We are about to witness a revolution in digital payments. It’s truly an exciting time to be part of the game. State Bank of Pakistan has recently come up with a new regulation framework draft to facilitate national and international players working on digital payments instruments to acquire a license and start commercially operating in Pakistan. The draft is called Regulations for Electronic Money Institutions (EMI)’. The new term coined as EMI refers to non-banking institutions who are licensed to provide digital payments services to customers.

The draft framework is in line with government’s policy to open market for investors. Recently, Pakistans Finance Minister Asad Umar showed interest to talk to payment giants like Paypal to come to Pakistan. Not just that he also hinted at making a national payment gateway. Tweet from PTI/Asad Umar

So, what is the new thing here? Don’t we already have digital payments operators like JazzCash, SIMSIM and Easypaisa working in Pakistan. All these 3 have their mobile account apps that enables users to make payments digitally online and at retailers. Yes, but all these entities are backed by a bank. Easypaisa by Telenor Bank, JazzCash by Mobilink Bank and SIMSIM by FINCA. So, there is a compulsion in old regulation to be associated with a bank to offer digital payments instruments in Pakistan. These brands are operating under Branchless Banking framework.

Requirement to be associated with a bank is gone!

With new regulation, this requirement to be associated with a bank is being eliminated. This opens up the space for literally everyone who can buy PSP/PSO licenses. [PSP: Payment Service Provider, PSO: Payment System Operators (PSO)]

Startups can offer digital wallets in a relatively easy way

This makes many software houses qualified to start offering their own wallets. This enables many successful Apps in Pakistan to start offering payments services even if they are not already.

This new regulation has eased out the requirements and you never know tomorrow we will see Amazon, Paypal and Google Wallet starting their operations in Pakistan. Why? Because they don’t need to be bank themselves, neither they need to partner with anyone. All they need is setting up their company in Pakistan, acquire the license and start their services. (Do you want to setup company in Pakistan, Clarity connects you with professional service providers, Contact us now!)

No Barriers – Open Competition

What is more interesting about this regulations is that all banks and Financial Institutions are bound to integrate with each other. So, it’s going to be really hard to create barriers of entry in this market. So for example, if tomorrow Paypal comes in, all existing banks and branchless banking players will be bound to work with Paypal to facilitate its users to pull funds from their bank account into Paypal account and vice versa. This gives immense flexibility to the end user and they will ultimately have plethora of Wallets options to select from. Switching from one wallet to another one will be quick and without any cost.

Threat for existing players – Paypal?

Remember the time when Telenor starting its cellular service? It was Mobilink dominating the marketing with its own terms and conditions and prices. But soon after Telenor came in, users had a choice to leave Mobilink and join Telenor network. It was hard initially, but gradually the switching became so easy, all operators had to improve their quality of service to retain customers. That’s exactly, what is going to happen in Digital Payments.

What does it mean for existing players like Easypaisa  and JazzCash? It means they are going to face immense competition from smaller and more agile players in the market soon. Careem is going to be the first one to enter the market with its own wallet competing with Mobile Account apps by the other too. No more advantage over others by the giants. This in a way is unfortunate because these two have invested heavily in infrastructure and marketing of mobile financial services in Pakistan and only recently have started reaping the fruits. Just when they are about to enjoy the results of their hard work (rising mobile account users), the market opens up and competition swells up.

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