UN official says cash culture hinders digital payment adoption in Pakistan

KARACHI: Camilo Téllez, the deputy managing director of the Better Than Cash Alliance at the United Nations, said in an interview with The News that cash has long been a trusted and understandable way to conduct transactions in Pakistan. However, shifting from this cultural norm to digital payments calls for substantial behavioural shifts, which take time and extensive awareness campaigns.

Q: What are the main challenges that prevent Pakistan from adopting digital payments, which can have huge economic benefits by 2025?

A: The National Financial Inclusion Strategy of Pakistan outlines the substantial growth and employment potential associated with widespread digital payment adoption; however, the predominance of cash as the primary means of payment in Pakistan, despite concerted efforts to promote digital payments, can be attributed to a multifaceted interplay of cultural, economic, and infrastructural factors. Cash has been deeply entrenched in Pakistan's economy for generations, representing a trusted and easily understood mode of conducting transactions. Transitioning from this cultural norm to digital payments requires significant behavioural change, which takes time and comprehensive awareness campaigns. While the government and the State Bank of Pakistan have made substantial strides in creating a regulatory framework and infrastructure for digital payments, many individuals and businesses still perceive cash as more straightforward and reliable.

To understand the challenge further, it's crucial to consider the economic context. Affordability plays a pivotal role. Digital payment solutions often entail transaction fees, which can deter small and medium-sized businesses, particularly those with thin profit margins. These businesses might find the cost of digital transactions prohibitive, thus favouring cash. Furthermore, a lack of awareness among smaller and informal businesses about the benefits and practicalities of digital payments poses a considerable barrier. These businesses may not fully comprehend how digital payments can streamline their operations and expand their market reach, inhibiting their adoption of this transformative technology.

Additionally, there is a perception among some businesses that embracing digital payments is synonymous with formalization and taxation. This perception can be a significant deterrent, especially for businesses that have been operating informally or in the shadow economy. To address these challenges, stakeholders need to prioritize digital payments at the highest levels of government, fostering alignment among institutions and launching an extensive awareness campaign to educate individuals and businesses about the advantages of digitizing the economy. The comprehensive approach can help address the present hurdles and gradually shift the status quo, making digital payments more prevalent and accessible throughout Pakistan.

Q: How can Pakistan's economy and financial inclusion be boosted by the country's adoption of digital payments?

A: The adoption of digital payments is a powerful driver of financial inclusion. When individuals and businesses make digital transactions, they create a demand for digital money. As this demand grows, reliance on physical cash decreases, and more cash is converted into digital forms, such as bank accounts and digital wallets.

This surge in digital deposits empowers financial service providers to expand lending, making credit more accessible to both businesses and individuals. This access to credit enables businesses, especially smaller ones, to invest in inventory, enhance production, and increase income and productivity. On a national level, these benefits contribute to GDP growth and enhance the competitiveness of Pakistani businesses in the global market. Digital payment solutions are particularly impactful for underserved segments of society, especially women.

Q: What are the potential advantages of responsible digital payments for small and medium enterprises (SMEs) and micro, small and medium enterprises (MSMEs) in Pakistan?

A: Responsible digital payments can offer significant advantages to SMEs and MSMEs in Pakistan, with a particular focus on prioritising women's financial inclusion and promoting financial equality for women. They enhance efficiency by enabling businesses to transact more efficiently with customers, regardless of physical proximity. Digital payments also expand market reach, allowing businesses to sell their products and services to customers in different cities or regions. Additionally, digital payments make it easier for businesses to access credit, which can unlock productivity gains and stimulate growth.

Q: Five digital banks got SBP’s approval to offer digital services in Pakistan. Will this help the poor and unserved get affordable digital loans?

A: The establishment of digital retail banks in Pakistan is a positive development that should promote competition and innovation in the financial services sector. Globally, we have seen digital banks and fintechs focus on addressing the needs of unbanked or underserved populations, and Pakistan should be no exception.

The entry of additional players into the market will be beneficial, provided they adhere to the State Bank of Pakistan's interoperability mandates, emphasizing consumer choice, a crucial component of responsible digital payments, according to the UN Principles for Responsible Digital Payments.

The adoption of responsible digital payments holds tremendous potential to transform Pakistan's economy, enhance financial inclusion, and improve the lives of its citizens, particularly women. This aligns with the goal of achieving financial equality for women, as outlined in the "Reaching Financial Equality" call to action by the Better Than Cash Alliance and its partners —a 10-point action plan for governments, companies, and international organizations to help end women's economic exclusion. The Better Than Cash Alliance's efforts in collaboration with the government and the State Bank of Pakistan aim to unlock these possibilities and make responsible digital payments a cornerstone of economic growth and financial inclusion in Pakistan.

Q: How the government and the SBP are supported in increasing digital payments by the Better Than Cash Alliance? What about its current projects in Pakistan? What future plans does it have for digital payments?

A: we collaborate with the government and its key institution, the SBP, to advocate for and support the acceleration of responsible digital payments in the country. This collaboration involves a range of strategic efforts to advance the adoption of digital payments.

The Alliance is engaged in ongoing research, expertise sharing, and practical experiments in Pakistan. With our recently released, “Realizing the Promise of Responsible Digital Payments for Merchants in Pakistan” report, we have planned initiatives to provide research that supports the adoption of digital payments for small businesses, particularly focusing on the State Bank of Pakistan's RAAST infrastructure. This research delves into areas such as pricing structures, communication strategies, and building trust among businesses and consumers in the digital payment ecosystem.

Looking ahead, the Alliance envisions a continuation of its collaborative efforts to further responsible digital payment adoption in Pakistan. It intends to engage in learning experiences to share insights and lessons learned from other markets with Pakistan.