Pakistan’s Digital Banking Boom: A Shift from Cash to Online Payments in FY24

Pakistanis are increasingly migrating to digital banking, resulting in a significant rise in retail payments through online modes. In the fiscal year ending on June 30, 2024, the number of retail payments made digitally surged to 84%, compared to 76% the previous year. This shift reflects a growing preference for digital payment methods, marking a transformative change in the country’s financial landscape.

Rapid Growth of Digital Payments

The State Bank of Pakistan (SBP), in its Annual Payment Systems Review for FY24, highlighted a substantial shift toward digital payments over the past five years. Back in FY20, digital payments accounted for 55% of retail transactions, a figure that has now surged to 84%. This rapid growth is attributed to the increased integration of technology into daily financial transactions, as well as changing consumer behavior that favors digital convenience.

Role of Mobile and Internet Banking

Mobile and internet banking have been crucial in driving this growth. Over the last two years, mobile banking has experienced an average annual growth rate of 70%, while internet banking grew at 26%. The ease and accessibility provided by mobile apps and online portals have made banking services available 24/7, leading to a 62% increase in the number of payments through these channels, reaching 1,345.9 million transactions. The value of these payments grew by 74% to Rs69.8 trillion during FY24.

Digital Payments by Value and Trust Issues

Though digital payments have grown in volume, cash and cheque-based transactions still dominate in terms of large payments. The share of digital payments by value increased to 17% in FY24, up from 6% in FY20, reflecting an 11 percentage point rise in five years. However, the continued reliance on physical banking for big payments highlights some consumers’ mistrust of technology and concerns over cybersecurity. This is also evident in the rise of currency in circulation, which increased by over 12% to Rs9.15 trillion in FY24.

Cross-Border Payments Going Digital

FY24 also marked a milestone in cross-border payments. The SBP partnered with the Arab Monetary Fund (AMF) to enhance cross-border payment systems by linking Pakistan’s Raast system with the Arab Regional Payments Clearing and Settlement Organisation’s Buna platform. This collaboration aims to simplify remittances for overseas Pakistanis, particularly those in the Gulf region, making transactions faster and more convenient.

Growth in Retail Payments and Digital Banking Users

Retail payments showed remarkable growth during FY24, with the volume of transactions rising from 4.7 billion to 6.4 billion, and the value increasing from Rs403.5 trillion to Rs546.6 trillion—an annual growth of 35%. Internet banking users grew by 25%, while mobile app banking customers increased by 16%. Notably, branchless banking mobile app users rose by 2%, and e-wallet customers experienced an impressive 85% growth.

Expansion of Digital Wallets and E-Commerce Payments

Digital wallets offered by branchless banking institutions and Electronic Money Institutions (EMIs) played a crucial role in driving the growth of digital payments.. During FY24, customers made 2,697 million payments via branchless banking mobile apps and 85.2 million payments through EMI e-wallets. The value of these transactions also saw significant increases, with mobile app wallet transactions doubling to Rs8.8 trillion and e-wallet transactions tripling to Rs0.23 trillion.

E-commerce payments via digital wallets also gained momentum, with 87% of these transactions initiated through digital accounts, compared to just 13% through payment cards. A total of 308.9 million e-commerce payments were made, amounting to Rs405.9 billion in value.

Expansion of POS Machines

The network of Point-of-Sale (POS) machines expanded by 8.9% during FY24, reaching 125,593 machines nationwide. This growth indicates increased support for card-based transactions at retail outlets and stores. By the end of FY23, there were 85,386 POS-enabled merchants in Pakistan, signaling a wider acceptance of digital payments at the consumer level.