KARACHI: Pakistan must consider using its domestic payment system to facilitate cross-border transactions by partnering with global payment networks, bankers in Pakistan say, adding that integrating advanced technology in the existing payment system is essential to reduce reliance on debit or credit cards for overseas purchases.
To become less dependent on cash, Pakistan is moving towards a digital payment ecosystem. According to data from the State Bank of Pakistan, Raast, the country’s instant payment system, processed 140 million transactions totalling Rs3,437 billion in the third quarter of the last fiscal year that ended on June 30.This marked a 31 per cent increase in volume and a 48 per cent increase in value from the previous quarter. This illustrates the crucial role a national payment system plays in supporting economic activities by enabling secure and efficient financial transactions.
Muhammad Hamayun Sajjad, CEO of Mashreq Pakistan, stated that many countries globally are promoting domestic payment schemes to facilitate international transactions. The introduction of faster/real-time payment platforms has led to a movement towards interconnecting these platforms across borders.
“In Pakistan, we also have the opportunity to enable people to use their bank accounts for overseas purchases through SBP Raast and 1LINK PayPak. The SBP made sure that Raast’s payment experience is consistent on most of Pakistani banks’ mobile applications,” Sajjad said.
“The benefits of using these domestic systems for international transactions include lower fees, faster processing times, and increased security,” Sajjad added.According to him, domestic schemes that work globally to allow bank customers to avoid using debit/credit cards when traveling overseas are relatively limited. However, there are a few notable examples. These systems, such as SBP Raast and 1LINK PayPak in Pakistan, operate within the country but have the potential to facilitate international transactions through partnerships and technological integration.
“One area of advancement is the development of faster payment platforms, which allow customers to make international transactions without debit/credit cards,” he said.Sajjad shared a few examples of how local payment networks can expand internationally through strategic partnerships with global payment networks. For example, Thailand’s PromptPay, a payment service that has expanded its reach to allow cross-border payments in collaboration with neighbouring countries, allows users to make payments more conveniently by scanning the quick response code via a mobile banking application. Singapore’s PayNow has integrated with Thailand’s PromptPay for cross-border payments.
In Sweden, a payment method Swish is exploring cross-border payment capabilities within the Nordic countries. Meanwhile, Denmark’s Nets is expanding its reach within the Nordic region through partnerships.
Alipay and WeChat Pay from China have established international acceptance, particularly in regions with significant Chinese tourist populations. Hong Kong’s faster payment system is linked to mainland China’s UnionPay system, facilitating cross-border payments. Efforts are underway to connect the Philippines’s InstaPay with other ASEAN payment systems.
Brazil’s central bank is working on cross-border payment capabilities. In Brazil, Elo is a domestic card scheme that has expanded its international acceptance through partnerships with Discover Financial Services. Turkey’s Troy has started to be accepted internationally through cooperation with other global networks such as Discover and Diners Club.
JCB, which started as a domestic payment scheme in Japan, has expanded its acceptance network globally and is now accepted in over 190 countries and regions. India’s RuPay scheme is accepted in several countries, including Singapore and the UAE.
India’s digital payment systems, such as the unified payments interface (UPI), are increasingly gaining international attention due to efforts to facilitate seamless cross-border transactions. This is leading to reduced costs for fund transfers and remittance payments.
In February, India and the UAE signed an agreement to connect India’s UPI with the UAE’s instant payment platform, AANI, allowing for the interlinking of payment and messaging systems. Additionally, the two countries agreed to inter-link domestic debit/credit cards, RuPay (India) with JAYWAN (UAE).
As a result of this collaboration, more banks, merchants, and payment networks in the UAE are enabling Indian rupee-based transactions within the country, eliminating the need for Indian visitors to rely on US dollars or dollar-linked credit/debit cards. Indian tourists now have the option to pay for their transactions in rupees linked to their bank accounts in India. With UPI acceptance at point-of-sale (POS) terminals, Indian visitors can use their smartphone apps from their Indian bank for all their daily needs, avoiding the hassles of currency exchange.
The increasing number of Indian tourists visiting Gulf Cooperation Council countries may be a driving factor for the Indian government’s decision to expand UPI payments to the UAE.Talking about integrating Pakistan’s local payment platform with neighbouring and other countries, Chief Innovation & Financial Inclusion Officer of HBL Abrar A Mir said that conceptually, from a technology and commercial perspective, it is doable.
“But at this time, probably the best use of resources and time should be to focus on increasing the digitization of payments in the domestic market,” Mir said.Pakistani citizens aged 18 years or above can carry up to $5,000 (or equivalent in other foreign currencies) for each international trip and up to $30,000 per year.
For Pakistanis making transactions outside the country using credit and debit cards, the conversion from the transaction currency amount to the US dollar amount is billed by payment card companies (Visa/Mastercard/Union Pay International) at their prevailing exchange rate.
The conversion from the US dollar amount to the Pakistani rupee amount is processed by the Pakistan card centre. The conversion rate charged is the rate at which the banks procure US dollars to settle the transaction. Additionally, banks charge foreign transaction fees as per their schedule of bank charges.
Foreign transactions through credit or debit cards can be done in three ways: transactions in US dollars; transactions in foreign currencies other than US dollars; and transactions that appear in Pakistani rupees but are foreign currency transactions.
As of the end of the third quarter of fiscal year 2024, there were 57 million payment cards in circulation, issued by banks, microfinance banks, electronic money institutions, and branchless banking players, according to the SBP’s data. Of all the issued cards, 79.5 percent are debit cards and 3.6 percent are credit cards. The majority of these cards (65.1 per cent) are backed by international payment schemes such as Mastercard, Visa, Union Pay International, American Express, and JCB, while 15.4 percent are domestic scheme PayPak cards.
According to bankers, it is imperative to connect Pakistan’s local payment network with other nations. However, there exist some challenges that need to be addressed, including exchange rates.
Initially, Pakistan will need to convert its local currency (the rupee) to US dollars and then to the country’s currency where the payment will be made, as the merchants and retailers will prefer to receive payments in their local currencies.
