Pakistan lags behind others in digital payment systems

KARACHI: Pakistan lags behind other countries in the world of electronic payments as a large number of the businesses and consumers still use paper-based instruments to make transactions, leading to cash-driven economy, the central bank’s report said on Monday.

A variety of paper-based instruments like cheques, pay orders, demand drafts, telegraphic transfer, dividend warrants etc, are still widely used within the country, according to the State Bank of Pakistan (SBP) payment systems review for the fiscal year of 2016/17. The central bank said cheques are the preferred mode of transactions for cash withdrawals, funds transfer, commercial and government payments transactions. A total 451.8 million transactions, worth Rs139.6 trillion, were carried out using paper-based instruments.

These transactions showed a growth of 3.8 percent in volume and a decline of 4.4 percent in value, which included 99.4 million paper-based instruments used for depositing Rs11.3 trillion into bank accounts.

“Despite the increased adoption of eBanking channels, cash payments remained relatively high reflecting the preferred use of cash as the mode of payment,” the SBP report said.

“Although during the past few years, critical payment processing infrastructure, including retail time gross settlement (RTGS) has been implemented in the country, Pakistan is still one of those countries who are lagging behind in terms of the proliferation and ubiquity of digital access points at retail level (like the number of ATMs or point-of-sale (POS) machines.”

The SBP said this lack of retail level digital acceptance infrastructure has been an inhibiting factor for the non-adoption of digital payment instruments by masses and has largely resulted in a cash-dominated economy.

The SBP was developing ways to improve the payment processing infrastructure and the uptake and adoption of digital payments at retail level, while ensuring the safety, trust and confidence of the general public.

It is encouraging to note that government and private sector institutions are also recognising the importance of digital payments and are playing a key role to improve the situation in this regard.  The number of ATMs has been consistently increasing over the last couple of years and reached to 12,689 as of June 30, 2017. On the other hand, the number of POS terminals has increased to 54,490. Similarly, users of internet banking and usage of payment cards are also increasing.

During FY17, the volume of total transactions processed by Pakistan Real-time Interbank Settlement Mechanism  (PRISM) system grew from 0.9 million to 1.1 million showing a growth of 19.4 percent, whereas the value of transactions reached from Rs231.7 trillion to Rs279.5 trillion, showing a growth of 20.6 percent on year-on-year basis.

Of the volume and value processed by PRISM during FY17, customer’s transfers showed an annual growth of 42.6 percent in volume and 24.6 percent in value.

The main reason for this increase was because (i) SBP allowed the use of PRISM for interbank transfer of home remittances; and (ii) instructed banks to offer the facility of fund transfers through PRISM to the general public.

ATMs processed 397.7 million transactions amounting to Rs4.6 trillion during the year, showing YoY growth of 16.1 percent by volume and 23.9 percent by value, respectively. A total 94.3 percent of the transactions amounting to Rs3.9 trillion (85.1 percent) pertain to cash withdrawals, followed by interbank funds transfers which constituted 9.4 million (2.4 percent) and Rs433.1 billion (9.5 percent) by volume and value of transactions, respectively.  During the year under review, internet banking processed 25.2 million transactions worth Rs968.7 billion, showing a growth of 32.5 percent and 10 percent in volume and value, respectively.

As on end June, 2017, the number of reported credit cards in circulation was 1.3 million. During the year under review, 1.8 million e-commerce transactions worth Rs15.0 billion and 23.9 million POS transactions of Rs136.5 billion were processed by these credit cards.

Since its launch in 2016, SBP has been actively working with payment service providers to encourage the issuance of PayPak cards and increase its uptake in the country. For this purpose, it is encouraging to know that as of June 2017, nine payment service providers with a total market share of 73 percent (total cards issued) had started issuing PayPak cards to their customers.