Pakistan: An overview of the digital payment landscape, from 2020 and beyond

Pakistan: An overview of the digital payment landscape, 2020 and beyond

The international financial institution believes that there is huge potential in the digital transactions market in Pakistan. According to McKinsey, ‘widespread use of digital payments can improve the GDP by 7%, creating four million jobs in the process and bringing more than $250 billion worth of deposits into circulation.’ Although, a low rate of financial inclusion remains the main challenge for the wider adoption of cards in Pakistan, Pakistan is now embracing change at a rapid pace. Pakistan is known to be highly cash-dependent however they are progressing as a nation and there is an emerging trend where people are embracing digital payments.

Innovation

In 2021 a press release went out in Pakistan, announcing the launch of a new instant payment system, which is part of a long-term project to improve financial inclusion and innovation in Pakistan. Merchants, fintechs, businesses, customers, and government bodies can send and receive real real-time payments using innovative payment systems. This is highlighting how Pakistan is continuing to focus on improving its fintech ecosystem.

Pakistan has kicked off other new initiatives to improve its fintech ecosystem over the years. As part of these improvements, this included the government accepting a new batch of start-ups into its regulatory sandbox in 2020. These start-up businesses included fintech firms such as peer-to peer lending, cryptocurrency, investment, retail and banking. In the financial industry, a sandbox refers to a mechanism for developing regulation that keeps up with the fast pace of innovation. According to koombea.com, ‘a sandbox is a closed testing environment in which a software innovation is tested before being fully deployed in the market. The test involves a reduced number of participants and their interactions, thus emulating real market conditions. This allows regulators to analyse the potential impacts of a product or service in order to develop a framework that protects consumers. It takes its name from the children’s play arena as it allows regulators to keep an eye on a small sample of agents involved.’

The National Bank of Pakistan (NBP) which is currently owned by the government of Pakistan also upgraded its pool management in 2020 with Codebase Technologies (CBT). NBP is a Pakistani government-owned commercial bank and a subsidiary of State Bank of Pakistan (SBP). It holds roughly $17.2 billion in assets. Dubai-based Code base technologies (CBT) is an open banking provider which provides both conventional and sharia-compliant banking solutions ideal for those looking for Sharia compliant banking. The upgrade aims to help their Islamic banking division to be more transparent to their customers. On the fintech front, Pakistan-based SadaPay, is driving contactless adoption and they have a partnership with Mastercard.

Technology as an enabler during and post Covid-19 - The Ehsaas programme

Recently, there has been a huge surge in technological advancements in the finance sector. Since the covid-19 pandemic started, technology has been a great enabler. Local banks have been able to provide timely aid to those who need it through the Ehsaas programme.

The Ehsaas Emergency Cash program was launched by the Prime Minister in 2020 due to the ongoing impact of covid-19. It is bringing a positive change to people in Pakistan and has laid the foundation of a global model for reducing poverty. With Ehsaas, 98% of the beneficiaries are being paid through a technology-based biometric verification system, a small percentage is being paid through the Pakistan Post in places where presently no formal banking channels and internet facilities are available. The Ehsaas programme harnesses digital wallets. As explained by the Democracy Reporting International’s COVID-19 Policy Brief Series, ‘you can treat Ehsaas cash assistance like, ‘a digital payment that can then be transferred directly to existing mobile wallets like EasyPaisa and JazzCash rather than through physical disbursements at retailers, and then used for payments for everyday expenses. Not only will this make the use of cash transfer mechanism easier and more effective, it will also provide a much needed boost to the health of the e-payment and digital finance sector as a whole.’

Digital payments are becoming more popular and more available, as people are being asked to remain at home and some businesses are in lock down. In Pakistan, there is also an ascending usage of online payments, where consumers can shop online and support businesses in lock down. The increase in online payments, however, does pose an increased security risk, which is a key consideration for the government and businesses in fintech.

Cyber security, compliance, regulations & fraud risk reduction

On the topic of regulating fintech - Regtech, security and regulatory controls have played a very important part in reducing money laundering acts and making legitimate cross-border money transfers and payments easier. As noted in www.fintechfutures.com, ‘with the extended use of state-of-the-art compliance and regulatory control tools and systems, it has become possible for screening, monitoring and combat fraudulent and illegal money transfers and money laundering to and from the country. This has helped to facilitate the growth of foreign remittances which has helped to boost the economy. Customers want fast and secure financial services and to ensure this happens, the Pakistan government and other fintechs in Pakistan are increasing their security budgets.

As more people are working from home and online transactions are on the rise, cyber security is more important than ever. Effective implementation of DDoS, intrusion, threat malware detection tools and multi-factor authentication (MFA) are crucial. MFA is now crucial. MFA stands for Multi factor authentication which is a multi-layered authentication system for granting access to things like apps, and online banking accounts. For example, when you go to log into a fintech/payments app with your password, you can have an additional layer of security which may be having a code texted to your phone device for you to then enter that code correctly, before you are able gain access. This reduces unauthorised access to your account(s).

Growth in digital payments

As mentioned there has been an increase in online payments due to Covid-19. Amina Rizwan, enterprise architect, United Bank Ltd says that, ‘whilst Pakistan is still reliant on cash transactions as customers prefer to use cash on delivery (COD) options rather than digital financial services, the ratio of digital financial services versus the 95% of internet users in the country as compared to peer countries, shows a promising future for the digital financial services propagation.’

Increased Internet users

In a report by Pakistan’s Digital 2020, that was published in 2020, the number of internet users has increased by 11 million (+17%) between 2019 and 2020. As far as the social media users in Pakistan are concerned, the number has increased by 2.4 million (+7.0%) between April 2019 and January 2020. The number of mobile connections increased by 9.6 million (+6.2%) between January 2019 and January 2020. Surprisingly, the number of mobile connections in Pakistan was equivalent to 75% of the total population in January 2020. This is highlighting the importance of providing mobile and social payment options to customers.

What will Pakistan Fintech businesses focus on?

Experts in this sector understand that to create an ideal digital ecosystem and to succeed in this sector, these are areas to be considered;

? Digitalisation of banking models – Providing online fast payments, internationally

? Build cloud based and managed service platforms, not just odd products and service

? Consider the use of data and AI and how this can be of competitive advantage

? Marketing and brand awareness on promoting secure payments

? Cyber Security & systems built as secure by design

? The future of Blockchain sandbox?

? Skills – Talent Gaps?

As mobile usage surges globally, many emerging market’s most popular payment methods are using mobile only wallets and localised mobile payment systems. These are all enabled as standard via the PayFuture connector gateway. At Payfuture we understand global mobile payments.

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