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How money moves

How money moves in Pakistan

Written by

George Davis

on

Jan 10, 2024

/

How money moves

How money moves in Pakistan

Written by

George Davis

on

Jan 10, 2024

/

How money moves

How money moves in Pakistan

Written by

George Davis

on

Dec 13, 2023

How money moves: Pakistan
How money moves: Pakistan
How money moves: Pakistan

The short version

Starting 2024, we’re shifting further East for this post in our How Money Moves series: Pakistan. It has the fifth largest global population and is a significant youth-driven market on the cusp of innovation. Over the past few years, economic challenges have been at the fore. Strategic investments from partners across MENA and a new, ambitious fiscal vision combine to bring positive change. A wave of digital payments encouraged by the regulator creates an exciting opportunity in the market to serve previously underbanked communities. 

The long version

The Islamic Republic of Pakistan (Urdu; اِسلامی جمہوریہ پاكِستان) is situated in South Asia and forms an extension to our focus on the MENA region. It is commonly associated with its neighbours Iran, Afghanistan, and India. At the base of the Himalayan mountains, lies the capital city, Islamabad in the North while the most populous city, Karachi is established along Pakistan’s Southern coast. A length of the Silk Road runs through Pakistan which is an ancient trade route connecting East Asia with the rest of the world.

Pakistan has the fifth largest population in the world, calculated at 241 million in 2023. Of this, it sits within the world’s top ten largest labour forces at 76 million. Yet, almost 90% of such work falls within the informal sector, estimated at $180 billion annually. Over 60 languages are spoken across the country, with Urdu and English being official languages. A State Bank of Pakistan (SBP) survey indicated that a low 23% of the population is financially literate, which has contributed to largely unbanked communities. The median population age is recorded at a very young 20.6 years. This is significantly lower than many other markets we’ve discussed in this series, such as Morocco (29 years), Lebanon (28.8 years) or Bahrain (33.6 years). It is predicted that this emerging young workforce will bring a strong tide of freelancing into the economy. 

Turning to the economic landscape, Pakistan is taking steps to bolster its current trajectory. The SBP governor, Jameel Ahmed has shared the central bank’s 5 year strategy to regain financial stability: Vision 2028. The Vision includes “maintaining inflation within the medium-term target range, enhancing efficiency, effectiveness, fairness and stability of the financial system, promoting inclusive and sustainable access to financial services, transforming to a shariah-compliant banking system, building an innovative and inclusive digital financial services system, and transforming SBP into a high-tech, people-centric organisation”. It is an ambitious strategy which critics discuss its effectiveness relative to the current economic challenges.  

Nominal GDP fell from $376.53 billion in 2022 to $340.64 billion in 2023. Inflation is on the rise reaching 38% and there is steady depreciation of the Pakistani Rupee (PKR). Saudi Arabia provided $2 billion in financial support through deposits into the SBP to up foreign reserves. The International Monetary Fund (IMF) agreed to a $3 billion financing deal late last year to aid the Pakistani economy. Last November, the UAE and Pakistan signed Memorandums of Understanding (MoUs) for investment in various local sectors, reportedly around $20 to $25 billion although the official value is not confirmed. With digitization of the marine sector, it plans to increase exports to the Gulf Cooperation Council (GCC) in the coming years. Plus, the country has submitted an application to join the group of emerging nations in BRICS. Most recently, the bloc doubled to include MENA players: Saudi, UAE, Egypt, Iran, and Ethiopia. Ties between Pakistan and the Middle East continue to strengthen. With a successful entry to BRICS, the economy can look forward to further bilateral trade, investment as well as the introduction of new sectors and innovation.

When we take a look at remittances, Pakistan receives most inflows from the Gulf states, predominantly the UAE, Saudi and Kuwait. Relative to the world average for remittances at 5.4% of GDP, Pakistan exceeds this at 7.93% for 2022. In 2023, remittance inflows clocked at $27 billion which dropped from $31.3 billion the previous year. In a recent survey, Arab News reported over 96% of registered Pakistani expats are based in the GCC, from unskilled to highly skilled workers. The Pakistani Ambassador to Saudi explains the increased opportunity, high salaries and the cultural similarities between the GCC and Pakistan attracts expats to the region. Based on the SBP’s objective for financial stability, in 2009 it introduced the Pakistan Remittance Initiative (PRI) aimed to stabilise the rupee’s value and up remittance inflows. PRI aims to incentivize senders to use formal channels over informal alternatives - making transfers faster, cheaper and more convenient. Last year SBP announced that Raast (a local instant payment method) will be integrating with Buna to power instant remittances between all GCC central banks and Pakistan.

The gig economy proves a major feature of the country’s remittance market. Behind India and Bangladesh, Pakistan is the third largest contributor to the global gig economy workforce at 11% worldwide. In 2022, freelancers earned over $400 million in export remittances. Since 2020, there has been a drastic increase in freelancing, with an annual growth rate of 74%. The government investment in digital skills - known as the “Digital Pakistan” initiative - has supported the development of a highly skilled freelance workforce. Such exports pose an interesting question around currency. IT companies and freelancers are requesting to hold 35% of income generated in foreign currency for international business development. Given the government’s goal to boost monthly remittances to $1 billion, they’ve agreed. However, foreign currency is held offshore as local banks do not offer a US dollar facility, due to the reported national USD shortage. 

Digital payments prove to be the golden child of local economic growth, according to SBP review for 2023:

  • Back in 2019, only 11.5% of all transactions were digital compared with 42.2% in 2023.

  • Mobile banking is up 70% to 660 million transactions while internet banking is up 21% at 171.8 million transactions year-on-year for 2023.

  • Point of sale (POS) transactional value has increased by 50% compared with 2022, totalling PKR 1.06 trillion for just under 2 million transactions. 

  • The E-commerce market value is up 34% year on year, valued at PKR 142 billion however the number of transactions has declined by 30% to 31.8 million for 2023.

This positive trajectory is expected to continue into the coming years. Mastercard’s New Payment Index (2022) shows almost 90% of locals having used a modern payment method within the year. With 31% using money transfer apps and 19% opting for biometric payments. A further 12% indicated that they’ve used less cash compared with previous years. In 2021, it was reported that 54% of the population have web access and mobile penetration is above 77% aiding modern payment adoption. By 2027, it’s predicted that the local digital payment market will have 72.57 million users.

Fintechs are on the rise.

In 2009, the first fintech company, Easypaisa emerged offering a mobile wallet app for transfers and other services. Today, it has 35 million customers and 12 million active users. Another frontrunner is JazzCash which acts as a micro bank to the underbanked, promoting financial inclusion. Visa partnered with Tez Financial Services, SafePay and NayaPay to facilitate convenient and safe online payments targeting the unbanked customer segments. Tez Financial Services offers investments, credit and savings in a single mobile platform. SafePay, backed by Y Combinator and Stripe, helps merchants accept digital payments and manages transaction reporting. NayaPay offers a mobile wallet and debit card solution.

A key challenge in the market is the stakeholder weariness of innovation. Large, traditional banks and telecoms invest in fintechs but may be resistance towards industry changes. However, the SBP has a vested interest in the digital transformation of Pakistan which has become a progressive regulator to encourage innovation. For example, SBP in collaboration with local commercial banks, launched the Roshan Digital Account in 2020. This banking solution is designed for the Pakistani diaspora to access local banking activities. Therefore, expat workers living abroad can open a bank account fully online to access essential services. PayPak, the first domestic payment service, was launched in 2020 by 1Link with the support of SBP. This scheme was created to reduce interchange costs, routing all transactions domestically. Plus, SBP recently designed the “Customers’ Digital Onboarding Framework” which provides banks a guideline for account creation via online channels.

The SBP is the regulatory body which oversees payment activities in Pakistan. In 2019, SBP’s National Payment Systems Strategy set out to encourage innovation and digitisation in payments for non-banking players. Subsequently,  a regulatory sandbox was introduced to encourage innovation in the financial sector, providing startups a safe environment for product testing. Similar to other regulatory regimes, there are two major payment licences:

  1. The Payment Service Provider (PSP) licence: This licence enables payment settlement services between participants. The minimum capital requirement is PKR 200 million which may be adjusted by the SBP. 

  2. The Electronic Money Institutions (EMI) licence: This licence enables institutions to offer “interoperable and secure digital payment products and services to end users.” This licence was introduced in 2019 where EMI applicants are granted the licence in three stages. 

Major technological adoption and a progressive regulator create an attractive environment for payment innovation. If you’re looking to add Pakistan on your roadmap, reach out to the team at Fuse to help your expansion strategy.

The Islamic Republic of Pakistan (Urdu; اِسلامی جمہوریہ پاكِستان) is situated in South Asia and forms an extension to our focus on the MENA region. It is commonly associated with its neighbours Iran, Afghanistan, and India. At the base of the Himalayan mountains, lies the capital city, Islamabad in the North while the most populous city, Karachi is established along Pakistan’s Southern coast. A length of the Silk Road runs through Pakistan which is an ancient trade route connecting East Asia with the rest of the world.

Pakistan has the fifth largest population in the world, calculated at 241 million in 2023. Of this, it sits within the world’s top ten largest labour forces at 76 million. Yet, almost 90% of such work falls within the informal sector, estimated at $180 billion annually. Over 60 languages are spoken across the country, with Urdu and English being official languages. A State Bank of Pakistan (SBP) survey indicated that a low 23% of the population is financially literate, which has contributed to largely unbanked communities. The median population age is recorded at a very young 20.6 years. This is significantly lower than many other markets we’ve discussed in this series, such as Morocco (29 years), Lebanon (28.8 years) or Bahrain (33.6 years). It is predicted that this emerging young workforce will bring a strong tide of freelancing into the economy. 

Turning to the economic landscape, Pakistan is taking steps to bolster its current trajectory. The SBP governor, Jameel Ahmed has shared the central bank’s 5 year strategy to regain financial stability: Vision 2028. The Vision includes “maintaining inflation within the medium-term target range, enhancing efficiency, effectiveness, fairness and stability of the financial system, promoting inclusive and sustainable access to financial services, transforming to a shariah-compliant banking system, building an innovative and inclusive digital financial services system, and transforming SBP into a high-tech, people-centric organisation”. It is an ambitious strategy which critics discuss its effectiveness relative to the current economic challenges.  

Nominal GDP fell from $376.53 billion in 2022 to $340.64 billion in 2023. Inflation is on the rise reaching 38% and there is steady depreciation of the Pakistani Rupee (PKR). Saudi Arabia provided $2 billion in financial support through deposits into the SBP to up foreign reserves. The International Monetary Fund (IMF) agreed to a $3 billion financing deal late last year to aid the Pakistani economy. Last November, the UAE and Pakistan signed Memorandums of Understanding (MoUs) for investment in various local sectors, reportedly around $20 to $25 billion although the official value is not confirmed. With digitization of the marine sector, it plans to increase exports to the Gulf Cooperation Council (GCC) in the coming years. Plus, the country has submitted an application to join the group of emerging nations in BRICS. Most recently, the bloc doubled to include MENA players: Saudi, UAE, Egypt, Iran, and Ethiopia. Ties between Pakistan and the Middle East continue to strengthen. With a successful entry to BRICS, the economy can look forward to further bilateral trade, investment as well as the introduction of new sectors and innovation.

When we take a look at remittances, Pakistan receives most inflows from the Gulf states, predominantly the UAE, Saudi and Kuwait. Relative to the world average for remittances at 5.4% of GDP, Pakistan exceeds this at 7.93% for 2022. In 2023, remittance inflows clocked at $27 billion which dropped from $31.3 billion the previous year. In a recent survey, Arab News reported over 96% of registered Pakistani expats are based in the GCC, from unskilled to highly skilled workers. The Pakistani Ambassador to Saudi explains the increased opportunity, high salaries and the cultural similarities between the GCC and Pakistan attracts expats to the region. Based on the SBP’s objective for financial stability, in 2009 it introduced the Pakistan Remittance Initiative (PRI) aimed to stabilise the rupee’s value and up remittance inflows. PRI aims to incentivize senders to use formal channels over informal alternatives - making transfers faster, cheaper and more convenient. Last year SBP announced that Raast (a local instant payment method) will be integrating with Buna to power instant remittances between all GCC central banks and Pakistan.

The gig economy proves a major feature of the country’s remittance market. Behind India and Bangladesh, Pakistan is the third largest contributor to the global gig economy workforce at 11% worldwide. In 2022, freelancers earned over $400 million in export remittances. Since 2020, there has been a drastic increase in freelancing, with an annual growth rate of 74%. The government investment in digital skills - known as the “Digital Pakistan” initiative - has supported the development of a highly skilled freelance workforce. Such exports pose an interesting question around currency. IT companies and freelancers are requesting to hold 35% of income generated in foreign currency for international business development. Given the government’s goal to boost monthly remittances to $1 billion, they’ve agreed. However, foreign currency is held offshore as local banks do not offer a US dollar facility, due to the reported national USD shortage. 

Digital payments prove to be the golden child of local economic growth, according to SBP review for 2023:

  • Back in 2019, only 11.5% of all transactions were digital compared with 42.2% in 2023.

  • Mobile banking is up 70% to 660 million transactions while internet banking is up 21% at 171.8 million transactions year-on-year for 2023.

  • Point of sale (POS) transactional value has increased by 50% compared with 2022, totalling PKR 1.06 trillion for just under 2 million transactions. 

  • The E-commerce market value is up 34% year on year, valued at PKR 142 billion however the number of transactions has declined by 30% to 31.8 million for 2023.

This positive trajectory is expected to continue into the coming years. Mastercard’s New Payment Index (2022) shows almost 90% of locals having used a modern payment method within the year. With 31% using money transfer apps and 19% opting for biometric payments. A further 12% indicated that they’ve used less cash compared with previous years. In 2021, it was reported that 54% of the population have web access and mobile penetration is above 77% aiding modern payment adoption. By 2027, it’s predicted that the local digital payment market will have 72.57 million users.

Fintechs are on the rise.

In 2009, the first fintech company, Easypaisa emerged offering a mobile wallet app for transfers and other services. Today, it has 35 million customers and 12 million active users. Another frontrunner is JazzCash which acts as a micro bank to the underbanked, promoting financial inclusion. Visa partnered with Tez Financial Services, SafePay and NayaPay to facilitate convenient and safe online payments targeting the unbanked customer segments. Tez Financial Services offers investments, credit and savings in a single mobile platform. SafePay, backed by Y Combinator and Stripe, helps merchants accept digital payments and manages transaction reporting. NayaPay offers a mobile wallet and debit card solution.

A key challenge in the market is the stakeholder weariness of innovation. Large, traditional banks and telecoms invest in fintechs but may be resistance towards industry changes. However, the SBP has a vested interest in the digital transformation of Pakistan which has become a progressive regulator to encourage innovation. For example, SBP in collaboration with local commercial banks, launched the Roshan Digital Account in 2020. This banking solution is designed for the Pakistani diaspora to access local banking activities. Therefore, expat workers living abroad can open a bank account fully online to access essential services. PayPak, the first domestic payment service, was launched in 2020 by 1Link with the support of SBP. This scheme was created to reduce interchange costs, routing all transactions domestically. Plus, SBP recently designed the “Customers’ Digital Onboarding Framework” which provides banks a guideline for account creation via online channels.

The SBP is the regulatory body which oversees payment activities in Pakistan. In 2019, SBP’s National Payment Systems Strategy set out to encourage innovation and digitisation in payments for non-banking players. Subsequently,  a regulatory sandbox was introduced to encourage innovation in the financial sector, providing startups a safe environment for product testing. Similar to other regulatory regimes, there are two major payment licences:

  1. The Payment Service Provider (PSP) licence: This licence enables payment settlement services between participants. The minimum capital requirement is PKR 200 million which may be adjusted by the SBP. 

  2. The Electronic Money Institutions (EMI) licence: This licence enables institutions to offer “interoperable and secure digital payment products and services to end users.” This licence was introduced in 2019 where EMI applicants are granted the licence in three stages. 

Major technological adoption and a progressive regulator create an attractive environment for payment innovation. If you’re looking to add Pakistan on your roadmap, reach out to the team at Fuse to help your expansion strategy.

The Islamic Republic of Pakistan (Urdu; اِسلامی جمہوریہ پاكِستان) is situated in South Asia and forms an extension to our focus on the MENA region. It is commonly associated with its neighbours Iran, Afghanistan, and India. At the base of the Himalayan mountains, lies the capital city, Islamabad in the North while the most populous city, Karachi is established along Pakistan’s Southern coast. A length of the Silk Road runs through Pakistan which is an ancient trade route connecting East Asia with the rest of the world.

Pakistan has the fifth largest population in the world, calculated at 241 million in 2023. Of this, it sits within the world’s top ten largest labour forces at 76 million. Yet, almost 90% of such work falls within the informal sector, estimated at $180 billion annually. Over 60 languages are spoken across the country, with Urdu and English being official languages. A State Bank of Pakistan (SBP) survey indicated that a low 23% of the population is financially literate, which has contributed to largely unbanked communities. The median population age is recorded at a very young 20.6 years. This is significantly lower than many other markets we’ve discussed in this series, such as Morocco (29 years), Lebanon (28.8 years) or Bahrain (33.6 years). It is predicted that this emerging young workforce will bring a strong tide of freelancing into the economy. 

Turning to the economic landscape, Pakistan is taking steps to bolster its current trajectory. The SBP governor, Jameel Ahmed has shared the central bank’s 5 year strategy to regain financial stability: Vision 2028. The Vision includes “maintaining inflation within the medium-term target range, enhancing efficiency, effectiveness, fairness and stability of the financial system, promoting inclusive and sustainable access to financial services, transforming to a shariah-compliant banking system, building an innovative and inclusive digital financial services system, and transforming SBP into a high-tech, people-centric organisation”. It is an ambitious strategy which critics discuss its effectiveness relative to the current economic challenges.  

Nominal GDP fell from $376.53 billion in 2022 to $340.64 billion in 2023. Inflation is on the rise reaching 38% and there is steady depreciation of the Pakistani Rupee (PKR). Saudi Arabia provided $2 billion in financial support through deposits into the SBP to up foreign reserves. The International Monetary Fund (IMF) agreed to a $3 billion financing deal late last year to aid the Pakistani economy. Last November, the UAE and Pakistan signed Memorandums of Understanding (MoUs) for investment in various local sectors, reportedly around $20 to $25 billion although the official value is not confirmed. With digitization of the marine sector, it plans to increase exports to the Gulf Cooperation Council (GCC) in the coming years. Plus, the country has submitted an application to join the group of emerging nations in BRICS. Most recently, the bloc doubled to include MENA players: Saudi, UAE, Egypt, Iran, and Ethiopia. Ties between Pakistan and the Middle East continue to strengthen. With a successful entry to BRICS, the economy can look forward to further bilateral trade, investment as well as the introduction of new sectors and innovation.

When we take a look at remittances, Pakistan receives most inflows from the Gulf states, predominantly the UAE, Saudi and Kuwait. Relative to the world average for remittances at 5.4% of GDP, Pakistan exceeds this at 7.93% for 2022. In 2023, remittance inflows clocked at $27 billion which dropped from $31.3 billion the previous year. In a recent survey, Arab News reported over 96% of registered Pakistani expats are based in the GCC, from unskilled to highly skilled workers. The Pakistani Ambassador to Saudi explains the increased opportunity, high salaries and the cultural similarities between the GCC and Pakistan attracts expats to the region. Based on the SBP’s objective for financial stability, in 2009 it introduced the Pakistan Remittance Initiative (PRI) aimed to stabilise the rupee’s value and up remittance inflows. PRI aims to incentivize senders to use formal channels over informal alternatives - making transfers faster, cheaper and more convenient. Last year SBP announced that Raast (a local instant payment method) will be integrating with Buna to power instant remittances between all GCC central banks and Pakistan.

The gig economy proves a major feature of the country’s remittance market. Behind India and Bangladesh, Pakistan is the third largest contributor to the global gig economy workforce at 11% worldwide. In 2022, freelancers earned over $400 million in export remittances. Since 2020, there has been a drastic increase in freelancing, with an annual growth rate of 74%. The government investment in digital skills - known as the “Digital Pakistan” initiative - has supported the development of a highly skilled freelance workforce. Such exports pose an interesting question around currency. IT companies and freelancers are requesting to hold 35% of income generated in foreign currency for international business development. Given the government’s goal to boost monthly remittances to $1 billion, they’ve agreed. However, foreign currency is held offshore as local banks do not offer a US dollar facility, due to the reported national USD shortage. 

Digital payments prove to be the golden child of local economic growth, according to SBP review for 2023:

  • Back in 2019, only 11.5% of all transactions were digital compared with 42.2% in 2023.

  • Mobile banking is up 70% to 660 million transactions while internet banking is up 21% at 171.8 million transactions year-on-year for 2023.

  • Point of sale (POS) transactional value has increased by 50% compared with 2022, totalling PKR 1.06 trillion for just under 2 million transactions. 

  • The E-commerce market value is up 34% year on year, valued at PKR 142 billion however the number of transactions has declined by 30% to 31.8 million for 2023.

This positive trajectory is expected to continue into the coming years. Mastercard’s New Payment Index (2022) shows almost 90% of locals having used a modern payment method within the year. With 31% using money transfer apps and 19% opting for biometric payments. A further 12% indicated that they’ve used less cash compared with previous years. In 2021, it was reported that 54% of the population have web access and mobile penetration is above 77% aiding modern payment adoption. By 2027, it’s predicted that the local digital payment market will have 72.57 million users.

Fintechs are on the rise.

In 2009, the first fintech company, Easypaisa emerged offering a mobile wallet app for transfers and other services. Today, it has 35 million customers and 12 million active users. Another frontrunner is JazzCash which acts as a micro bank to the underbanked, promoting financial inclusion. Visa partnered with Tez Financial Services, SafePay and NayaPay to facilitate convenient and safe online payments targeting the unbanked customer segments. Tez Financial Services offers investments, credit and savings in a single mobile platform. SafePay, backed by Y Combinator and Stripe, helps merchants accept digital payments and manages transaction reporting. NayaPay offers a mobile wallet and debit card solution.

A key challenge in the market is the stakeholder weariness of innovation. Large, traditional banks and telecoms invest in fintechs but may be resistance towards industry changes. However, the SBP has a vested interest in the digital transformation of Pakistan which has become a progressive regulator to encourage innovation. For example, SBP in collaboration with local commercial banks, launched the Roshan Digital Account in 2020. This banking solution is designed for the Pakistani diaspora to access local banking activities. Therefore, expat workers living abroad can open a bank account fully online to access essential services. PayPak, the first domestic payment service, was launched in 2020 by 1Link with the support of SBP. This scheme was created to reduce interchange costs, routing all transactions domestically. Plus, SBP recently designed the “Customers’ Digital Onboarding Framework” which provides banks a guideline for account creation via online channels.

The SBP is the regulatory body which oversees payment activities in Pakistan. In 2019, SBP’s National Payment Systems Strategy set out to encourage innovation and digitisation in payments for non-banking players. Subsequently,  a regulatory sandbox was introduced to encourage innovation in the financial sector, providing startups a safe environment for product testing. Similar to other regulatory regimes, there are two major payment licences:

  1. The Payment Service Provider (PSP) licence: This licence enables payment settlement services between participants. The minimum capital requirement is PKR 200 million which may be adjusted by the SBP. 

  2. The Electronic Money Institutions (EMI) licence: This licence enables institutions to offer “interoperable and secure digital payment products and services to end users.” This licence was introduced in 2019 where EMI applicants are granted the licence in three stages. 

Major technological adoption and a progressive regulator create an attractive environment for payment innovation. If you’re looking to add Pakistan on your roadmap, reach out to the team at Fuse to help your expansion strategy.

George Davis, Fuse Co-Founder & CEO
George Davis, Fuse Co-Founder & CEO

George Davis

, Co-Founder & CEO

at Fuse

George is a serial entrepreneur and founder of Fuse, based in Dubai, and is a self proclaimed payments nerd.

George Davis

, Co-Founder & CEO

Co-Founder & CEO

at Fuse

Fuse

George is a serial entrepreneur and founder of Fuse, based in Dubai, and is a self proclaimed payments nerd.

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