Regulating Mobile Service Payments In Pakistan

Over the last few years, there have been growing efforts in Pakistan to increase the usage of digital and mobile payment services as an alternative to cash based transactions. While the more traditional "mobile banking services" - through which customers of a bank can access their bank accounts via their mobile devices - are being offered by various banks in Pakistan, increased attention is being paid to "mobile payment" services which can include the creation and issuance of new payment instruments in a mobile manner. Some prominent examples of such services are providers that offer issuance of virtual debit cards, and digital or e-wallets.

Digital wallets1 in particular can position themselves almost as a functional alternative to a traditional basic bank account because (if the full suite of services are offered) they are not only able to reflect stored value for their users, but the users can also utilize the stored value to acquire goods or services. However, the existing regulatory regime in Pakistan is structured in a way that creates confusion amongst service providers as to which permissions/approvals / authorizations are required by each of the entities that are involved in the provision of these services.

In this article, we explore the basics of a digital wallet, introduce the current regulatory regime that is applicable to such product offerings, discuss some of the common structures, and some of the limitations of the regulatory regime that have acted as inhibitors to faster growth of the mobile financial services industry.

Generally, digital wallets can be understood as electronic applications that are used to store a user's payment / loyalty card information on an electronic device such as a smartphone. These digital wallets then allow consumers to make electronic transactions such as making payments to merchants and/or transferring funds through the application to the wallets of other users.

Importantly, even though a digital wallet is packaged and presented as one application for a user, often there are multiple actors that combine to make such a wallet operational and effective. For example, one entity could provide the technological interface with the user, another could be the provider with whom the monetary account is residing, while a third could be the entity that processes the payment transactions. In the Pakistani context, there are already examples of private companies partnering with banks in order to enable...