA, which is already providing identity verification services through various products. It won’t take much for a bank branch to verify the identity of a customer via direct connectivity with NADRA. However, there is a catch here. A photocopy of CNIC would cost about PKR 1.5 per copy (including all direct and Indirect costs) while getting verification done from NADRA through an online link would be much higher, in multiples of tens. The pricing tiers differ, but they remain much higher than the cost of an ordinary photocopy, even though the wastage and roundabout cost may be much higher for paper.

There is literally no economic incentive to use technology to make it easier for everyone because NADRA likes to charge a considerably higher price for a simple verification service. Such pricing is largely due to the natural monopoly of NADRA over the data of citizens. But since NADRA is a public-sector entity supposed to serve the public, it needs to price its services accordingly as well.

In an ideal scenario, the cost of verification ought to be the marginal cost, such that the service can become affordable and a dominant way for validation. This will essentially kill the photocopy industry, and rightfully so. Considering the number of over-the-counter transactions done, even if NADRA charges Rs1.5 for each verification, it can generate revenue of Rs450 million.

There need to be aggressive efforts for regulators and state institutions to adopt and leverage technology actively. There are a lot of low-hanging fruits that can be picked through the right intervention, and the right pricing. The technology is there, and the solutions are also there, but the will to implement, take ownership, and go all the way isn’t there. This has more to do with how institutions have evolved over the last few decades with sporadic leadership than anything else.

Benefiting the citizen, and making things more efficient should be a priority for every institution. Institutions should have more faith in their citizens, and they should not be viewed as guilty first unless proven otherwise. The photocopy culture is a symptom of the same, which is further propagated by the attestation culture. It is time the state actually started trusting its citizens; this has to happen before the citizens can start trusting the state. We can either be a photocopy nation, or we can be a nation that values productivity and efficiency over everything else.

The writer is an independent macroeconomist.