Online Scams In Pakistan Destroying Digital Economy

Pakistan’s fast-growing but largely informal online economy has been affected by pandemic and economic turmoil, leading to more people looking for ways to make a fast buck.

Online Scams In Pakistan Destroying Digital Economy

Pakistan’s preferred supplier of gaming accessories, ZipTech, has defrauded 260 people out of 67 million rupees, or roughly $300,000. Owner of ZipTech, Major Zippy, has vanished, and his mobile phone was unreachable. How little attention the government gives to the security of digital spaces has been demonstrated by the scandal surrounding one of online scams in Pakistan.

Pakistan’s fast-growing but largely informal online economy has been affected by the pandemic and economic turmoil, leading to more people looking for ways to make a fast buck. This has led to scams, frauds, and mismanagement that have left customers out of pocket, threatening the integrity of the ecosystem.

Meenah Tariq, cofounder and CEO of accounting app Metric, says the country’s digital economy has been on the cusp of dramatic growth, with startups and VC investment looking for opportunities to convert a largely cash-based, informal economy into a digital one. Studies indicate that nearly 60% of Pakistan’s economy is informal, with the majority of local companies undocumented and outside the tax net.

Pakistan’s e-commerce ecosystem is largely cash-based, with 95% of companies receiving payments for their online orders via cash-on-delivery. Smaller sellers prefer to stay outside the tax system, which means continuing to transact in cash rather than moving on to digital payment systems. This impacts the growth of the e-commerce ecosystem in Pakistan.

During the pandemic, a lot of sellers moved online, often through social media and messaging platforms. Facebook groups such as Packr began to thrive when the country placed an import ban on luxury items in May 2022, allowing customers to sidestep hefty customs and import duties. This has had an impact on how people buy online in Pakistan, and who they buy from.

Usman Sheikh, one of the moderators of the Pakistani PC Gamers Facebook group, woke to a barrage of angry emails from people demanding to know why their ZipTech orders hadn’t been delivered. He tried to reply to them all, sitting at his computer from 6 a.m. to 10 p.m. Sheikh, 24, joined the group when he was 13 and grew up on a steady diet of video games.

He became an avid online gamer, playing Counter-Strike: Global Offensive with gamers from different corners of the world. Major Zippy, a Fortnite streamer with 8,000 subscribers on YouTube, made the transition to selling new and refurbished gaming CPUs during the pandemic.

The group ran a crowdsourced verification process for sellers, looking at buyer reviews before giving anyone an endorsement. Zippy, a 16-year-old girl, had lost her father and was trying to support her family by working as a graphic designer. Zippy built her a computer with custom specifications that could support graphic design software, all for free.

Zippy seemed to be doing well, posting pictures of cars he had bought, including a 2018 Mercedes and a 2021 MG HS. However, a later search of Pakistan’s publicly available car registration database revealed that the vehicles were registered under a different name. In April 2022, Zippy posted an apology note saying he was sorry for not delivering orders on time, and that he would make it up to everyone.

Sheikh is still struggling to understand why Zippy did what he did, but scams and swindles have proliferated in Pakistan due to the growth of informal online businesses.

Last year, hundreds of Pakistani women were scammed by Sidra Humaid, who ran online committees. After collecting nearly $2 million, Humaid announced that she had no means to pay off her committees.

In 2020, over 100,000 people in Khyber Pakhtunkhwa province of Pakistan were robbed of 5.6 billion rupees ($19 million) by online scam victims. Tariq, a tech founder, believes the rise in online scams in Pakistan is due to economic stress and the lack of recourse for victims.

Recently, she heard about loan sharks preying on working-class women borrowing money to make ends meet. She also sees it in the startup ecosystem, where startups are getting bad terms from pretend investors.

Khizer Ali Khan, a lawyer, was inspired to take legal action after reading accounts from angry ZipTech customers in April. He offered to take the case pro bono, and within a day, 150 people had reached out for help, calling him a saviour.

The police sent legal notices to Zippy’s shops in Karachi on May 17, his villa in Bahria Town, and his other residence in Sukkur. All the notices were sent back, and the shops he had opened were closed. A group of people who had bought from ZipTech in Karachi decided to file a complaint, but they were dismissed. The police demanded receipts, which Zippy’s customers did not have.

Lawyers in Pakistan have long been frustrated by the lack of interest in white-collar crimes, such as the FTX collapse. However, in the past few weeks, law enforcement has started to take interest. On January 30, Khan received an email from the Federal Investigation Agency asking him to submit a statement via email in the case against Muhammad Hassan, aka Major Zippy, aka Hassan Cheetah.

The agency called him on February 10, and asked him to round up a handful of people who had paid ZipTech but never received their items and record statements in-person at the agency’s office in Karachi. It is not clear what prompted the sudden interest.

Khan’s post in the Pakistani PC Gamers group encourages people to come forward and record their statements, but there are also detractors who express their disillusionment with Pakistan’s justice system. If the case proceeds, Zippy’s Pakistani passport would be canceled, and he would be arrested on arrival.

Whatever the outcome of the legal dispute, Major Zippy has destroyed the neighbourhood he once called home. According to Khan, there is currently a lack of trust between sellers and buyers. No one trusts you if you’re not conducting a face-to-face transaction. This disaster has largely cost the gaming industry a lot of money. irreparable harm.