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Digital transactions in Pakistan soared 31.1% to Rs. 88 trillion or $500 Billion in fiscal year 2020-21, according to the nation's top central banker. “If the figure is $500 billion now, you can imagine the pace at which we are digitizing,” said Dr. Baqir Raza, Governor of the State Bank of Pakistan, adding that those transactions showed a year-on-year growth of 30.6% in volume and 31.1% in value. The nation's central bank also reported that the large-value payments segment, known as Real-time Inter-Bank Settlement Mechanism (PRISM), saw growth of 60% by volume and 12.8% by value to Rs. 444.6 trillion or $2.5 trillion in FY 2020-21. There are several factors driving rapid shift to digital technology, including expanding digital infrastructure, new technologies and the government's efforts to document Pakistan's huge undocumented economy. Grey-listing of Pakistan by the Financial Action Task Force (FATF) has also played a role.
|Internet & Mobile Banking in Pakistan. Source: SBP|
Digital Transactions Growth:
Growth in digital transactions was led by major uptake in mobile banking (29% increase in the number of users and 133.6% and 178.7% hike in volume and value, respectively) and internet banking (32% increase in the number of users and 65.1% and 91.7% up in volume and value, respectively), according to the State Bank of Pakistan. “If the figure is $500 billion now, you can imagine the pace at which we are digitizing,” said Dr. Baqir Raza, the head of Pakistan's central bank.“Therefore, there is a huge potential for enhancing financial inclusion,” he added.
|E-Banking in Pakistan. Source: Dawn|
Pakistan's central bankers have taken the plunge into the world of digital payments with their own offering: Raast. It aims to create an instant low-cost payment system that can seamlessly and securely connect government entities, a variety of banks, including microfinance banks (MFBs), electronic money institutions (EMIs) and State Bank authorized payment service providers (PSPs) like 1Link and NIFT which may choose to take advantage of it. Currency and coins in circulation account for about 43% of Pakistan's total money supply. The introduction of Raast is part of the government's effort to modernize and document the nation's cash-based informal economy. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion. Digital financial services will also promote e-commerce in Pakistan.
|Raast Digital Payment System. Source: State Bank of Pakistan|
Raast Digital Payments:
Raast is a system of digital payment infrastructure. It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost.
Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs.
State Bank of Pakistan intends to demonstrate Raast's usefulness by first processing government payments to individuals, including government employees and Ehsaas welfare beneficiaries, before expanding it for business applications. SBP’s plan is to start person-to-person (P2P) payments using just the phone numbers in Q3/2021 and then bring merchants on board with QR codes by Q1/2022.