Due to Pakistan’s ever-increasing fiscal requirements, the country’s banking sector has generated significant profits over the past few years. All the while, it has gotten under the skin of everybody, remembering the Worldwide Money related Asset for the most recent Article IV report, for relying upon the public authority.
However, the numbers in the State Bank’s most recent Annual Payment Systems Review (PSR) for FY24 indicate that digitalization of payments appears to have performed well for the sector, at least in comparison.
In such manner, FY24 was the same as computerized exchanges proceeded with in outright terms as well as a component of the general piece. In the previous fiscal year, they held 13.4% and 52.4 percent of throughput and volumes, respectively, compared to just 2.6 percent and 16.9% in FY20.
Over the course of the past year, there have been a few significant breakthroughs. The first was when mobile banking overtook ATMs in terms of the number of transactions they processed to become the single largest digital channel. Since then, it has only continued to extend its lead. In a similar vein, its throughput reached Rs46.3 trillion and its volumes reached 1.12 billion for the first time in a calendar year.
Portable banking surpassed ATMs by the quantity of exchanges to turn into the single biggest computerized channel during the primary quarter and has just expanded its lead from that point forward
Indeed, even as far as development, portable banking was in front of others, becoming by 95.1pc by esteem and 70pc by volume. However, for the first time since Covid-19, throughput barely increased by 4.3 percent between April and June.
Processing volumes of 223.2 million worth Rs23.5 trillion in FY24, an increase of 30 percent and 44 percent, respectively, were also recorded by Internet banking. Consequently, for the first time, its average transaction exceeded Rs105,000, crossing the six-digit threshold. Although the State Bank does not explicitly provide a breakdown of the underlying use cases, this channel is primarily used for business-to-business payments, although cheques continue to account for an even larger, albeit decreasing, portion.
On the opposite side, retail location ruled with a throughput of Rs1.5tr across 271.4m exchanges. This makes it the second-fastest growing channel in terms of volumes, with annual growth rates of 41.2 percent and 33.6 percent. In a similar vein, there were 98,936 merchants and a total of 125,593 terminals.
E-commerce, on the other hand, had yet another disappointing year. Even though volumes increased by 25.5 percent to 39.9 million, they are still significantly below the level of 45.5 million set in FY22. Despite this, inflation enabled throughput to rise by 36.8 percent to Rs194.4 billion. However, the data only pertain to card-based payments, so this is only part of the story.
According to both qualitative and quantitative small surveys and anecdotal evidence, cards are not the preferred method for digitally paid online orders. In fact, fund transfers are the norm there, as the most recent PSR reveals for the first time.
According to the SBP, 269 million transactions worth Rs211.6 billion were actually processed through accounts and digital wallets. Raast has performed particularly well on the peer-to-peer side, processing a throughput of Rs3.9 trillion across 116.8 million transactions, an increase of 198 percent and 130 percent YoY, respectively. In other words, 87.1 percent of the volumes are not accessible via cards. Probably, this does exclude the asset moves by means of portable banking, where the typical exchange size — and subsequently the throughput — ought to be a lot higher.
This issue is also present in physical retail transactions, where online fund transfers account for a significant portion of non-cash payments. You probably did it to pay your Careem captain, the kiryana in your neighborhood, or even at the Saddar electronics market. These are essentially digital transactions from both the buyer’s and seller’s perspectives. They may even be cheaper, but in the grand scheme of things, they have some limitations.
First and foremost, their size is largely unknown due to the way data is recorded and beyond tax authorities’ reach. Second, a major drawback of peer-to-peer (P2P) transfers is that customers do not have any recourse. Consider all of the social media posts in which individuals complain that they have been ghosted after sending money to an online store. There is dispute resolution and the possibility of chargeback with legitimate merchant payments. By aligning business incentives and making the technology user-friendly, such as QR or request-to-pay, Raast peer-to-merchant plans effectively to change this.
Nonetheless, that module is still in the good ‘ol days and will take some time before progress becomes apparent. Raast has done particularly well so far on the peer-to-peer side, processing Rs3.9 trillion across 116.8 million transactions just between April and June, an increase of 198 percent and 130 percent, respectively, over the previous year.
That also hides the real gap in our journey toward digitization, which is that the majority of growth is still largely concentrated on the P2P side. It appears that people who have digital wallets or bank accounts are already quickly moving toward digital channels. However, what about companies? Sadly, there has been very little progress because banks are still largely uninterested in developing novel products.
