SBP assures of treading with caution as it studies CBDC

KARACHI: State Bank of Pakistan (SBP) on Wednesday said it was researching central bank digital currency (CBDC) to evaluate costs and advantages, but would proceed cautiously, especially in terms of design decisions and use case analysis.

“To harness the potential of Distributed Ledger Technologies, SBP is also researching the central bank digital currency, commonly known as CBDCs, and is weighing the cost vs benefits of this venture,” said SBP’s Governor Jameel Ahmad at Pakistan Fintech Forum 2022.

“We have examined almost all the jurisdictions who are either experimenting or have issued CBDCs in their respective jurisdictions. However, we will tread this path very carefully especially with regards to design choices and use case analysis,” Ahmad added.

Next year, SBP will launch the Quick Response or QR Code-based Person-to-Merchant (P2M) or Request-to-Pay functionality, which would enable merchants and small businesses to receive instant payments from their customers, according to the SBP’s governor.

“I believe that Raast will provide the key building blocks for taking Pakistan’s payments industry to new heights,” he said, and added the SBP would continue to work with all stakeholders to promote the introduction and use of innovative payment methods to promote digital payment acceptance in a cost-effective and efficient manner.

He said the SBP realises the importance of sharing customer data to promote innovation and to make the financial system even more accessible. However, this needs to be done in a safe and secure manner with the full consent of the customer.

He disclosed that the SBP was working on the open banking initiative under which banks, with the consent of their customers, would be able to share their selected data with other banks or FinTechs so that they can build and offer better customer-centric products.

As part of this initiative, the SBP has been working on the development of a technical sandbox to test and standardise the application programmable interfaces for various use cases.

“I know that many of you are impatiently waiting to join the Sandbox, so let me assure you that we will expedite the process so that the applicants to the Sandbox get a chance to test their use cases,” Ahmad said.

In Pakistan over 60 percent of people are in the age bracket of 16 to 30 years, making it one of the youngest countries in the world. However, only 82 million out of an estimated 132 million adults have a bank account. This translates into an account penetration rate of 62 percent, which is one of the lowest in the world.

Even more challenging is the glaring gender gap; for every three men with a bank account, there is only one woman with a bank account. If we move from basic accounts to credit provision, the situation is even more challenging. Access to finance to micro enterprises, SMEs, housing, etc is very low, according to Ahmad.

He asked the FinTechs and the industry to work towards creating customer-centric products and services that bring real value to the economy.

He said he would encourage FinTechs to adopt a business model that reduces the transaction cost through innovative and intelligent use of technology in a sustainable manner.

He said FinTechs need to build partnerships and adopt a collaborative approach. “In today’s world, we are witnessing the rise of platform-based businesses,” he said.

These platforms have the ability to collaborate by sharing application programmable interfaces and then build new products and services. This could include building lending platforms for SMEs and MSMEs, or integrating the formal financing mechanisms in the housing or e-commerce platforms.

“I would therefore encourage the FinTech industry to collaborate and build partnerships not only among themselves but with other financial service providers to create customer-centric products and services.”

The SBP governor said that financial technology companies must ensure regulatory compliance and foster a culture of good market conduct. The SBP has observed some slippages in this regard in recent times; he said, and added that the central bank would not compromise on consumer protection, good market conduct, and financial stability.

Ahmad reiterated that digitalisation of financial services, financial inclusion, and the growth of the financial sector were intertwined. Evolving demographic landscape and convenience-centred user preferences could be met by those financial institutions that wholeheartedly embrace digitalisation.