The State Bank of Pakistan (SBP), in July 2016, developed regulations on necessitating Biometric Verification for Over the Counter (OTC) money transfers (MT’s) in Pakistan. These regulations, published as part of the updated branchless banking regulations of July 2016, are intended to enhance compliance to Know Your Customer (KYC) requirements and the Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) guidelines issued by the SBP. This is a significant shift from the previously required Centralized National Identification Number (CNIC) verified MT’s, whereby an individual would provide his/her original CNIC to the agent for transferring money to another CNIC, throughout Pakistan. After the  Biometric Verification System (BVS) regulation, customers now need to verify each transaction through their fingerprint, both at the sending end and the receiving end.

The deadline for implementing the BVS at all agent outlets for the branchless banking (BB) network in Pakistan was 30^th June 2017. In complying with the deadline, at present, EasyPaisa and JazzCash, who maintain the two largest agent networks in Pakistan have reportedly enabled more than 50 percent BB agents to provide BVS supported services throughout the country. Enabling the remaining BB retailers to provide BVS supported services for both the Digital Financial Service Providers (DFSP’s) is underway, where they reportedly plan to capacitate their top retailer locations first.

The BVS devices connect to an android tablet which communicates through the Data SIM (using GPRS, Edge, 3G and 4G) that integrates with BB and NADRA systems, to verify each transaction in real-time. This shift is likely to impact the industry in both positive and negative ways.

Positive Impacts:

1. Mobile account (MA) registrations are likely to increase as BB agents, after taking consent of individuals, may register customers for a MA when a MT sending transaction takes place. DFSP’s believe that an increased number of MA will eventually decrease the total cost of commissions.
2. Due the availability of BVS devices at a greater number of retailer outlets, SIM card selling locations have increased resulting in greater convenience to GSM customers throughout the country
3. Stricter controls on fake and fraudulent practices are ensured at both the sending and receiving ends and enhanced AML scrutiny is in-place
4. Higher transaction limits are available to customers (PKR 50,000 per month with BVS of sender, PKR 50,000 per month with BVS at both sender and beneficiary end) resulting in various benefits, such as enhanced business activity, increased convenience for customers etc.

Negative Impacts:

1. The cost for the operator and the consumer has increased, due to:
   • Added cost[1] of verification by NADRA for each transaction
   • High costs of implementing BVS devices at thousands of agent locations
   • Increased cost of retailer trainings and device maintenance
2. In the short term, the total number of MT transactions are likely to decrease as all BB agents currently do not possess the BVS devices yet, thereby resulting in the inability of all BB agents to process transactions
3. Retailers tend to switch off their devices to save on battery life, while re-starting the BVS device takes time, resulting in longer wait time for customers
4. Increased dependency on the NADRA systems and ensuring of high speed internet connectivity may become a challenge in the long run for mobile money providers.

Conclusion:

Overall, the BVS regulations by the SBP have contributed positively for the reasons that a) fraudulent activities regarding AML and CFT will now be minimised and monitored easily since each transaction is authorized from NADRA b) The customers will now be more protected as the chance of the MT landing into an unauthorized receivers hands is eliminated c) The customers can now safely transfer up to PKR 50,000 a month.

At the same time however, it is anticipated that in the short term DFSP’s will see a downward trend in the number of MT transactions since the number of agents who possess BVS machines is low. Also, the cost for operations has considerably risen as of now for DFSP’s, which may impact their profit margins.

[1] NADRA has defined a new commercial pricing slab especially for BVS MT which is PKR 2 per transaction if the total transactions from an operator are more than 3 million a month. The slab for less than 3 million transactions a month is more expensive. Both the operators easily exceed this number of transactions on monthly basis, however the total cost for the operators has increased for verifying each transaction since previously only 10% transactions were required to be verified from NADRA as opposed to 100% transaction after 1 July 2017.