The Prime Minister (PM) of Pakistan, Imran Khan, just launched the “Raast” initiative hoping that the system will shift the country towards a cashless economy which would inevitably mean easier tax collection for the government.
Raast is Pakistan’s first instant payment system that will enable end-to-end digital payments among individuals, businesses and government entities within seconds. Not only that it will help bring down the high cost of the transactions making small-value retail payments cheap.
How does Raast it work?
Think of it like this; Whichever bank you have an account in has its own payment system that it continuously updates and maintains. We can think of this as a pipe. Your bank takes care of everything that is going on its own pipe.
Now if you want to send money from one bank to another, they need to communicate. One pipe needs to send and receive information from the other pipe but there is no standard communication channel between the two pipes that allows them to do so. That is where the 1-Link and other systems like MNET come in. These systems were formed by the mutual understanding of banks to allow transactions between their pipes.
So why not just use 1-Link? That’s simple, these systems are slow and they charge a hefty fee for each transaction that usually discourages users from using their systems. If you want to withdraw some amount from the ATM, your own bank charges you nothing when doing so but when to use another bank’s ATM, it costs you a fee. That is why I’m always looking for my own bank wherever I go especially if I need to withdraw a small amount.
Raast will eliminate the need for all of this. Raast is basically an infrastructure providing a big pipe for every bank to use at a fraction of the cost and it would make the transactions instant. As Ammar Khan highlights, the possibilities of the system are endless; A cheque sent for clearing could be done in minutes, an app built on Raast could let you invest in stocks instantly, you could have all your bank account and credit card information at one place.
The way forward for Raast
Raast will only be successful if the system is adopted by different banks. The banks will not be forced to shift to Raast, just incentivized to do so. The government has decided that the payments, including salaries and pensions, will also be made through Raast, as well as payments for nationwide financial support programmes, such as the Benazir Income Support Programme, and the Ehsaas Emergency Cash programme.
Image Source: SBP