Revealed preferences are a beautiful thing: they give you proof of what people really think, regardless of what they say.
If you ask people to say what they think about Pakistani attitudes towards internet-based payments, they will tell you that Pakistanis do not trust the internet to make payments, that we are a cash-loving people who will take a very long time to adjust to making internet-based payments. That is what you call stated preference.
Revealed preference – or what people’s actual behaviour suggests they prefer – is practically screaming the opposite.
Data from the State Bank of Pakistan (SBP) is unambiguous on this point: strip out the internet-based payments system (bank websites, mobile apps, and e-commerce), and the rest of the country’s payment system (mostly cash, ATMs, and branch banking) has grown at just 6.7% per year on an annualized basis, between the third quarter of 2016 and the fourth quarter of 2020. Inflation during that period, by the way, averaged 7.5% per year, meaning the real purchasing power of the non-internet-based payments system went down during that period.
What happened to the internet-based payments volume during that period? They went up by an annualized averaged of 70.1% per year. And by the way, when we say internet-based transactions, we mean bank websites, bank and payment provider mobile apps, and credit and debit card transactions on e-commerce websites (excluding cash-on-delivery transactions).
The numbers get more astounding the more you dig deeper into them, and we will later into this story. But we wanted to start off by disabusing the reader of the notion that somehow Pakistanis are a cash-obsessed society. We are absolutely not. If the data is any indication, the entire Pakistani body economic is screaming in agonized unison: FOR THE LOVE OF GOD, LET US TRANSACT ONLINE!
In this story, we will start off by offering compelling evidence that suggests that Pakistanis do not use cash because they want to, but rather because the formal financial system makes it difficult to use formal non-cash payment methods. We will then examine why that is the case, followed by an assessment of the new, internet-based payments methods, including an examination of the competing infrastructure providers for payments in Pakistan.
Finally, we will look at the recent spurt of venture capital interest in Pakistani payments providers, and whether or not that has the potential to change the landscape of Pakistan’s payment infrastructure.