SBP Rules for Payment System Operators: Red Card Shown to Startups, Entrepreneurs

We recently discussed the need of an online payment gateway in Pakistan. And here we are with news from State Bank of Pakistan which isn’t very pleasant. It’s kind of a backward development. Keep reading to know more:

The State Bank just released rules for Payment Systems Operators (PSOs) and Payment Service Providers (PSPs) in Pakistan. The release of these guidelines was hotly anticipated since they are going to dictate how the nascent financial services and payments startup industries develop in the country. Understandably, these rules also have important ramifications for the freelancers, bloggers and online business owners in Pakistan.

Unfortunately, the SBP has bottled it big time. They have effectively killed off the entire PSP sector of the country in one go. Local entrepreneurs, foreign companies interested in investing in the country and countless others have been left bitterly disappointed at the SBP’s transparent decision to protect the status quo.

The State Bank of Pakistan’s policy effectively put a 200 million rupee entry ticket to the payment service provider industry

According to the SBP, all Payment Service Providers (PSPs) in Pakistan have to get a money transmitter license. And if you need a new license, your company needs to have $2m dollars (200 million rupees) in paid up capital (net worth) to even apply. There are two problems with this.

Firstly, PSPs having to license is a very rare occurrence across the world. Their business model is transaction based and they offload the processing part to banks and money transmitters. So it makes no sense for them to apply for a license themselves.

Secondly, the 200 million number is ridiculous. Even the most sought after money transmitter licenses in the world from the states of New York, California and Texas; require $250k, $250k and $500k respectively in net worth. These states are responsible for 80% of US transactions and their bars are set low enough for any start-up in America.

The SBP has ignored the ground realities of the country and has ensured that only big companies with very deep pockets can get in, let alone play the game. This is a result of shameful lobbying and as a result, the rules are only about protecting the status quo. They protect operators like 1Link and MNet who would rather stop others from competing rather than evolve and provide better services.

Everything from services that could be an alternate to PayPal, Bitcoin exchanges, dongle based payment systems, e-wallets and others are affected by this decision

This whole debacle is frustrating because Pakistan has been crying out for an online payment processor for ages.The lack of PayPal has already done immense damage to Pakistani startups hoping to expand to new markets and freelancers alike and it continues to this day. The setup of a thriving online economy would add billions to our market but authorities are blind to that fact.

All this is made more painful by the fact that Pakistan is more than ready for innovation.  We have over 140 million phone subscribers, 30 million internet users and 4 million 3G users already and these numbers are growing. We are in the top 5 ranks for all freelance work carried out. By all estimates, Pakistan is a gold mine in terms of potential.

But in order for good ideas to work and us to flourish, we unfortunately need some help from the government and people in power. After all, we can only start so many petitions begging PayPal to come to Pakistan. It is the duty of the government to put in rules and guidelines that make this country a safe, or at least feasible, investment avenue for big companies.

The government and State Bank’s failure is no longer limited to negligence and inaction; it now extends to active suppression

But once again, we have been let down. If we can’t convince established payment processors to come to Pakistan, we need local ones but the State Bank of Pakistan has put a 200 million rupee entry fee. The failure is no longer limited to (almost criminal levels of) negligence and inaction; it now extends to active suppression. No one but companies and people with hundreds of millions can succeed in the current climate and that is unacceptable.

A lot of startups are running into problems when they try to monetize their work. Just look at major online shopping portals and hardly any of them would have anything other than ‘cash on delivery’ as a payment method. This is not the only area where Pakistanis are facing issues. Freelancing in Pakistan is a huge business. We are amongst the top 5 countries when people are looking to get work done online. As the internet penetration rates get higher, more people are turning towards less traditional careers and more online focused career. Not only does the absence of payment processors in Pakistan hurt us here, banks are actively denying credit cards to people without offices which are critical for setting up infrastructure for a blog, marketplace or any other online startup.

We have reached a stage where we can see the government policies hurting the next generation of entrepreneurs in Pakistan. Furthermore, established giants are also hesitant to invest in our market because there are no legal or economic frameworks that would inspire any confidence.

We call upon banks and the people in power in the government to take notice of these multitudes of issues so that we can at least get on a path where any man with a good idea isn’t destroyed by the handicap of having no money and no help from his government.

A (technically) more detailed post is done on same topic by Faisal Khan here.

Talal is the Director of Content and Strategy at ProPakistani. Reach out at [email protected]


    • It maybe a dumb question but I need to ask. Does it affect freelancers that get paid through payoneer? and if so, how much?

    • It maybe a dumb question but I need to ask. Does it affect freelancers that get paid through payoneer? and if so, how much?

    • It maybe a dumb question but I need to ask. Does it affect freelancers that get paid through payoneer? and if so, how much?

          • umar its not approperiate when you said its a dumb question. Being a pakistani have you ever think we started our first program to launch a payment processor back in 2006. Ministry of IT distributed funds but what happens was not good, They just delayed the process. I posted on Paypal that why you guys don’t approve us you know what they said. They said we don’t have any problems but its your corrupt govt :D so being honest i can feel pain of that guy weHOST.pk. This govt is totally s***

  • guy’s you should read this “http://www.theverge.com/2014/10/29/7086929/the-guy-behind-google-wallet-is-back-to-change-payments-all-over-again” <— this should be the future for payments.. what the hell are we doing?

  • guy’s you should read this “http://www.theverge.com/2014/10/29/7086929/the-guy-behind-google-wallet-is-back-to-change-payments-all-over-again” <— this should be the future for payments.. what the hell are we doing?

  • 200 Million is ridiculous amount.. how can a start-up stand up to that? are you ppl kidding me? that’s insane… this is pakistan not a first world country where it’s not that hard for avg entrepreneur to get loans and get help from government to set up a business..

  • IT sector in very early stage in Pakistan, And Gov of Pakistan want to bury it in this stage So I can only say RIP :(

  • We hav Petrol Mafia, Industry Mafia, Transport Mafia, Education(Pvt Schools/Colleges) Mafia, Land Mafia, Bhattaa Mafia n now Banking Mafia……. This is not Pakistan… This is our v.own Mafiaistan….. Cheerz…!!!

  • hahahahaah oye Pakistani… Allah ka shuker hai bahi mai es gand say nikal aya hun.. wapis anay ka no plan :) Hoor choppo beta Jhamoorian… Musharaf bura tha na.. hum logon key adat hai.. jotay partay rehain tu theak rehtay hain.. Musharraf chubta tha :D

  • Hilariously Short-sighted this! Pakistan is becoming Al-Bakistan all too hastily even by the Sheikh-ian standards.

  • In the hope of going forward, i propose to organize and protest against this in a legal manner. If voices of freelancers and enterpuners must be heard, we need to have a fourm that speaks for them. Is there any such place? im not aware of it if there is.

  • As someone who operates a successful e-commerce business from Pakistan, it makes sense that SBP has put up a licensing requirement. Amateurs and pseudo-entrepreneurs may object to it because they have no clue what kind of regulations and processing requirements are at government’s end to make it work.

    • If their regulations and requirements are so hard to meet, why add an additional Rs 200 million requirement? How does that help anyone BUT the existing players? How does that new requirement not lock out almost everyone? Tell me, who is going to invest $2 million to start a business in this current environment? And what kind of requirements and regulations are necessary that are more harder to meet in Pakistan than in other countries?

      Yeah, I guess we have no “clue” here as to what’s going on…

    • While i agree that regulation must be put in place to make sure it works, and i also agree on an initial capital requirement, as is the case here; this amount seems to much to me. You can fix it to size of business like bank. All banks must have a certain amount of capital invested in comparison to its deposits. But asking a flat USD 2 Million seems to much, especially when you look at the market. I think you should promote a local system rather create a market where internationally established players can only enter as i don’t think our current market operator will be able to compete with them where innovation is concerned.

  • One step forward 10 steps backward. What else can you expect from a government of Paindu ministers who don’t know the difference between a computer and a typewriter, go to foreign countries for personal enjoyment and use Pakistan as their backyard

    • you are right. I think we should join to Taliban and kill every1. And lets start with all paidus, then with Akhroots, Then move on to all the Sindhi Maroos, and finally the Balochi (insert racist derogatory term here) and rid the nation of them. After that we should appoint Ali Khan as he is the only one who is right and can do anything. Every1 else is simply a cheat who should be shot on sight.
      Ager constructive baat nhn ker saktay tu bolna zarori nhn. Staying quite is an option bhai. And ager kuch kerna hai tu chalo lets organize. Make a facebook group or something and ask major names in industry or media personalities to support it. And ager lait ker sub daikhna hai tu y post and make your views known. Every1 here agrees its not the best move, apart from Mr Yasir Sheikh, so koi kuch kernay ko tayyar kyun nhn.

      • I think one can say what he feels about a topic. Constructive or useless is upto the audience and admin to decide. Your tirade against a comment is not understood. R u the regulator here ?
        True, constructive criticism is the need and not mere posting of frustration. That’s we have ample supply of already. Your first paragraph above is loaded with constructive baat cheet.
        Please provide a link to the facebook group “You talked about above”so i can join. I am positive you must have made one already
        Would also love to know about the efforts you have undertaken so far “albeit standing Up” …. You didn’t write this comment running anyway.
        Thanks ” Staying Quiet is an Option too bhai”

  • There must be Reformation of State Bank And Accountability Of Corrupt Officers.Idiots people sitting in Making decisions against people.Plain Stupidness Of State Bank.Shame On State Bank.

  • since banks are not providing facilities to freelancers to receive payments in their bankaccounts – either by not opening accounts of free lancers, or asking for documentation for funds received from abroad for their online freelance work-
    best thing left to pakistanis is payoneer card – which is ripping them altogether , by giving them exchange rate far less than in the bank or open market, but poor pakistanis have no other option but to rely on payoneer and accept the exchange rate that they offer , which is at times RS 5 less than in the open market.


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