Over the last few years, Pakistan’s banking has reaped massive profits on the back of the sovereign’s ever-growing fiscal needs. In the process, it has drawn the ire of everyone, including the International Monetary Fund in the latest Article IV report, for depending on the government.

However, one area where the sector seems to have done well, at least in relative terms, is in digitalisation as far as payments are concerned, as shown by the numbers in the latest Annual Payment Systems Review (PSR) FY24 by the State Bank.

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In this regard, FY24 was no different as digital transactions continued not only in absolute terms but also as part of the overall piece. Their shares in throughput and volumes reached 13.4 per cent and 52.4pc in the outgoing fiscal year, compared to just 2.6pc and 16.9pc in FY20.

There were a few major breakthroughs over the last year, starting with how mobile banking overtook ATMs by number of transactions to become the single largest digital channel during the first quarter and has only extended its lead ever since. Similarly, for the 12 months, its volumes crossed the billion mark for the first time to reach 1.12 billion while throughput clocked in at Rs46.3 trillion.

Mobile banking overtook ATMs by the number of transactions to become the single largest digital channel during the first quarter and has only extended its lead ever since

Even in terms of growth, mobile banking was ahead of others, growing by 95.1pc by value and 70pc by volume. However, during April-June, the throughput barely edged up 4.3pc over the preceding quarter — the first such occurrence after Covid-19.

Internet banking also had a good run, processing volumes of 223.2 million worth Rs23.5 trillion in FY24 — up 30pc and 44pc, respectively. As a result, its average transaction surpassed Rs105,000, crossing the six-digit threshold for the first time. While the State Bank doesn’t explicitly give a breakdown of the underlying use cases, this channel has a tilt towards business-to-business payments, though an even larger, albeit declining, component continues to go via cheques.

On the other side, point of sale dominated with a throughput of Rs1.5tr across 271.4m transactions. This translates into a yearly increase of 41.2pc and 33.6pc, respectively — positioning it as the second fastest growing channel by volumes. Similarly, the number of terminals reached 125,593 across 98,936 merchants.

Meanwhile, e-commerce had yet another uninspiring year. Though volumes were up 25.5pc to 39.9m, they still remain considerably below the FY22 level of 45.5m. Nevertheless, throughput managed to increase by 36.8pc to Rs194.4bn, thanks to the inflation. However, this is only part of the story as the data only corresponds to card-based payments.

Both anecdotally and using small surveys, qualitative and quantitative, cards are not the preferred channel for digitally paid online orders. In fact, fund transfers reign supreme there and the latest PSR for the first time gives a glimpse of that.

Raast has done particularly well on the P2P side, processing a throughput of Rs3.9tr across 116.8m transactions, an increase of 198pc and 130pc YoY, respectively

According to the SBP, 269m transactions worth Rs211.6bn were actually processed via accounts and digital wallets. Put another way, 87.1pc of the volumes are not through cards. In all likelihood, this doesn’t include the fund transfers via mobile banking, where the average transaction size — and therefore the throughput — should be much higher.

That problem also applies to physical retail transactions where a significant share of non-cash payments actually go through online fund transfers. You have probably done it to pay your Careem captain, the neighbourhood kiryana or even at the electronics market in Saddar. From both the buyer and seller perspective, these are essentially digital transactions and are arguably even cheaper, but they have some limitations in the grander scheme of things.

First of all, their quantum remains largely unknown because of how data is recorded and outside the reach of tax authorities. Secondly, peer-to-peer (P2P) transfers also come with one big limitation in that there is no recourse for the customer. Think of all those social media posts where people complain about sending money to an e-commerce store and then getting ghosted. With proper merchant payments, there is dispute resolution and possible chargeback. Raast peer-to-merchant effectively plans to change this by aligning business incentives and making the technology convenient for users, such as QR or request-to-pay.

However, that module is still in the early days and will take some time before progress becomes visible. Where Raast has done particularly well so far is on the P2P side, processing a throughput of Rs3.9tr across 116.8m transactions during April-June alone — surging by 198pc and 130pc, respectively over the same period of the previous year.

That also masquerades the underlying gap in our digitisation journey, where most growth remains quite concentrated towards the P2P side. Individuals with bank accounts or digital wallets already seem to be transitioning towards digital channels quickly. But what about businesses? Unfortunately, the progress there is quite muted as banking institutions remain practically uninterested in building any innovative products.

The writer is the co-founder of Data Darbar

Published in Dawn, The Business and Finance Weekly, October 13th, 2024