The State Bank’s New Regulations for Prepaid Cards
Late last month, Karandaaz Pakistan published a blog post on the use of prepaid cards in Pakistan. Among the needs discussed was a clear framework for the KYC requirements governing Pakistan’s prepaid market. That regulation arrived earlier this week.
The new Prepaid Card Regulations issued by the State Bank of Pakistan allow cards to be provided through either banks or registered agents. Card limits differ according to delivery channel and KYC level, and range from PKR 25,000 for a CNIC-verified card issued through an agent, to PKR 500,000 for a biometrically verified card issued by a participating bank.
Documentation requirements for card issuance have also been defined, specifying the need for applicants to present their CNIC and some basic KYC information (name/address, other prepaid cards owned, etc.) at the time of application. The specification of requirements should help existing card issuers trim down their application processes, and enable new providers to step into the market with greater confidence.
The regulations further specify a requirement for physical interaction between the applicant and the bank or agent. So while the provision for agent distribution drastically expands potential penetration beyond branch locations, the types of ‘click and ship’ models gaining traction in developed markets may not be permitted in Pakistan just yet. Financial institutions like Mondo in the UK and Simple in the US currently operate prepaid card programs without physical touchpoints, allowing customers to register online and have the cards mailed directly to their door.
A restriction also exists which prevents remittances from being made through prepaid cards. Customers can load the cards and use them at merchant locations, but they cannot transfer funds from the cards to a non-merchant third party. This restriction is no doubt the result of ongoing concerns about the use of prepaid cards for financing illegal activities.
Social Transfer Cards are clearly defined in the regulations, and government sponsors are provided significant latitude in determining how the card programs will be rolled out. There is also nothing which acts to prevent these cards, used in government cash transfer programs such as the Benazir Income Support Programme (BISP), from being used more widely as debit cards. However, the regulation does stop short of allowing Social Transfer Cards to become a bridge to full financial inclusion. Cards can only be charged by the program sponsor, and cannot be recharged by the recipient.
Finally, it is important to note that all of this applies strictly to ‘open-loop’ cards, i.e., those operating over national switches or credit card networks. The types of department store cards and merchant gift cards used only with the issuer are not affected by the new regulations.
Overall, the regulations bring needed clarity to the market. And while the treatment of prepaid cards still looks a lot more like bank accounts than cash, this is perhaps understandable given global anti-money laundering (AML) concerns around these instruments. It will nonetheless be exciting to see how financial institutions leverage this guidance in framing new products.