Analysis: New SBP report on digital transactions

A report released on Wednesday by the State Bank of Pakistan (SBP) has shown that the number and value of mobile and Internet banking transactions in Pakistan increased by a staggering 57 percent and 81 percent, respectively, during the fiscal year 2022–23.

According to the SBP’s Annual Payment Systems Review for the fiscal year 2022–2023, Internet banking users in Pakistan climbed by 15.1% to 9.6 million, while mobile banking users jumped by 30.2% to 16.1 million.

The SBP stated in the report that “e-banking is drawing more customers because of its effective and immediate payment solutions, and its transactions are growing at a steady pace over the years.”

Paper-based transactions reportedly fell by more than 4% during FY23 and by a total of about 20% over the previous five years. However, it was noted that the value of transactions conducted on paper rose by 20% in FY23.

SBP’s research also shows there would be 6,889 e-commerce businesses, 520 cash/cheque deposit machines, 17,808 ATMs, 115,288 point-of-sale terminals, and 6,889 POS terminals available to clients as of June 30, 2023.

“During the fiscal year, the number of transactions through POS (199.3 million) and ATMs (809.7 million) grew annually by 45 percent and 17 percent, respectively,” it stated. “During the year, there were 31.8 million domestic e-commerce transactions made using credit or debit cards, totalling PKR 142 billion.”

According to the research, 58.1 million payment cards were in use in Pakistan as of June 30, 2023, of which 44.5 million were issued by banks and micro-finance institutions, 10.8 million by branchless banks, and 2.8 million by EMIs.

More on Digital Payments in Pakistan: Analysis

Pakistan has witnessed a significant surge in digital transactions in recent years, as more and more people embrace the convenience and security offered by online payment systems. This shift towards digital transactions has been driven by technological advancements, government initiatives, and changing consumer preferences. In this article, we will explore the factors contributing to the rise of digital transactions in Pakistan and the impact it has on the economy and society.

Government Initiatives and Policy Reforms
The Pakistani government has played a crucial role in promoting digital transactions by implementing various initiatives and policy reforms. One of the key steps taken by the government was the introduction of the Digital Pakistan Vision, which aims to transform the country into a digitally empowered society. Under this vision, the government has launched several programs, such as the Ehsaas Emergency Cash Program, aimed at providing financial assistance to vulnerable segments of the population through digital channels.
Furthermore, the State Bank of Pakistan (SBP) has implemented policies to encourage the adoption of digital payment solutions. The introduction of the Raast Instant Payment System has revolutionised the way payments are made in the country, enabling real-time transfers and reducing reliance on cash transactions. The SBP has also introduced measures to enhance cybersecurity and protect consumers’ personal and financial information, instilling trust in digital transactions.

Technological Advancements and Mobile Penetration
Technological advancements and the widespread availability of smartphones have played a pivotal role in driving the adoption of digital transactions in Pakistan. With the increasing affordability of smartphones and internet connectivity, a large segment of the population now has access to digital payment solutions. Mobile wallets, such as JazzCash and Easypaisa, have gained popularity, allowing users to make payments, transfer funds, and pay utility bills conveniently from their mobile devices.

Additionally, the rise of e-commerce platforms has further fuelled the growth of digital transactions in the country. Online marketplaces like Daraz and Alibaba’s AliExpress have gained traction among Pakistani consumers, offering a wide range of products and secure payment options. This has not only provided a convenient shopping experience but has also boosted the confidence of consumers in digital transactions.

Growing Financial Inclusion
The increasing adoption of digital transactions has contributed to improving financial inclusion in Pakistan. Traditional banking services often face limitations in reaching remote areas, making it difficult for individuals to access financial services. However, digital payment solutions have bridged this gap by providing a convenient and accessible platform for financial transactions.
Mobile banking services have allowed individuals, especially those without access to traditional banking, to open accounts and conduct financial transactions with ease. This has empowered individuals, particularly those in rural areas, to save money, access credit, and engage in economic activities. The growth of digital transactions has also facilitated the disbursement of government welfare payments, ensuring timely and secure delivery to beneficiaries.

Benefits for Businesses
Digital transactions have not only benefitted consumers but have also revolutionised the way businesses operate in Pakistan. Small and medium-sized enterprises (SMEs) have particularly experienced a significant transformation, as digital payment solutions enable them to streamline their operations, reduce costs, and reach a wider customer base.

By accepting digital payments, businesses can enhance customer satisfaction and convenience, as customers increasingly prefer cashless transactions. Moreover, digital transactions provide businesses with valuable data and insights, enabling them to analyse consumer behaviour, personalise marketing strategies, and optimise their operations.

Challenges and Solutions
The uptick in digital transactions in Pakistan presents numerous opportunities, there are also challenges that need to be addressed. One of the major concerns is the digital divide, with a significant portion of the population still lacking access to smartphones and reliable internet connectivity. Bridging this divide through infrastructure development and initiatives to promote digital literacy is essential to ensure inclusivity and maximise the benefits of digital transactions.

Furthermore, cybersecurity threats pose a significant risk to the growth of digital transactions. As more financial transactions move online, it becomes crucial to strengthen cybersecurity measures and educate users about best practices to protect their personal and financial information. Collaboration between the government, financial institutions, and technology companies is key to mitigating these risks effectively.

The Economic Impact
Increasing digital transactions has had a positive impact on the Pakistani economy. As more transactions are conducted digitally, the reliance on cash decreases, leading to increased transparency and reduced financial leakage. This, in turn, contributes to the formalisation of the economy and helps combat corruption.

Additionally, digital transactions promote financial digitisation, enabling the government and financial institutions to gather data and insights for informed decision-making. The availability of comprehensive data allows policymakers to design effective economic policies, identify growth opportunities, and address challenges more efficiently.

Future Outlook
The future of digital transactions in Pakistan looks promising, with continued efforts from the government and key stakeholders. The ongoing development of digital payment infrastructure, expansion of internet connectivity, and awareness campaigns will further drive the adoption of digital transactions across the country.

Moreover, advancements in financial technology, such as the use of blockchain and artificial intelligence, are expected to transform the digital payment landscape, making transactions faster, more secure, and cost-effective. These innovations will unlock new opportunities for businesses and individuals, strengthening the digital economy in Pakistan.

The growth currently being witnessed in Pakistan signifies a significant shift towards a more technologically-driven and inclusive society. Government initiatives, technological advancements, and changing consumer preferences have played vital roles in driving this transformation. With the continued focus on infrastructure development, cybersecurity, and financial inclusion, Pakistan is well-positioned to leverage the benefits of digital transactions, fostering economic growth, and improving the lives of its citizens.