Interoperability: A Synopsis of Pakistan’s Experience ITU Workshop on Digital Financial Services and Financial Inclusion 14 December 2015 Geneva, Switzerland Interoperability: A Synopsis of Pakistan’s Experience Syed Sohail Javaad Additional Director, State Bank of Pakistan sohail.javaad@sbp.org.pk

Pakistan – Demographics & Institutions Surface Area: 796,095 Sq. km Population 190 million GDP (FY 15): USD 270 billion Per Capita Income: USD 1427 Total Labor Force: 55.4 million

Financial Inclusion 1Link Provides Interoperability to banks for ATMs and Inter Bank Fund Transfer (IBFT)

Digital Financial Inclusion Branchless Banking Safety, security and soundness of technology and agents. Bank-led approach Licensed and regulated by SBP Risk-based KYC and other AML requirements Mobile being banking account. Convenient for customers Developing & maintaining public confidence Digital Financial Inclusion Enabler of Financial Inclusion but… 80% of transactions are Cash in Cash Out (80%) only 20% are through m-wallets The share of Telco dominated BB platform is 80% in transaction and agents Lack of Interoperability in Branchless Banking

Interoperability and its Levels* Interoperability at platform and customer level doesn’t exist *Defined by CGAP. Picture credit: CGAP

Challenges for Interoperability Reluctance of MNOs to share Fear of cannibalization? Lack of regulatory framework Balanced regulatory approach may be required USSD and SMS channels for financial services by Telcos Non-collaboration between banks & MNOs Non availability of financial products at MNO level Interchange? Can good regulations improve the situation?

Regulations Rules for Payment System Operators (PSOs) and Payment Service Provider(PSPs) Allows private sector non-banks to establish Payment Systems To be authorized by SBP Authorize Financial Institutions (AFIs) Draft Regulations for Branchless Banking Interoperability Allows establishment of new class of Third Party Interoperability Service Providers (TPSPs) to be licensed by Pakistan Telecommunication authority (PTA) for branchless banking Power of SBP to Authorize Financial Institutions (AFIs) to enter into agreement with TPSPs for interoperability Defines the roles and responsibilities of TPSPs and AFIs Sharing of fee/revenue and liability Consumer Protection, Dispute Resolution Service Standards The arrangement to be jointly regulated by PTA and SBP

Supportive Regulatory Environment Future Prospects Youth Population NADRA Database 3G/4G Spectrum Supportive Regulatory Environment Majority of population consists of young people 40% are under age group 20 22% lie in the age group 20-34 NADRA’s has one of the largest, fully integrated databases in the world More than 95 million CNIC issued Supports biometric verification for account opening 3G/4G spectrum auction in 2014 20 million 3G/4G subscribers in one year 100 mn mobile phones sets with 31% being Smartphone Widely recognized regulatory framework that support Interoperability Flexibility of BB models Prospects of licensing e-money issuers under PS&EFT ACT 2007