Digital Revolution Starting to Shape In Pakistan; Online Bank Accounts Tripled In 3 Years

The last couple of years have seen a massive increase in the national digital payments ecosystem and the number of digital accounts have tripled over the last 3 years, according to the State Bank of Pakistan’s (SBP) Annual Payment Systems Review. The report says that mobile phone banking increased by 148.4% to 387.5 million, while internet banking grew by 51.7% to 141.7 million during the previous year.

The drastic increase in the numbers was influenced by the launch of SBP backed Raast getting traction, and electronic money institutions (EMIs) gaining popularity among customers, the signs are pointing towards money quickly becoming digital. On the contrary, the Cash transactions have also gained more popularity with increasing ATM networks and cash withdrawals from ATMs also posting double digit growth over last year.

Ecommerce transactions also witnessed similar trends as the volume grew by 107.4% to 45.5 million and the value by 74.9% to Rs106 billion.

During the fiscal year 2022 a total of 32,958 Point of Sales (POS) machines were deployed in the country which led to an expansion of its network by 45.8% to 104,865. The total number of transactions through POS, 137.5 million, were 54.5% higher than previous fiscal year with transaction value reaching Rs0.7 trillion growing by 56.1%.

According to the State Bank’s annual report, the four fully licensed EMIs (electronic money institution); Sadapay, Nayapay, Finja and CMPECC, combined had 262,558 total active accounts and 514,961 payment cards issued to their customers. Last year’s numbers on EMIs were not available for a comparison on how these numbers have grown.

E-commerce merchants registered with the banks increased to 4,887 in FY21-22, from 3,003 merchants during the previous year. In continuation of its efforts to promote and enhance the digital payment system in the country, SBP launched Raast Person-to-Person (P2P), which enabled payments among individuals, businesses and other entities to settle transactions in real-time. According to the report, as of June-22, there were 15 million registered P2P Raast users, carrying out 7.9 million transactions amounting to Rs 102.1 billion in value. Raast was launched in November last year.

The number of large-value transactions through the Real-Time Gross Settlement (RTGS) system of Pakistan reached 4.37 million by FY22 amounting to Rs 681.6 trillion with an annual growth of 53.3% in value. During FY22, paper-based transactions declined by 1.0% in volume though its value grew to Rs 190.4 trillion, almost 25.6% higher than last year.

According to the State Bank’s Annual Payment Systems Review, the number of conventional bank account holders increased by 4.5 million, from 63 million account holders in 2021 to 67.5 million in 2022. On the other hand, branchless banking accounts increased from 74.6 million to 88.5 million, a growth of 18.6%.

42.4 million payment cards came to circulation in FY22 including 71.1% or 30.16 million debit cards; 24.3% or 10.3 million social welfare cards; 4.2% or 1.79 million credit cards and the rest were pre-paid and ATM only cards.

The SBP has in the past has often emphasised on the potential fintech can play to boost digital payments and financial inclusion.

During his speech at the Institute of Banking Pakistan Annual Award Ceremony, Jameel Ahmad, Governor SBP stressed on the need for banks to revisit their traditional approach to service delivery and adapt quickly as digitalization shifts the balance of power from banks to tech savvy entities, hinting at the growing trend in fintech.

“Leveraging digital technology is essential not only to promote financial inclusion, but also to ensure that the industry keeps pace with emerging global trends,” opined Ahmed.

Speaking on the importance of technology, Ahmad quotes M-Pesa, a Kenyan fintech.

“An often-cited success story is that of M-Pesa in Kenya, where it single-handedly drove mobile financial services availability and successfully raised financial services access in Kenya. “

Ahmad pointed out that a number of factors already exist in Pakistan that can help drive digital financial innovation and proliferation of a tech-based financial ecosystem. He pointed out that the nation has a fully functional digital ID system, ubiquity of mobile devices, penetration of mobile and broadband services, availability of faster payment rails, remote account opening process, and facilitative regulatory environment for enabling the entry of non-bank entities into the financial arena.

The Central Banker also points out that while fintech has brought competition, it also presents the sector with an opportunity to create synergies and mutually beneficial partnerships.

“Banks and Fintechs can partner with each other to provide innovative products for customers that are otherwise not viable on a standalone basis. For banks, such partnerships can help with penetration in untapped segments like retail businesses and Micro and Small Medium Enterprises, yielding beneficial outcomes for all stakeholders,”