DCB confusion

Thankfully, sanity prevailed at the last moment after the government intervened to unblock the held-up payments from domestic telcos to foreign ICT service providers. The stakeholders now have another month to resolve the dispute over how to process these payments. But the question still is: who is responsible for this ugly episode that sent jitters across the domestic ICT and freelance sector? The dispute concerns domestic telcos collecting payments from Pakistani consumers on behalf of largely foreign tech companies through the direct carrier billing (DCB) mechanism, allowing users to charge payments for their online purchases to their mobile phone bills. This makes DCB the online mobile payment method of choice for the unbanked and underbanked majority of Pakistanis who do not have access to credit or debit cards. Seen as a means to oil the wheels of the online economy, the global DCB market has a valuation of $54 billion as of 2022, which is expected to soar beyond $74 billion by 2026. Under the circumstances, one would expect the State Bank of Pakistan (SBP) to bolster DCB instead of undermining it. So what went wrong?

The SBP says it has no problem with DCB per se. However, somebody at the central bank is miffed that the telcos are booking as airtime the inflows from consumers’ online purchases from third parties such streaming and gaming subscriptions, and remitting the funds to sellers abroad booked as payments for acquisition of IT-related services. This was clearly a malpractice and an abuse of the facility extended by the SBP to telcos to acquire IT services like satellite transponder, international bandwidth, private line services, software and database licenses, etc, from abroad to support their basic functionality. However, while the grievance was legitimate, the SBP move to effectively scuttle DCB to force the telcos into compliance was unjustified. Working together with a constructive approach, the central bank and the government could use a hundred other levers of persuasion to bring the intransigent telcos to heel. The episode rankles particularly because given the state of our economy, it looked very much like somebody at a beleaguered central bank hitting the panic button. The media coverage of the matter unsurprisingly devolved to a discussion of Pakistan’s diminishing foreign exchange cover and the looming threat of default on the country’s foreign obligations.

This cavalier move is also unacceptable in view of the hopes the country is pinning on the ICT and freelance sectors for foreign exchange earnings. The potential is indeed huge, but a smooth-running online economy is a prerequisite for it, and DCB is a great enabler of that economy. The SBP’s insistence on telcos setting their accounting of the funds so remitted abroad is also understandable in view of the curbs on forex spending set to go into effect as of January 1, 2023. In its current form, DCB masks forex purchases of consumers, becoming a means to violate the $30,000 annual limit on individual spending. Clearly, the telcos have to put their house in order on this count. But it bears repeating that this is not how the SBP is expected to act. Central banks always work in the background, tackling the thorniest issues of the economy discreetly, with the media or the markets at large never getting a whiff of them. Here's hoping the SBP as well as the ministries of finance and IT have learnt their lessons from this unseemly episode and can get their act together in short order.