Digital cash now imperative in Pakistan
Digital payments/cash are technically defined as any payments made using digital instruments such as cards, computers or mobiles. In digital payment, the payer and the payee, both use electronic modes to send and receive money. No hard cash is used.
At the urging of the World Bank (WB) the State Bank of Pakistan (SBP) has set out a digital-focused, national payment systems strategy designed to boost "financial inclusion", particularity for women and the poor who until now have remained more or less untouched by digital financial media. Only 21% of adults have a transaction account today and of these only seven percent are women. Cash still dominates Pakistan's economy, with most wages paid in paper money and merchants largely unable to accept digital payments.
The new policy move comes at a time when our economy needs new impetus and financial inclusion would make access of people to financial services like bill payment and loans easier thus boosting business and creating new jobs. In collaboration with the private sector, SBP decided to increase the number of digital access points for making easy payments and plans to install additional one million digital access points over the next three years.
The boost of transparent cashless digital transactions is also expected to instil greater confidence in international investors to do business in and with Pakistan. The service wishes to empower customers, allowing them to make payments or purchases, virtually from wherever they want, without having to worry about the medium. With online payments rapidly gaining popularity, the gap is there for the company to exploit, although it must ensure all operations run smooth.
Crowdfunding is the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the internet while peer to peer lending allows individuals to lend and borrow money without having a financial intermediary sharing risks and rewards
For Pakistan, cards alone are not enough and mobile phone devices probably will become the primary tool for payments. A society with such a young demography and increasingly tech-savvy generations ensures a unique role for mobile payment services. Such services called 'fintech' -short for financial technology-refers to technology-led innovation in financial services, which aims to exploit the gaps in coverage and affordability of the services offered by the mainstream financial sector. This will pave the way for such development of e-commerce and new media of payment. According to recent statistics, over 80% of the Pakistani people own a mobile phone, and the figure is only likely to go nowhere but higher. Incidentally the new electronic payment scheme does not need a smart phone, it can function on any feature phone as it does not need internet.
Among the expected benefits of a cashless society and digital payments is that such development will lead to less crime, as theft or illegal transactions typically take place with cash leaving record. Digital records of every payment make it much harder to hide income and evade taxes, money laundering will be limited as well. Current payment systems settle payments within 24 hours after a transaction is made, although the host receives the payment instantly.
When introduced real-time payment systems will complete this process in seconds, which will lead to a manifold rise in the volume of small transaction. This technology currently exists in only 10 to 12 countries of the world, more time is required for its introduction in Pakistan.
In its initial years, digital lending was more related to digitization of back office processes, which were done manually in financial institutions. With the increased popularity of machine learning and the internet, the concept of digital lending now involves complete digitization of the loan disbursement process, including the ability of the algorithms to make decisions of accepting or rejecting a loan application. The new digitalization will allow to apply for and be awarded a loan right through one's mobile phone! Another area of digital lending includes crowd funding and peer to peer (P2P) lending, which has not been able to get any big names in Pakistan until recently.