Pakistan’s e-commerce industry appears to have taken a hit with the news that PayPal will not be starting operations in the country. The American company operates the leading worldwide online...
Pakistan’s e-commerce industry appears to have taken a hit with the news that PayPal will not be starting operations in the country. The American company operates the leading worldwide online payment system, which greatly facilitates trade and the provision of e-services. The news has led to more despair in Pakistan’s budding e-commerce industry. Pakistan is reported to have the fourth largest freelancer community in the world, which could grow further once an operator such as PayPal enters the market. As it stands, the e-commerce community has to rely on complicated mechanisms for receiving payments, which often cost as much as 30 percent as transaction fee. Instead, PayPal offers a much more transparent system, with a 2.5 percent transaction cost, which is much lower than alternatives available in Pakistan. Moreover, PayPal is trusted internationally for dispute resolution, which would make Pakistan’s freelance and e-commerce community more attractive to the international market. At a time when Pakistan faces a foreign exchange crisis, the arrival of PayPal could have been another source for precious dollars entering Pakistan’s economy.
No wonder the Pakistan government has been trying to get PayPal onboard. The first request was made in 2015. This was followed up by former PTI finance minister Asad Umar declaring that he would also try to ensure PayPal comes to Pakistan. The IT ministry says that PayPal declined because of internal issues. This is a bit odd; the company operates in around 190 international markets, which would suggest that its reasoning would be specific to Pakistan. The country’s status as an international pariah after being put on the FATF grey-list as well as concerns about money laundering and terrorist finance are likely to be part of PayPal’s rationale for refusing entry into the Pakistani market. Apart from these concerns, the low level of credit card penetration in Pakistan is likely to be another factor in the decision. Senators have rightly pointed out that the Pakistani government would have to provide concrete reassurances to.
As it stands, around 200,000 freelancers and 7,000 registered small and medium enterprises face difficulties in receiving payments for their services. The formal e-commerce industry brings in an income of around $1 billion. The SBP estimates that, if the informal part of the e-commerce industry is counted, it contributes around $2.5 billion to the economy. If PayPal were to come to Pakistan, this industry would receive a major boost in the international market. Currently, many freelancers and e-commerce companies have to keep their money abroad or transfer it to Pakistan through relatives, which means that it does not count in the formal economy. With the government having said that it plans to boost IT exports to over $6 billion by 2020, it needs to look into providing a domestic alternative to PayPal. The absence of a secure mechanism for enacting e-commerce is hurting the Pakistani economy.