Payment System is about how participants from individuals to banks, governments and international participants exchange monetary value within an economy and across national borders. It is the framework of laws, regulations, mechanisms, systems, procedures and agreements that governs payments. Payment systems are like the circulatory system in the human body when it functions well it contributes to the health of the whole economy but when it fails there may be serious implications for the financial system. Therefore, safety and efficiency are the most common public policy objectives for regulators around the globe.
Payments are classified into wholesale and retail transactions keeping in view the value of transaction and the type of party that initiates the transaction. Wholesale payments are generally large value payments made by financial institutions whereas retail payments are executed by individuals and are relatively of low value. Whole sale payments are considered to be Systemically Important Payment Systems (SIPS) due to the fact that it processes large values and it can create systemic risk in the financial system. This risk can be mitigated by implementing a Real Time Gross Settlement System thereby allowing financial institutions to settle their obligations on real time or near real time securely and irrevocably. In contrast, retail payment systems are considered to be socially important due to its widespread use in an economy.
A payment system is all about the use of payment instruments on various payment channels. There are five main categories of payment instruments:
Cash and cheques/other negotiable instruments are usually called paper-based instruments whereas payment cards, credit transfers and debit transfers are electronic because an electronic message is used to authorize and complete the payments. Further, the categories of electronic payment instruments vary depending upon their initiation, authorization and authentication mechanism added by distinct roles and responsibilities and the types of risks associated etc. Payment cards include the debit, credit and prepaid cards which are presented by the cardholder on a merchants’ location and cardholder authorizes the merchant’s bank to pull the funds from payer’s account. Credit transfers are also called ‘Push’ payments since the transaction is initiated and authorized by payer to debit his account and credit the payees account. Whereas direct debits are called ‘Pull’ payments as they are initiated by the payee but pre-authorized by the payer thus pulling the funds from the payer.
Payment systems in Pakistan have evolved significantly over the last decade, driven by the development of new payment instruments, electronic payment infrastructure and changing consumer needs. This development has resulted in rapid shift from the use of traditional paper instruments to a diverse range of electronic payment instruments, supported by efficient and reliable clearing and settlement infrastructure.
As a result of these developments Pakistan now has payment systems with the following main features
The roles and responsibilities of the State Bank of Pakistan in payment systems are mainly governed by the Payment Systems & Electronic Fund Transfer Act 2007. Consequently, Payment Systems Department in the Bank has been entrusted to oversee and regulate payment systems in Pakistan besides operating the PRISM System.
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| Governed by The Payment Systems & Electronic Fund Transfer Act 2007 |
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On 1st November, 2019 Governor State Bank of Pakistan Dr. Reza Baqir launched the National Payment Systems Strategy.
Financial Market Infrastructures (FMIs) that facilitate the clearing, settlement, and recording of monetary and other financial transactions can strengthen the markets they serve, play a critical role in fostering financial stability and hence contribute to a strong economy. Central banks typically seek efficiency and safety in the National Payment Systems (NPS), including retail payment systems, services and payment instruments. In this context, SBP through World Bank’s Financial Inclusion Support Framework (FISF) program, prepared a strategy for the Pakistan’s NPS which would support both the National Financial Inclusions Strategy (NFIS) and the financial stability of the country.
The objectives of this strategy are to make recommendations to design a NPS complying with international standards and best practices, and tailored for the specific circumstances and needs for a safe, efficient and inclusive NPS in the country. The dual objective of enhancing financial stability to contribute to economic growth and of supporting financial inclusion are the overarching goals of this strategy.
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| NPSS strategy |
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| Press Release |
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An RTGS system is defined as a gross settlement system in which both processing and final settlement of funds transfer instructions can take place continuously (i.e. in real time). As it is a real-time settlement system, the system effects final settlement continuously rather than periodically at pre-specified times provided that a sending bank has sufficient covering balances or credit. Moreover, this settlement process is based on the real-time transfer of central bank money. An RTGS system can thus be characterized as a funds transfer system that is able to provide continuous intraday finality for individual transfers.
The need for RTGS system in Pakistan was recognized as a response to the growing awareness of the need for sound risk management in large-value funds transfer systems. RTGS systems offers a powerful mechanism for limiting settlement and systemic risks in the interbank settlement process, because these risks effect final settlement of individual funds transfers on a continuous basis during the processing day. Further, RTGS can also contribute to the reduction of settlement risk in securities transactions by providing a basis for delivery-versus-payment (DVP) mechanisms. Therefore, RTGS is very much essential while considering risk management in payment and settlement systems.
The RTGS in Pakistan has been named as Pakistan Real-time Interbank Settlement Mechanism (PRISM). Pakistan Real-time Interbank Settlement Mechanism (PRISM) System is Pakistan’s is the only Large Value Payment System. It is a Real Time Gross Settlement System (RTGS) which provides a central platform for the settlement of large-value interbank funds transfers, Government Securities, retail clearing and customer transfers (over a certain minimum amount limit). It was launched in July 2008 and has expanded its operation significantly. At present there are 42 Direct Participants of PRISM comprising of Commercial Banks, Development Financial Institutions, Micro-Finance Banks and Central Depository Company (CDC). PRISM system Operating Rules(2009) was issued to provide the level playing file to the participants.
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| Direct Participants |
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| PRISM system Operating Rules(2009) |
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The main purpose of introducing the RTGS systems is to handle the large value interbank funds transfers on Gross Basis and in Real Time. Interbank funds transfer systems are arrangements through which funds transfers are made between banks for their own account or on behalf of their customers. Of such systems, large-value funds transfer systems are usually distinguished from retail funds transfer systems that handle a large volume of payments of relatively low value in such forms as cheque, credit transfers, automated clearing house transactions and electronic funds transfers at the point of sale.
The payments of these interbank financial transactions are prone to Settlement risk which refers to the risk that the completion or settlement of the interbank funds transfer system as a whole, will not take place as expected. Settlement risk comprises both credit and liquidity risks. Two major sources of these risks are (a) a time-lag between the execution of the transaction and its final completion and (b) a time-lag between the completion of the two legs of the transaction i.e. any lag between payment leg and delivery leg.
Retail payments usually involve transactions between consumers and businesses where it generally have higher transaction volumes and lower average values than wholesale payments. The retail payments in Pakistan comprise of various paper-based and electronic instruments from conventional cheques to modern plastic cards. The system handles high volume and low value transactions through paper based (such as cheque) and non-paper based transactions (such as e-Banking). Over the years, and important trend has been the shift from paper to electronic payments. The statistics show that consumer use of electronic payments in Pakistan has grown significantly in recent years, and the trend will accelerate in coming years due to Vision of SBP on provision of Digital Financial Services (DFS) especially to financially excluded segment of population.
In Pakistan, the payment instruments can be broadly categorized into:
The paper based instruments in Pakistan have generally been the preferred mode of payments. Though there are various modes of paper based transactions available such as cheques, pay order, demand draft telegraph transfers etc., the volume and value of paper-based transactions has largely driven by cheques. These are used for cash withdrawals and for funds transfers through cheque clearing. Cheques are the preferred mode of payment for commercial transactions, as well as for government payments. The share of other paper-based instruments is fairly insignificant in terms of the total value and volume of paper-based transactions. NIFT was incorporated in September 1995 as joint venture between a consortium and is responsible to improve the efficiency of clearing and settlement of paper-based instruments in Pakistan.
To safeguard the interests of general public by reducing the risk of counterfeiting, State Bank of Pakistan has issued guidelines on Standardization of layout and Security features of Cheques, Pay Orders(Pos) and Demand Drafts( DDs). This is also aimed at addressing the risk of fraud, forging in paper based instruments. Moreover, to facilitate customers, Banks/Microfinance Banks(MFBs) have been advised to devise a centralized mechanism for the verification of genuineness of POs and DDs. In this regard, Banks are required to Set up 24/7 helpdesks / call centres, so that the person in possession of instruments is easily able to verify the genuineness of the instrument.
The growth of electronic based payment instruments is gaining momentum in recent years owed to SBP’s efforts to create an enabling policy environment, and launch of innovative products by banks.
Electronic retail payments in Pakistan consist of various instruments and channels for payments such as payment cards, Real Time Online Branches (RTOBs), banking through Call Centre/Intra Voice Response (IVR), internet and mobile banking. Usually, these payments link to an existing account relationship with a financial institution for both payee and payer. Consumers may use credit, debit, or stored-value cards to initiate retail payments in face- to-face or remote transactions. Real time online branches (RTOBs) and ATM transactions have been the major contributor to the electronic based transactions growth due to their general acceptability among people.
SBP has been cognizant of the recent development internationally in the area of electronic payments. Since the security of electronic channels has become a major concern SBP has issued Regulations for the Security of Internet Banking which aims to develop a formal Internet Banking Security Framework containing administrative, technical and physical safeguards based on best international practices to mitigate the risks associated with Internet Banking and safeguard the interests of customers. Moreover, to provide and use of efficient and secure electronic payment instruments SBP issued Regulations for Prepaid Cards with the aim of providing an enabling regulatory framework for prepaid card issuance and providing a level playing field to all the banks. In Pakistan the payment systems channels are mainly categories as:-
ATMs provide consumers an on-line access to account information and allow consumers to make withdrawals and deposits at ATMs. ATM channels are most commonly used electronic mode in Pakistan. ATM network in Pakistan are interoperable and are available 24 hours a day – 365 days a year. Financial Institutions in Pakistan are providing host of banking services including cash withdrawals, funds transfer, payment of utility bills, balance enquiries, statement & cheque book requests, Personal Identification Number (PIN) changing facility etc. at ATM locations.
Internet Banking has become an important delivery channel for banking services enabling banks to offer traditional banking services like access to one or multiple accounts for fund transfers, bill payments and card payments etc through internet. A customer having Internet access, a web browser and a registered account for Internet banking service from banking institution is able to do banking and payments from the comforts of home, office, or virtually anywhere in the world.
POS terminals in Pakistan have been expanding and are used to provide consumers facility to make payments through debit and credit cards. POS network process, route, clear, and settle ATM and on- line POS debit card transactions by linking financial institution card issuers and merchant acquirers, consumers, merchants, and third-party service providers through telecommunication gateways.
Mobile banking is similar to Internet banking in that it provides a fast and convenient way of performing common banking transactions. Many Financial Institutions in Pakistan are providing Mobile Banking facility to customers. Customer can get a registered account for mobile banking from banking institution, to do banking transactions from anywhere that has your mobile telecommunication network coverage.
Branchless Banking has emerged as a new and innovative channel of provision of financial services to customers, especially to financially excluded population in Pakistan. The use of agent by Financial Institutions in partnerships with Mobile Network Operators(MNOs) or using their own platform have been instrumental in providing basic financial services such as fund transfer, utility bill payment, retail payments, donations etc to customers who earlier didn’t have access to banking services at their close proximity. Moreover, the government has been using BB channel to distribute government payments such as Benazir Income Support Programme (BISP), Watan Cards and payments to Internally Displaced People (IDPs) and flood affected people.
The Micro Payments Gateway (MPG) project is an on-going collaboration between Karandaaz and the State Bank of Pakistan (SBP). The project aims to improve payment infrastructure, with the objectives of further developing digital financial services, reducing reliance on cash, and driving financial inclusion in Pakistan. MPG will become a core component of Pakistan’s payment infrastructure that will enable individuals, businesses, and government entities to make any payment digitally in a simple, fast, low-cost, and secure manner.
Over the past 18 months, the MPG project has made significant progress and achieved many important milestones, including:
The MPG project is currently in the mobilization phase, during which a proof of concept is being conducted for the technical solution and the infrastructure design is being finalized. Implementation of the first use case will begin promptly after the end of the mobilization phase, in February 2020.
In parallel to the work being conducted by the technical implementation partner, the MPG project team is putting significant efforts into engaging participants and preparing them for integration. As part of that effort, this is meant to provide participants with:
Next Steps for Participants
In order to create an enabling regulatory environment and bring systemic harmony, introduce standardization and setting benchmarks, SBP issued Rules for Payment System Operators (PSOs) and Payment Service Providers (PSPs). The purpose of PSOs/ PSPs is to provide an electronic platform for clearing, processing, routing and switching of electronic transactions. It can make agreements with Banks, MFBs, other PSOs and PSPs, Merchants, e-commerce service providers and any other company for the provision of services mandated to the PSO and PSP under the rules.
PSOs/PSPs are important components of Financial Market Infrastructure (FMI) and they are defined in the Rules as “Authorized Party that is a company registered under Companies Ordinance 1984 and is engaged in operating and/or providing Payment Systems related services like electronic payment gateway, payment scheme, clearing house, ATM Switch, POS Gateway, E-Commerce Gateway etc. acting as an intermediary for multilateral routing, switching and processing of payment transactions”.
PSOs/PSPs authorization will be granted in three stages i.e. (i) In –Principle approval (ii) pilot Operation approval and (iii) final stage approval. PSOs/PSPs are required to maintain capital of PKR 200 million (Rupees Two Hundred Million Only) or any other amount as may be prescribed by SBP from time to time capital and for each additional line of business they an additional amount of 25% of the required capital would be maintained. Further, PSOs/PSPs will not act as custodian of consumer’s money or perform any banking function(s) as defined in BCO, 1962
So far 1Link and NIFT has been authorized under the said Rules for PSOs and PSPs. Moreover, 1Link has also been allowed to launch Country first Domestic Payments Scheme “PayPak.
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| List of PSOs/PSPs |
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In the year 2019, State Bank of Pakistan, with the objective to promote digital payments, foster innovation in payments industry, increase financial inclusion in the country and provide Regulatory framework to non-banking entities in payments landscape, issued Regulations for Electronic Money Institutions (EMIs) under the powers conferred on it by Payment Systems and Electronic Fund Transfers Act, 2007.
The EMIs are entities that offer innovative, user-friendly and cost effective low value digital payment instruments like wallets, prepaid cards, and contactless payment instruments. e-money has played a crucial role in digitizing different types of payments in various countries. The EMIs in Pakistan are expected to offer interoperable and secure digital payment products and services to end users.
Under the Regulations, Prospective EMI applicants are granted EMI license in three stages viz In-Principle approval, approval for Commencement of Pilot Operations and the Final Approval i.e. License.
Following list shows the details of EMIs licensed by SBP under the Regulations for EMIs.
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| Link on List of EMIs |
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Payment Systems have significant importance in any country, because they help in efficient conduct of trade, commerce and other economic activities. The stability of financial system is derived from safety, competitiveness and efficiency of the payment channels and corresponding instruments. The use of electronic means of transactions facilitates the masses in affecting transactions instantly. However, it has its own risks as well, if the security of the payment infrastructure, channels or the instruments is compromised. State Bank of Pakistan’s oversight role of Payments Systems is aimed mainly at ensuring that existing systems are safe, resilient, and maintain the confidence of consumers. With the gradual growth in electronic banking, its security has gained importance due to rising threats and vulnerabilities associated with it. Thus, SBP, under its objective to promote modern and robust Payment Systems has taken a number of steps in recent past. Those included, issuance of “Regulations for Payment Card Security” and “Regulations for the Security of Internet Banking”.
Payment Systems Department at State Bank of Pakistan has taken number of initiatives for the benefits of Pakistani’s living abroad enabling international financial transactions more modern and secured. To develop and maintain robust payment systems mechanisms for the growth of international remittances and support trading activities while focusing economic growth with a special emphasis on this region is one of the core objectives of SBP’s vision and strategy 2020. Since 2012, SBP is the Secretariat of SAARC Payments Initiative (SPI) taken by the SAARCFINANCE Group in 2007. In 2008 the SAARC Payments Council (SPC) was established under the SPI to take forward the vision of SPI i.e. improving and developing modern payment and settlement systems and mechanisms in the SAARC region.
The SPI Secretariat conducted bi-annual meetings on rotation basis in SAARC countries to discuss underlying issues and developments. This Forum is striving to provide reliable and harmonized systems to the people and business communities of the region so that they can use payment instruments such as plastic cards on low and high-value standard payment channels for their day-to-day and business payments without any delays. Like other regions such as EU; SBP through this Forum has also started knowledge and capacity building in the area of payment and settlement systems. For this purpose, numerous seminars have so far been conducted on payment systems security, future of Virtual Currencies, emerging issues in Large-Value Payment Systems (RTGS), issues in Correspondent Banking, emerging role of Non-banks in payment systems, modern Retail Payment Systems, current role of Committee on Payment and Market Infrastructures (CPMI) etc.
To comply and maintain international standards and
recommendations on payment and settlement systems, various
projects by the SPC are also underway such as SAARC development
report on payment systems, SAARC countries Payment Systems
Matrix, discussion on projects under the concept of Single
Harmonized Payments Mechanism in the SAARC region, Payment
Systems Risk Mitigation Matrix etc.
Payment Systems Department (PSD) publishes Payment Systems Review on Quarterly, Bi-Annual and Annual basis. The Statistics is available at:-
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| Current Statistics |
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| Payment Systems Statistics |
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RTGS Participants can cancel any unsettled transaction if required by clicking “cancel transactions” icon in Transfer table of DEPO/X
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hiding via CSS transitions. You can modify any of this with custom CSS or overriding
our default variables. It’s also worth noting that just about any HTML can go within
the .accordion-body, though the transition does limit overflow.
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until the collapse plugin adds the appropriate classes that we use to style each
element. These classes control the overall appearance, as well as the showing and
hiding via CSS transitions. You can modify any of this with custom CSS or overriding
our default variables. It’s also worth noting that just about any HTML can go within
the .accordion-body, though the transition does limit overflow.
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