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