It has been a week since the news broke about the data breach at the National Institute of Facilitation Technology (NIFT), and the services are yet to be fully restored. This breach is not your typical cybersecurity attack; it has significant consequences due to NIFT’s role as a clearing house for interbank cheques in Pakistan.
NIFT, which processes every single interbank cheque in the country, plays a crucial role in the financial system. Despite the prevalence of digital channels for consumer needs, Pakistani corporates still heavily rely on paper payment instruments, including cheques.
To grasp the magnitude of the breach’s impact, let’s delve into the numbers. In the first quarter of 2023 alone, Pakistani banks processed a staggering 17.4 million cheque instruments, amounting to PKR 32.6 trillion. Out of this, 23.6% of the throughput and 44.8% of the volume were interbank cheques, totaling PKR 7.7 trillion and 7.8 million cheques, respectively.
In simple terms, NIFT handles around PKR 86 billion and approximately 87,000 cheques daily, based on the latest quarterly data. This sizeable volume has a disproportionate effect on businesses that rely on cheques for transactions, even if it’s not their preferred method.
Karachi takes the lead in interbank cheque processing, accounting for 38.6% of the throughput and 49.8% of the volume since 2018. Lahore follows closely, making up 18.8% and 19.1%, respectively, while Islamabad ranks third.
NIFT’s annual report for FY22 reveals that it processed 48.4 million instruments, a figure higher than the State Bank of Pakistan’s value for clearing cheques. The disparity may be attributed to various instruments processed, including bounced cheques, demand drafts, and pay orders.
Despite having the backing of leading banks and regulatory advantage, NIFT’s growth has been underwhelming, with a compound annual growth rate of just 4.05% since 2018, reaching PKR 2.07 billion by 2022. Over 89% of its revenue comes from cheque processing and related services.
The decline in cheque instrument processing since 2019 suggests an increasing shift towards digital consumer transactions. Income from clearing has also slightly decreased, resulting in a plummet in its share of gross revenues.
While NIFT offers other services such as utility payment processing and documentation management, they contribute only over one-tenth of the topline. NIFT ePay, which operates under the PSO/PSP license, brought in a disappointing PKR 11.4 million in 2022, even less than its 2021 earnings.
Ironically, NIFT provides cybersecurity-related services under eTrust, but the breach raises questions about the effectiveness of these offerings. Moreover, this incident highlights the need to streamline inefficient cheque processing experiences, both intra and inter-bank, to accelerate the digitalization of B2B payments in Pakistan.
