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Monday, June 24, 2024

Examining the Digital Transition in Pakistan from Cash to Click

Overall, there was an 81% increase in value and a 57% increase in volume of online and mobile banking transactions annually. Additionally, during the year, value increased by 21% while e-banking transactions through banks and microfinance banks (MFBs) grew by 29%. Branchless Banking (BBs) transactions showed a similar growth pattern during FY23, with a 28% increase in the number of transactions and a 45% increase in value. 58.1 million payment cards were in use as of June 30, 2023, of which 44.5 million were issued by banks and money transfer businesses (MFBs), 10.8 million by branchless banks, and 2.8 million by EMIs.

(SBP’s Annual Payment Systems Review for Fiscal Year 2022–2023

The payment ecosystem in Pakistan has undergone significant structural change during the last ten years, laying a solid basis for the country’s promising future in digital payments. The State Bank of Pakistan has been instrumental in advancing financial inclusion by putting important reforms into place and encouraging action. The increasing widespread use of smartphones and the internet, the creation of new digital payment methods, shifting consumer preferences, and the nation’s infrastructure all contribute to this change. Digital is now available to everyone, not just those with privilege.

With the launch of online banking services in the early 2000s, digital payments made their way to Pakistan. Wallet and aggregator growth, in addition to bank-fintech partnerships, have created more efficient digital payment platforms. In Pakistan, a sizable portion of the populace lacks bank account access. In particular, mobile wallets have been crucial in helping the unbanked populace become part of the formal financial system. The first-ever fast payment system in Pakistan, RAAST, guarantees total interoperability and enables smooth digital transactions in almost real-time between people, companies, and governmental organizations.

Pakistan still lags behind its peers in terms of the volume and value of digital payments made per person, despite improvements in the shift from paper-based to digital payment methods. With a population of about 220 million, of which over 60% are under 30, the nation is poised for a digital revolution, which will be hastened by the COVID-19 pandemic’s impact on the evolving payment landscape. There are a number of reasons for the nation’s current low volume of digital transactions, including low banking penetration, a high prevalence of cash transactions, low levels of trust, limited knowledge of digital payment options, difficult accessibility, limited interoperability, high transaction costs, and taxation.

Even though they are tech-savvy, some of our people are unaware of the signs of fraud, which makes them vulnerable to dishonest practices. Regretfully, not enough money has been spent on raising awareness. Leaders in the market and the State Bank of Pakistan ought to give this area top priority.

Developing women-centric products, boosting data collection, and encouraging gender diversity are just a few of the critical actions needed to close the gender gap in financial inclusion. Notwithstanding advancements, obstacles still exist in rural areas, such as restricted access, inadequate financial literacy, and barriers specific to women’s culture. Additional pragmatic endeavors are imperative to guarantee all-encompassing female involvement in the financial ecosystem.

In Pakistan, digital inclusion can be improved by digitizing person-to-person (G2P) and person-to-government (P2G) payments, which will increase demand for and supply of digital liquidity. Digital payments must be advanced by utilizing the private sector’s experience through the establishment of private-public partnerships.

Due to their reliance on cash, Pakistan’s MSMEs—which account for 90% of businesses and nearly half of the country’s GDP—face ongoing growth challenges. One major barrier to the digitization of payment systems is the belief that it will result in business documentation and taxation. Since digital payments reduce the financial opacity that protects their margins, merchants are resistant to them out of concern for complicated tax filing procedures, high tax rates, and potential exploitation by lower-level tax officials.

Good Prospects for the Future:

The State Bank of Pakistan projects that the shift to electronic banking will generate four million jobs, increase GDP by 7%, and result in $263 billion in new deposits, opening up a $36 billion market by 2025.

The following crucial actions must be taken in order to create an effective digital payment ecosystem: Boost participation, support women-owned businesses, encourage digital payment trust, reduce taxes, get rid of extra fees, and make sure MSMEs can afford them.

Digital payments in Pakistan are expected to continue growing and changing in the future as long as the government, financial institutions, and fintech companies collaborate to address issues and advance financial inclusion. Pakistan can anticipate a financial future that is more inclusive and digitally connected with the appropriate investments and policies.

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