Pakistan should grasp the digital future
Pakistan needs to fight under-banking, high transaction costs, low internet penetration, and tax avoidance.
In Pakistan's old markets, most transactions are carried out in good faith. A hand-written note (parchi) serves as a convenient method for payment. The slip is equivalent to a cheque or bank draft, but one that is not dishonoured. It allows business to be conducted distantly by people who know each other. In markets with a large number of new players, however, business is largely conducted in cash to avoid any defaults. Considered safe by a majority of suppliers and retailers, cash transactions still dominate the country's economy.
Most wages are also paid in paper money. These payment methods neither require any documentation nor entail any tax liabilities. Non-cash transactions in emerging markets are growing at more than 20 per cent. However, the share of digital payments in Pakistan is less than one per cent of the total transaction volume though about half its people own a mobile phone, a McKinsey Global Institute report shows. Such a low digital transaction volume is forcing this South Asian country to do away with informal payment systems that are adding nothing to its cash-strapped kitty.
The State Bank of Pakistan has set out a digital-focused payment systems strategy designed to meet international standards of monetary transactions and boost financial inclusion, particularity for women who form only seven per cent of the 21 per cent of people who have a transaction account. It will launch a mobile app and instal one million digital access points nationwide over the next three years. It will make it easier for new companies; banks and fintechs to enter the market and also aid people in accessing the financial system.
The new system is aimed at digitalising all sorts of payments, including the large ones made by federal and provincial governments, and remittances that run into billions of dollars. The start of implementation of the Micro Payment Gateway - which allows transfer of funds in almost real time and is expected to cause a rapid surge in online payments in public and private sectors - is a major part of the strategy. The central bank says electronic payments will fire up consumption and trade, boosting the country's economy by seven per cent and creating four million jobs by 2025.
Pakistan, having 79 per cent unbanked population, needs to fight under-banking, high transaction costs, low internet penetration, lack of awareness about and trust in digital payments, and tax avoidance. Under-banking aside, more than 38 million Pakistanis have mobile wallet accounts, however, more than half of these are inactive. Ecommerce market size has grown year-on-year but most payment transactions have been through cash-on-delivery. The State Bank puts the size of the e-commerce market in Pakistan at Rs99.3 billion in the last fiscal year, almost double that in the previous one. But a big challenge is distrust between consumers and suppliers majorly due to limited physical interaction resulting in fewer online purchases.
Digital finance has a huge potential. The World Bank sees Pakistan's digital finance potential at $36 billion projecting a seven per cent boost to the GDP with a real-time retail payments gateway.
"To unlock Pakistan's $36 billion digital finance potential, it will take high-level commitment, faster payments gateway, lower costs, fast-track licencing for fintech (financial technology) sector and digitisation of all government payments," World Bank Country Director for Pakistan Illango Patchamuthu said in a tweet.
Abundance is waiting in the wings. It only needs a little push through electronic payments.
And it should top the list of priorities for the Pakistan government.
-Waqar Mustafa is a journalist and commentator based in Lahore, Pakistan
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