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Tuesday, February 7, 2023
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What’s behind the rise of digital transactions in Pakistan

RAAST system of payment was introduced by the government because of the prevalent lack of trust and awareness of digital payment methods, high cost of digital transactions, lack of security, and a poor user interface (UI) of the local application, which made transactions all the more difficult.

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Pakistan witnessed record growth in digital transactions in the FY 2020-21 and continues to show an upward trend in the FY 2021-22. According to the State Bank of Pakistan, digital transactions in Pakistan spiked 31.1 percent, amounting to Rs. 88 trillion or $500 billion, far exceeding the country’s GDP.

Although a major reason for this growth in digital transactions was due to Covid, which forced people away from traditional modes of transactional operations, the government also played a vital role in spurring up this shift from traditional modes of payment. The government introduced a Tax Law Ordinance that restricted the scope of conventional payment methods.

According to section 21 of the Tax Law Ordinance, it is now mandatory for companies to make payments exceeding Rs. 250,000 digitally, drastically reducing grey transactions.

Moreover, on the 15th of February, Pakistan launched the RAAST P2P system of payment, which is Pakistan’s first instant payment system. RAAST allows end-to-end digital payments among individuals, businesses, and government entities.

Read more: PM Khan officially launches Pakistan’s first instant digital payment system

RAAST system of payment was introduced by the government because of the prevalent lack of trust and awareness of digital payment methods, high cost of digital transactions, lack of security, and a poor user interface (UI) of the local applications, which made transactions all the more difficult. RAAST addressed all these issues and offers low transactional cost, increased interoperability, enhanced security, and a better UI.

Furthermore, in collaboration with various banks of the country, the SBP also authorized the introduction of Roshan Digital Accounts, which for the first time has made it possible for non-resident Pakistanis to remotely open an account in Pakistan. The account offers opportunities to the Pakistani diaspora to operate as such they were operating from Pakistan, giving them digital access to all conventional account services i.e. fee payment, fund transfers etc.

It also enables them to invest in Pakistan at modest and attractive rates. Since the introduction of the Roshan Digital Account, 350,000 overseas Pakistanis have opened accounts in it, and more than $3.5 billion have been sent into these accounts, far exceeding the total foreign direct investment in Pakistan over the same period.

Pakistan also faces the persistent problem of having a low account penetration rate, with only 82 million adults out of the total of 132 million adults having unique bank accounts. In an attempt to overcome the problems in the existing banking structure and to promote digitization, the State Bank of Pakistan embarked on this digitization campaign.

The framework would ease the customer’s onboarding experience by offering them increased convenience through digital onboarding and would help ramp up account penetration rate, thus fulfilling the State Bank’s financial inclusion objective.

Rea more: Raast- Pakistan’s instant digital payment system

The State Bank further incentivized a higher account penetration rate as it expanded its services to allow easier access to banking services such as borrowing and saving and other financial services.

Finally, the growth in digital transactions was also spurred by a significant increase in mobile and internet banking, both of which saw tremendous growth, amounting to 133.6 percent and 65.1 percent in volume, respectively. The e-commerce industry also replicated the same trend.

Owing to the increase in digital transactions, Reza Baqir, governor state bank of Pakistan, said, “If the figure is $500 billion now, you can imagine the pace at which we are digitizing.”

This shift away from the traditional modes of payment marks a change in consumer behavior and reflects upon the government’s effort to develop a more transparent economy. Prime Minister Imran Khan, on 24 November 2021, appointed Senator Aon Abbas Buppi as a SAPM on e-commerce, further stressing the incumbent government’s commitment to shift focus towards digitalization.