Banking Payments

SBP and payments licensing – two years on and still stuck!

SBP and payments licensing – two years on and still stuck! Image: Yumna Rafi
Written by Faisal Khan

When it comes to payments licensing, SBP is depriving the fintech startup industry of much-needed oxygen, says Faisal Khan.

A little over two years ago, I published two articles regarding the new payment licensing regime that SBP had rolled out, and how flawed it was. The articles can be read here:

What this earned me was that my popularity within SBP rose! (Yes, I’m being sarcastic! What do you think happened?), but I digress. Two years down the road, where do we stand? Can we see or experience the difference by the different licences awarded? The answer is clear: Nope. Nada. Zero. Zilch.

Two years down the road, SBP is too proud to admit to its mistake that the licensing policy it rolled out was not only flawed, but had more holes than Swiss cheese. Having personally spoken (on and off the record) to those who have applied for licences at SBP, frustration levels are high, and as per one applicant: “What can I do Faisal? I cannot draw swords like you. They are the regulator and I have to play along.”

Imagine that. We’ve become subservient to the regulator, which, by the way, happens to be a quasi-public servant.

The problem …

Call me a cynic (actually, I think that’s what they call me behind my back), but let me break down the problem, and above all suggest a humble solution.

  • In order to become a payment service provider, as per SBP’s guidelines, one would be the US $2m as paid up capital, and an additional US $500,000, totalling US $2.5m to satisfy the requirements set forth in the licensing regime.
  • As one is not touching the money, you still need to work with a bank (which is true in any market), but to do any agent-based business, you would now need to work with a bank that’s either a micro-finance institution or has a branchless banking licence.
  • There is a chicken-and-egg situation here. In order to partner with a bank, there’s no framework that aligns it, nor is there a way around to set forth an independent agent network for payment services (such as a mobile wallet, and so on) without having to tie into the branchless banking net.
  • The most coveted licences in the UK, EU, US, Australia, Canada, and so on, do not have such a high pricing barrier to obtain a licence.
  • The commenting period in which the comments were sent forth were never made public, nor debated before the licence laws were cemented.
  • The provisional conditions further exacerbate the situation, because looking at the general socio-business-economic fabric, the price tag is too high for many would-be aspiring startups to afford. In fact, it’s a major obstacle.

Reversing or revising the licensing mechanics would equate to an admission of guilt and fault at SBP, so I doubt that would be happening anytime soon. However, there’s light at the end of the tunnel.

The solution …

Steps SBP can take to remedy the situation, from bleak to bright:

  • Introduce three additional sub-licensing categories.

Paid up capital can be set forth as:

  • Category A: Paid up capital of Rs 1m, but caps the monthly processing volume to Rs 10m.
  • Category B: Paid up capital of Rs 5m, but caps the monthly processing volume to Rs 50m.
  • Category C: Paid up capital of Rs 10m, but caps the monthly processing volume to Rs 100m.

Allowing agent network to be set forth with the following limits:

  • Category A: Agent cash-in/cash-out mechanism to be limited to Rs 5,000 maximum per transaction (per account holder per day to a maximum of Rs 50,000 per month).
  • Category B: Agent cash-in/cash-out mechanism to be limited to Rs 10,000 maximum per transaction (per account holder per day to a maximum of Rs 100,000 per month).
  • Category C: Agent cash-in/cash-out mechanism to be limited to Rs 25,000 maximum per transaction (per account holder per day to a maximum of Rs 250,000 per month).

Restrict the number of agents that can be assigned (though personally, I’m not in favour of this):

  • Category A: Maximum 1,000 agents.
  • Category B: Maximum 5,000 agents.
  • Category C: Maximum 25,000 agents.

Allow mobile wallet licence within the prospect to be held in an FBO (for benefit of) account, and these funds are not commingled with the administrative/operating account of the licence holder.

  • Allow unfettered access to the IBFT switch (1Link/MNet).
  • Provide a list of ready banks who would be able to work with these licence holders and offer the FBO accounts.
  • Provide a list of ready banks who would be able to extend out a virtual branch status to the newly appointed licence holder for easy accounting and ledger management.

The greatest crime a regulator can commit is to kill the spirit of entrepreneurship that the industry has. SBP is depriving the fintech startup industry of much-needed oxygen. There are no two ways about it: either kill the existing licensing regime and make it more affordable, or introduce a lower threshold scheme to enable other players to come onboard.

The greatest crime a regulator can commit is kill the spirit of entrepreneurship Click To Tweet

This isn’t a new concept or a temporary patch. It is what’s now being used by regulators worldwide (example is the Small Authorized Institution — SPI licence in the UK), which by the way is far more affordable to local startups.

We need to let go of egos and feel the pulse of the industry, and serve what’s required, not set hurdles. Failing to do so, we may just put the entire startup ecosystem onto one of the shelves at the SBP Museum (pictured above).

READ NEXT: Building a mobile wallet that customers want

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image: Yumna Rafi

About the author

Faisal Khan

Faisal Khan specialises in cross-border money transfer and payment systems as a payments consultant and evangelist for digital money. He is a regular contributor to the Around the Coin podcast.

Leave a Comment