A Brief Note on Digital Payment Systems in Pakistan
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A Brief Note on Digital Payment Systems in Pakistan

By IndraStra Global Editorial Team

A Brief Note on Digital Payment Systems in Pakistan

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"Digital Payments" in Pakistan is an evolving concept that intends to provide a basket of the solution to its citizen and in fact, it is rapidly gaining momentum in Pakistani market. More than half of its population do not have access to the conventional and mobile banking services and there is very little use of electronic B2B payments, regardless of the value of the transaction, and especially by micro and small retailers. Cash is still a dominant payment method as it is considered "safe" by almost all the retailers and suppliers.

The Data and Projections

According to an estimation made in a latest McKinsey Global Institute report "How digital finance could boost growth in emerging economies", the digital finance potential of Pakistan at about $36 Billion by 2025, providing a 7% boost to the GDP, creating 4 million new jobs and resulting in $263 Billion new deposits.

According to the State Bank of Pakistan's (SBP) annual performance review (2017) - Pakistan, as a country is rapidly moving towards adoption of digital modes of payment with the number of electronic transactions registering a 17% year-on-year growth in 2016-17. Banks, businesses, and consumers in the country made a total of 625.8 million transactions via electronic banking channels worth Rs37.1 trillion in the fiscal year 2017.

According to SBP 2014 and 2015 reports, Pakistan has witnessed a huge flow in retail banking financial transactions over past decades with ATM cards accounting for 64% of entire E-banking financial transactions. The real-time online banking (RTOB) percentage is 24% by the year of 2014 & 2015, carried out by the core banking system. Since the last five years, the E-banking financial transactions witnessed a considerable growth. The volume of e-banking increased by 100% from 235 million to Rs. 247 million. The volume of e-banking further increased by 2010 to 2015 from 22.1 Trillion to Rs.35.8 Trillion.

Payment Systems Transactions - Summary, SBP's Payment Systems Review  | July –September 2017 (Quarter-1, FY18), page-7

Note: PRISM is an abbreviation of Pakistan Real Time Interbank Settlement Mechanism – Real-time Gross Settlement (RTGS)

Current Market Trends

Talking specifically about Pakistan, according to World Bank, about 100 million adults in Pakistan don’t have access to formal and regulated financial services. This number is approximately 5% of the world’s entire "unbanked" population, which currently stands at 2 billion. Despite this, there is one huge positive aspect that Pakistan leads in digital finance and branchless banking in South Asia as 6% of adults have mobile accounts compared to South Asia’s average of 2.6%. This shows that Pakistani consumers are ready to accept this new type of technology-driven payment system.

As for EFT POS (Electronic Fund Transfer - Point of Sale) machines, the figure has gone up by 20%, crossing the 40,000 mark as banks manage the service across the country. Delightfully, as it may seem for many, the volume of paper-based transactions saw a 0.12% drop from 2015, although the value went up by 10%, with the figures being 362.04 million, and 127.16 trillion in 2016.

Various market players are responding to "Digital Payment" trend in a positive manner and they are continuously experimenting since 2009.

  • Launched in 2009, EasyPaisa (by Telenor Pakistan and Tameer Microfinance Bank) is a mobile phone-based account offering quick and easy payment services across Pakistan. It is touted as the third largest mobile payment system deployment in the world and serves 7.4 million unique users. Togetherly, they developed an infrastructure and enhanced the outreach of a mobile network operator and the financial expertise of a bank to reach millions of customers. Later, in March 2016, Telenor Group acquired the remaining 49% of the shares of Tameer, making Tameer a wholly owned entity within Telenor Group and transferred the management of its Easypaisa to Tameer.
  • In early 2015, a collaboration between Habib Bank and Monet resulted in the launch of the first mobile point-of-sale (mPOS) system in the country. It allowed retailers of all sizes to take payments using a mobile phone and can run on a spotty GPRS connection. 
  • In February 2016, Keenu, introduced NFC (near field communication) payment acceptance which allows users to make digital payments directly from their bank accounts, hence eradicating the need to carry paper-money.
  • In August 2016, JazzCash announced the launch of NFC payments for its mobile account users. 
  • On July 26, 2017, FINCA Microfinance Bank in partnership with Finja, internationally funded FinTech startup, launched a new digital wallet - SimSim.

Technology Adoption as a Bottleneck

The transfer of financial transactions to the internet is a definitive expansion of services in the information technology era and at the same time, electronic affordability index of a country has a key role in the replacement of existing technologies, systems and devices.

With the introduction of National Financial Inclusion Strategy (NFIS) launched in 2015, now almost all banks have introduced their official banking apps. These apps allow users to perform basic banking operations like checking balance, transfer of funds, payment of utility bills etc. The launch of e-banking services over the internet has specified the necessities of identical marginal advantages besides marginal overheads, appraising the market productivity and development along with specific dimensions and sectors. In addition, the commercial banking sector faces major encounters on both the supply side and demand side due to technological changes. Furthermore, competition related particularly with, quality of service and disparity, security of the transaction, cost proficiency, and demographic changes. To overcome such scenarios, Inov8 Limited, Pakistan's fastest-growing digital payments company has deployed FalconPay Ecosystem across multiple banks. It is a complete digital ecosystem powered by MasterCard’s digital wallet solution, Masterpass.

However, it is becoming quite clear, that regardless of the emotion and habitual systemic behavior that there is a number of issues that are combining to create a critical decision point for governments (federal and state), regulators and the banking community to get actively behind the removal of cash from the system. Ubiquity is going to be challenging because just like with physical cash and currency, competing standards may actually work against adoption. Interoperability between payments networks, between e-Cash and physical cash, etc will be a challenge too. 

With reporting by Asian Development Bank, The Nation, State Bank of Pakistan, and The World Bank