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.

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