Past Fiscal year Shows huge rise in digital payments ecosystem

Mobile phone banking increased by 100.4% to 387.5 million during the year, while internet banking increased by 51.7% to 141.7 million, according to the report.

Past Fiscal year Shows huge rise in digital payments ecosystem

The size of the digital payments ecosystem has grown dramatically in the last fiscal year, according to the State Bank of Pakistan’s (SBP) Annual Payment Systems Review for 2021–22. According to the report, mobile phone banking increased by 100.4% to 387.5 million during the year, while internet banking increased by 51.7% to 141.7 million.

The impressive figures follow an important year for the digital payments ecosystem, which saw a number of milestones. With the SBP-backed Raast gaining traction and electronic money institutions (EMIs) gaining popularity among customers, all signs point to money becoming digital very soon. Cash transactions have also gained traction, with ATM networks proliferating and cash withdrawals from ATMs increasing by double digits year on year.

Mobile phone banking and internet banking grew strongly by 141.1% and 81.1%, respectively. Ecommerce transactions also witnessed similar trends as the volume grew by 107.4% to 45.5 million. During FY22, a total of 32,958 Point of Sales (POS) machines were deployed in the country.

E-commerce merchants registered with the banks increased to 4,887 in FY21-22, from 3,003 merchants during the previous year. There were 15 million registered P2P Raast users, carrying out 7.9 million transactions amounting to Rs 102.1 billion in value.

The number of large-value transactions in Pakistan reached 4.37 million by FY22 amounting to Rs 681.6 trillion with an annual growth of 53.3% in value. Paper-based transactions declined by 1.0% in volume though its value grew to Rs 190.4 trillion, almost 25.6% higher than last year.

The number of bank accounts in Pakistan grew by 4. Branchless banking accounts also increased by 18.6%, reaching 88.5 million, according to State Bank’s report. The ATMs network in the country grew by 4.8% during the year reaching 17,133 ATMs.

A total of 692.3 million transactions were carried out through ATMs which amounted to Rs 9.6 trillion, 19.2% higher than FY21. Cash withdrawals from ATMs picked up from Rs7.29 trillion in 2020-21, to 670.6 million in 2021-22. The overall number of payment cards, however, decreased during the year.

According to the State Bank’s annual report, Sadapay, Nayapay, Finja, and CMPECC, the four fully licenced EMIs (electronic money institutions), had a total of 262,558 active accounts and 514,961 payment cards issued to their customers. Last year’s EMI figures were not available to compare how these figures have grown.

The SBP has previously emphasized the role fintech can play in boosting digital payments ecosystem and financial inclusion.

During his speech at the Institute of Banking Pakistan Annual Award Ceremony, Jameel Ahmad, Governor SBP, emphasised the importance of banks revisiting their traditional approach to service delivery and adapting quickly as digitalization shifts the balance of power away from banks and toward tech-savvy entities, indicating a growing trend in fintech.

“Taking advantage of digital technology is critical not only to promote financial inclusion, but also to ensure that the industry keeps up with emerging global trends,” Ahmed believes.

When discussing the significance of technology, Ahmad cites M-Pesa, a Kenyan fintech. “A frequently cited success story is that of M-Pesa in Kenya, where it single-handedly drove mobile financial service availability and successfully increased financial service access.”

According to Ahmad, a number of factors exist in Pakistan that can help drive digital financial innovation and the spread of a tech-based financial ecosystem. He noted that the country has a fully functional digital ID system, widespread use of mobile devices, widespread penetration of mobile and broadband services, the availability of faster payment rails, a remote account opening process, and a favourable regulatory environment for non-bank entities to enter the financial arena.

The Central Banker also points out that, while fintech has increased competition, it has also provided an opportunity for the sector to create synergies and mutually beneficial partnerships.

“Banks and Fintechs can partner with each other to provide innovative products for customers that are otherwise not viable on a standalone basis. Such collaborations can assist banks in expanding into untapped markets such as retail businesses and micro- and small-medium enterprises, resulting in positive outcomes for all stakeholders,” he said.

Ahmad encouraged banks that have yet to make consistent and sustained moves toward technological transformation to use digital bank frameworks and the RAAST instant payment system to position themselves for the future.