The WHO recommended that people should avoid the use of banknotes to prevent the transmission of contagious COVID-19, recently China and South Korea started exercise of disinfecting used banknotes to stop the spread of Corona Virus. SBP also directed the commercial banks to clean, disinfect, seal and quarantine all cash being collected from hospitals and clinics and to block the circulation of such cash in the market. Avoiding handshakes and maintaining the distance of 6 feet is not possible if medium of exchange is banknotes. Every time we pay or receive cash from someone we are violating the above mentioned advisory.
The social distancing, lockdown and relief work could be managed well, if we have effective digital payment system in place but unfortunately we don’t have. Recently SBP has directed the commercial banks and branchless banking service providers to waive charges of online transactions, interbank fund transfer and other transaction conducted by e-banking or mobile banking App. SBP has also asked the banks for promotion of contactless banking or digital banking applications. But this is reactive approach, we are far behind of neighboring SAARC counties in digital payment system.
The rush we witnessed in bank branches and ATM machines during disbursement of salary and pension in start of every month could be avoided, life of one women died and many injured during disbursement under Ehsas emergency Cash payments could be saved and physical distancing could be maintained if we use digital payment system. The lockdown meant for creating social distancing and curtailment of COVID-19 bringing people physically closer and putting them at risk. Instead of making cash disbursement centers, the personal verification could be done through call centers and amount can be transferred in their mobile accounts with secrecy, without hearting the self-respect and dignity of poor.
Commercial banks have registered huge growth in terms of branch network, deposits and profitably during last decade but progressed very little in customer financial education and awareness. There are 52 million bank account holders in Pakistan and only 5.6 million are using mobile banking application, approximately 10 % of regular bank account holder have access to digital payment system. Financial inclusion ratio in Pakistan is very low, more than 100 million adults, accounting for more than 50% of adult population are outside banking network, don’t have access to banking services. Although branchless banking accounts has shown huge growth over the years and their number of accounts has crossed the 50 million bench mark, but more than 50 % of these accounts are inactive, the account holder does not make any transaction during last one year. There are more than 165 million cell phone subscribers in Pakistan that represent the huge target market for branchless bank account and financial inclusion. Ease of account opening in branchless banking is its plus point; one can open his or her branchless banking account in two minutes by dialing a code on his or her mobile while staying at home. Future and success of digital payment system is attached with the growth and promotion of branchless banking.
Over the counter transactions involving cash are considered to be safe, secure and reliable in our society, in fact they are not, they involve risk of theft, counterfeit banknotes and cash management issues. The transaction becomes shorter, easier and more convenient through digital payments. Let us have a look on process flow in cash transaction and digital transaction, in cash transaction buyer will withdraw the money from his bank account using cheque or ATM card, carry the cash to the place of transaction, hand over the cash to seller against the goods or services purchased, the seller will count the cash and carry the cash to his bank for depositing in his account. In digital payment amount will be directly transferred from buyer account to seller account just by scanning QR code or interbank transfer.
Utility bills, school fees, examination fee, admission fees, booking tickets and other payments can be managed from home without wasting time and energy. It will help to reduce collection and payment counter rush of banks and they can focus on their core activities i.e. lending and investment. Fewer cash withdrawal will reduce the banking sector requirement of maintaining cash for payments and more funds will be available for financing purpose. Overall cost of banking sector in general and the cost of funds in specific will decrease resulting in reduction in financing rate.
Documenting the economy has remained a challenge for us since 1947; no Government could complete this task. One of the biggest reason of low tax to GDP ratio is undocumented economy, it also promotes money laundering due to we are grey listed by FATF. We can fulfill the dream of documented economy by digital payment.
Implementation of effective digital payments system requires integrated and collaborative strategy involving Government, SBP, commercial banks, business community and consumers. Majority of small retailer, whole sellers and services provider do not provide buyer digital payment options, it can be encouraged by providing tax incentives or sale tax rebates on digital payments, SBP can offer refinance schemes to retailer routing their transactions through digital payment, by launching Consumer awareness campaign about the its use and there should be no transaction fee on it. All the government departments make sure that their fees, challans, collection, duties, fines and recoveries could be paid through digital payment.
The writer is a Banker and a student of MS Banking
