Ever since the pandemic gripped the world and disrupted everything, Pakistan’s payments industry has seen a rapid shift towards digitisation, led by exponential growth in mobile banking.

In fact, 80 per cent of all banking transactions (excluding branchless banking) are digital already, while only 20pc remain over-the-counter and continue to become a smaller part of the pie. On top of it, the new electronic money institutions (EMI) have now reached a meaningful scale, doing over Rs200 billion in the last fiscal year.

Since then, that growth has continued, as the State Bank’s (SBP) latest Payment Systems Review for Q1-FY24 shows. Overall, the e-banking transactions through banks, microfinance banks and EMIs clocked in at 561 million, as against 141.3m done over the counter.

This doesn’t include branchless, where the quantum is far bigger, with volumes of 878.9m in the first quarter. However, in terms of value, the dominance of paper was visible with a throughput of Rs17 trillion, up from Rs15.8tr.

A large chunk — 69pc of the value and 41pc of volume — in digital transactions comes from funds transfer. The second largest component still happens to be automated teller machines (ATM), processing 208.6m transactions worth Rs2.96tr in Q1-FY24.

Online transactions through banks, microfinance banks, and EMIs clocked in at 561m for Q1-FY24 as against 141.3m done over the counter

That’s actually one of the caveats with what we regard as digital, as it includes both real-time online branches (RTOB) and ATMs. In my narrow view, neither of them should really be counted as they are more paper-based from a customer’s point of view.

Therefore, let’s stick to point-of-sales (POS), e-commerce, internet, and mobile banking (MB). So, let’s go over the key trends from the latest edition and put the numbers in context.

For starters, mobile banking throughput clocked in at Rs8.3tr in Q1-FY24, from Rs4.2tr in the same period last year. This translated into a growth of 96.8pc — the highest for any channel by a distance. On the other hand, the increase in transactions of 63.6pc was, in comparison, much lower but took the volumes to 212.5m.

While much less impressive than MB, internet banking also had a pretty healthy quarter. Throughput jumped 32.9pc to cross Rs5tr in Q1-FY24, breaching the threshold for the first time. Volumes also grew 22.43pc to 49.1m, from 40.1m in the same period of the last fiscal year. As a result, the average transaction size reached Rs102,269 — the biggest for any retail channel in our review.

For the last year or so, e-commerce has been a bit of a dark spot among the digital retail channels. The growth has been quite muted; volume-wise, the latest quarter’s 9.6m is still below the peak seen in October-December 2021. However, acquiring throughput has continued to edge up and reached Rs39.6bn in Q1-FY24, from Rs33.5bn in the same period last year.

On the other hand, point of sale has continued to outshine most other channels as throughput reached Rs323bn in Q1-FY24, up 49.3pc from Rs307.5bn in the same period last year. Volume-wise, the growth rate of 40.8pc was even more impressive and second only to mobile banking. As a result, total transactions hit 59.8m, up 42.8m in the first quarter of FY23.

“While there’s been significant growth in digital payments activity, we haven’t even scratched the surface yet as most spending remains concentrated to a select few big merchants. Only 118,000 machines are live at the moment and even fewer retailers. Most of Pakistan’s five million small- and medium-enterprises are still entirely cash based and mostly outside the tax net too,” said Saad Niazi, co-founder and CEO of Keenu, one of the leading POS operators in Pakistan.

“In order to truly push digital payments into the mainstream, we need to bring these merchants online. That requires efforts from all stakeholders, including the Federal Board of Revenue, while the SBP must incentivise incumbents to deploy more machines without operating on negative margins for the sake of market share. The industry needs to see some way to make a return from their investments,” he added.

There was some improvement in terms of infrastructure and acceptance as well. On the issuing side, total payment cards increased by 2.7m over the previous quarter to 54.3m as of Q1-FY24, while the EMIs also took their total e-wallets to 2.4m.

Similarly, acquiring activity increased by adding 421 e-commerce merchants and 3,156 POS terminals.

This time around, the SBP experimented with a new reporting approach as it presented data by type of transaction instead of channel, which made comparison to previous reports a little trickier. No breakdown was available for Raast either. Hopefully, with the proper rollout of its person-to-merchant module, that’d change, and we’d see information at a more granular level.

The writer is the co-founder of Data Darbar

Published in Dawn, The Business and Finance Weekly, January 8th, 2024