Digitization of Pakistan’s Financial Landscape

In the 15th episode of SBP’s Podcast series, Mr. Sohail Javaad, Executive Director, of Digital Financial Services Group (DFSG), State Bank of Pakistan (SBP), walks us down the evolutionary road of Pakistan’s digital financial landscape.

He discusses the architecture of the catalytic regulatory framework developed to nurture digitization and provide an enabling platform for Fintechs, payment providers, and other stakeholders.

Payment system providers such as 1-link and NIFT have played an integral role in the proliferation of digital payments in Pakistan, by ensuring interoperable financial transactions.

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An important milestone achieved by SBP is the launch of RAAST, an indigenous payment gateway. The podcast also covers some intriguing questions about the future of cryptocurrency, non-availability of PayPal in Pakistan, and the recent non-acceptance of card payments at petrol stations.

The significance of digitization for the development of a nation cannot be overstressed. Research shows that it has the potential to increase GDP by up to seven percent. During the last decade, digital payment systems have grown exponentially in Pakistan.

Specifically, the growth of bill payments, funds transfers, and eCommerce transactions through digital channels, has been phenomenal. There are around 5,000 registered online merchants and 13 million active users of banking Apps; while transactions worth nearly Rs20 trillion are executed through mobile banking, each year, in Pakistan.

RAAST is a user-friendly system in which an individual just needs to connect his/her mobile number with their preferred bank account to send or receive funds without any cost.

Since the launch of RAAST Person to Person (P2P) mode in February 2022, it has processed around Rs500 billion, enabling 250,000 to 300,000 transactions per day.

Pakistan is among a handful of countries to have two platforms for instant payments; 1-link and RAAST. In addition, Pakistan is one of the leading nations in adopting digital platforms and has its own payment scheme known as PayPal as well as a Real Time Gross Settlement system (RTGS) that processes Rs1.4 trillion, daily.

The absence of PayPal services in Pakistan is a question often asked which needs to be examined from the business feasibility point of view. It is imperative to note that there are no regulatory hurdles that may prevent PayPal from entering the Pakistani market, as both SBP and the government have made rigorous efforts in this regard.

PayPal is a private entity, and whether or not to operate in Pakistan, is its business decision. Besides, there are many entities in the country which enable the transfer of funds into Pakistan, including Payoneer and Skrill.

Cryptocurrencies present an interesting case given the unknown nature of the issuer of each token and the lack of legal authority or regulator. In this regard, SBP has taken many steps to safeguard the public and to educate and guide them.

Besides cryptocurrency, blockchain technology offers many opportunities in the domains of open data, open banking, etc. SBP is exploring all such avenues including the introduction of a Central Bank Digital Currency (CBDC).

In recent months, some petrol stations have declined payments through bank cards. The fee paid by merchants on card-based transactions is shared by dealers and oil marketing companies. It is paid as a percentage of the per-liter cost, while petrol stations earn a fixed-rupee amount as a margin.

Higher prices of POL products and exchange rate volatility have driven up costs for petrol stations, squeezing their ability to pay fees on credit card transactions. SBP is coordinating with relevant stakeholders and hopefully, the issue will be resolved soon.