How dollar shortage handed EMIs 'advantage' over banks.

KARACHI -- For Pakistanis, there are many faults in our banks - unnecessary documentation for basic procedures like account opening, inordinate disruptions in digital services, arcane regimes to stifle business growth and lack of appetite to facilitate users, to name but a few.

Apparently, there is an addition to the list: exorbitant exchange rates on foreign transactions.

And as happens in times of volatility, the gap between interbank and open-market dollar rates - which is usually small - significantly widened amid high demand for the US currency. Commercial banks, insisting that they have to buy dollars from the open market to settle international payments, started charging rates that were way higher than the interbank rate.

Meanwhile, Electronic Money Institutions or EMIs - digital wallets of sorts that allow peer-to-peer transactions, top-ups and bill payments - somehow managed to offer exchange rates lower than banks.

A case in point is Ahmad Saeed, who made two foreign transactions on Jan 11, one through his bank account and another through his SadaPay wallet, which comes with a digital debit card.

Customers getting better USD-PKR exchange rate with digital wallets

On the $3.50 transaction through his bank, he was charged Rs256.5 a dollar, in addition to Rs35.91 foreign transaction fee (4pc of the total amount), Rs8.98 advanced tax, and Rs4.67 federal excise duty (FED).

In contrast, for a transaction of $4.23 on the same platform, SadaPay charged Rs255.4 per dollar, apart from Rs18.8 as FED (1.5pc foreign exchange cost + tax) and a 2pc withholding tax (with 1pc refundable to tax filers).

That day the dollar closed at Rs228.90 in the interbank market and at Rs237 in the open market.

The trick up EMI's sleeves

Omer Salimullah, chief operating officer at SadaPay, one of the 11 EMIs that currently hold some sort of approval from the State Bank of Pakistan, told Dawn that his company did not have physical branches and used a modern technology stack, which allowed it to service customers at a cost lower than traditional banks, including a 1.5pc FX cost compared to 4pc by banks.

However, on the high exchange rate, he said the EMI didn't buy dollars directly since it was not an authorised dealer. 'We get this rate passed on by our settlement bank,' he added.

Some experts also believe that EMIs have an advantage over banks in the current scenario.

'Startups operating the EMIs have different goals. They are focused on providing better user...