Karachi (TDI): After reviewing the country’s digital payments infrastructure, Pakistan’s central bank expressed complete confidence that banks and related vendors could handle the demand from the government to switch from cash-based transactions to digital payments quickly.
There will soon be a big demand for digitalization from the government, according to State Bank of Pakistan (SBP) Executive Director Digital Financial Services Group Syed Sohail Javaad. He was a speaker at the “Future Banking Summit 2024.”
Recalling that a neighboring country effectively handled the cash crunch in 2016 after its government demonetized nearly 86% of banknotes, including notes of Rs. 500 and Rs. 1,000 denominations, to check corruption, he asserted that Pakistan’s digital banking infrastructure was as robustly capable of withstanding high pressure as that of India.
“The impact of digitalization will undoubtedly be felt by banks and merchants alike, though some may encounter difficulties.”
A “war on cash” was earlier announced by Finance Minister Muhammad Aurangzeb to increase tax revenue collection and reintroduce the massive amount of currency in circulation—an estimated Rs 9.3 trillion—into the banking system.
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According to Javaad of the SBP, the government has already begun paying vendor invoices and employee salaries using Raast, the central bank’s quick online payment system.
Digital methods are used more in government department financial activities, including tax collection.
In Islamabad, the federal capital, the government pays more than 90% of its employees through Rast.
Raast handled the salaries of federal government personnel for the first time last month; previously, they were processed through Karachi.
The Auditor General of Pakistan (AGP) and government employees in Punjab and Khyber-Pakhtunkhwa start receiving salaries through Raast next month.
The administration is excited about moving payments online.
Javaad said the country was moving quickly toward a digital economy due to the quick growth of online financial transactions through Raast.
From 1.8 million in June 2024 to 2.5–2.6 million per day, Raast has seen a dramatic increase in financial activities.
The executive director of SBP disclosed that the first financial transactions worth Rs1 trillion on Raast were completed in 336 days.
However, the most recent transactions, valued at Rs 1 trillion, were completed in just 22 days. The trend demonstrates how quickly the rapid payment system is expanding.
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The speaker reported a notable increase in digital payments transactions during the previous five years via mobile wallets, branchless banking, Electronic Money Institutions (EMIs), fintech, and e-commerce.
A significant part of the digitalization of the payment system is being played by EMIs, with the top two branchless banks accounting for 65% of all Raast transactions.
“We’re working on adding more EMI participants. It is anticipated that they will begin doing business there.”
Javaad remarked that according to international norms, digitalizing any entity would improve sales by ten to twenty times.
He therefore urged banks to keep investing in technology to stay competitive, modernize their operations, and promote economic growth.
He continued by saying that only 16% of financial transactions were made over the counter (OTC), with the remaining 84% being completed through online banking.
Merely 17% of financial transactions involve large sums of money, indicating a lack of trust in technology and a fear of losing money that prevents consumers from making significant transactions online.
Carmine Grabandt, Director of Business Development at Giesecke & Devrient GmbH, stated: “Cash continues to be the dominant currency worldwide.
It can’t be eradicated. When infrastructure fails, like it does during floods, it is nevertheless crucial for societies.
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Yahya Khan, Chief Digital Officer and Group Head of Bank Alfalah stated that about one-third of the approximately Rs 9.3 trillion in cash was still in circulation, contributing to significant inflation and the growth of the informal sector.
When banks stopped for regular public business at 5 p.m., he proposed that banks set up ATMs to receive cash from firms that continued to operate after that time.
