Pakistan embraces digitalization in 2020
;While 2020 can termed a hazardous year for most sectors of the economy, it has phenomenal for steering digitalization and giving a boost to e-commerce in Pakistan.
Following the Covid-19 outbreak in Pakistan in late February, many businesses began implementing work-from-home models and a majority found it a viable option.
Around mid-March, the government announced a full-fledged lockdown across the country, which prompted businesses to either operate from home or close down temporarily till the restrictions lifted. It was this turning point when digitalization in the country recorded a steep rise.
Digitalization accelerated
An industry source, heading an e-commerce-based start-up, termed 2020 the year in which the pace of digitalization accelerated and people skewed more towards adopting digital solutions in Pakistan.
“In 2020, the mindset of a majority of Pakistanis changed,” he said. “Firstly, people started taking digitalization seriously, and secondly, work from home became widely acceptable.”
He added that work from home for any profession prior to 2020 not considered respectable but it all changed during the year.
Digitalization in 2021
From March 2020 onwards, people knew digitalization was the only way to sustain economic activity and it became an integral part of their life, he said. The official expected more businesses to move towards digitalization in 2021.
In the State of Pakistan’s Economy report 2019-20, the State Bank of Pakistan (SBP) detailed that in the backdrop of lockdown imposed in March, the shift towards electronic channels became inevitable for government institutions, businesses, and households.
It added that during that time, a sharp growth witnessed in internet usage across the country as traffic surged 15% immediately as soon as the lockdown imposed.
In FY20, the highest growth in internet data usage recorded in the fourth quarter (89%), with government institutions, and especially the central bank, actively encouraging and facilitating people to use digital communications and payment channels, it said.
Households began utilizing online solutions for purchasing essentials (groceries) and other items as the containment measures extended.
Since Pakistan’s digital infrastructure was still under development in early 2020; countless problems faced in the way of swift digitalization.
Hurdles
Speaking to The Express Tribune, Prime Minister’s Task Force on IT member Parvez Iftikhar said, “First and foremost problem for Pakistan’s digital infrastructure is that optic fiber penetration is low due to which the pace of digitalization remained sluggish in 2020.”
He underlined that though many big cities of the country had modest penetration of optic fibre, some small towns lacked even mobile towers or 4G services.
“On the other hand, mobile operators have low availability of spectrum, which posed additional trouble,” he added. He stressed that taxes in Pakistan still high as far as ICT concerned; which discouraged the country from digitalizing itself.
Iftikhar said that prices of ICT equipment were high; which discouraged internet and telecom operators from investing in the country’s digital infrastructure.
“ICT devices are not affordable for some of the prominent companies,” he said. “Investment by telecom operators helps steer digitalization.”
Supporting his views, Pakistan Software Houses Association for IT and ITeS (P@SHA) Chairman Barkan Saeed said that the biggest problem was the failure of the government to digitalize its machinery.
According to him, governments of tech-savvy nations are spearheading digitization and since Pakistan is way behind in it, so is the infrastructure.
“The government of Pakistan has digitalized token tax and allowed a few more similar electronic payments but the pace remains below par,” he said.
He highlighted that during Covid-19, the preference for everyone, including government officials, turned towards digital solutions.
“Never before ministerial meetings held online on apps like Zoom but still Pakistan has a long way to go to achieve digitalization in a true sense,” Barkan added.
Suggestions
Iftikhar said that government departments had to digitalize first to give a boost to overall digitalization in the country.
“When the government adopts a model, people follow it, hence the top hierarchy of the country should the first mover in this regard.”
If the leader begins to focus on digitalization, prices of ICT equipment are expected to fall, which will make it easier to implement the model throughout the country and encourage telecom and internet companies to invest further.
He lamented that at present, almost all services available to citizens paper-based rather than being digital.
Digitalization in payments and e-commerce
Though stakeholders agree that e-commerce thrived in 2020, they lament that the rise in digital payments was way below expectations. The Express Tribune reached out to a few e-commerce marketplaces and all agreed that the rise in digital payments was way below expectations.
Telemart Co-founder and Director Hamza Abdul Rauf said, “A jump surely witnessed in digital payments on the platform, however, the traffic, number of orders, registered items; sales grew at a much steeper rate than electronic payments.”
“There a rise in payments received through digital channels but a sharp spike, which expected, not witnessed,” he said.
He detailed that digital payments were an alternative to cash; Pakistan failed to lift digital payments because they mostly done through banks and the consumer base of commercial banks in Pakistan limited.
“Given the total population of the country, the banked segment is small,” he said. In such a scenario, digital payments will remain limited.
He added that being an alternative, digital payment was difficult to promote because no incentives offered, and instead, such payments costed more than cash payments.
Merchant Discount Rate (MDR)
Banks charge 2.5-3% duty per transaction in the name of Merchant Discount Rate (MDR).
He added that in e-commerce market places, competition is tight and margins are slim so platforms could not absorb the impact of MDR hence they transferred it to customers.
“This is one reason why we cannot promote digital payments, our profits will dented,” he said.
Even those e-commerce platforms which enjoy a substantially larger digital payment base, only limited banks are listed hence few customers, who are willing to pay electronically, are forced to pay in cash.
Giving suggestions, he said banks should incentivize digital payments and keep MDR zero for customers for the first one to two years so that consumers would encourage to pay online and e-commerce will receive a significant push.
“With this, the working capital of online marketplaces will improve and we will promote digital payments ourselves,” he said.
In addition, he stressed that there was a severe need for digital wallets in Pakistan as they helped raise digital payments.
Pervez Iftikhar echoed similar views and said despite the Covid-19 pandemic, a massive chunk of the public was still averse to digital payments.
Giving reasons, he said cash payment is easy and considered secure and digital payments were non-tangible; hence they considered dangerous and vulnerable to cyberattacks.
In addition, digital payments leave an electronic trial; hence tax evaders prefer to deal in cash and it is difficult to motivate them to pay digitally.
E-wallets
Lamenting that digital payments failed to skyrocket in Pakistan despite soaring all across the world, Priceoye.pk CEO Adnan Shaffi also emphasized the dire need for digital wallets.
“We have an out-dated banking system and digital wallets needed to give a boost to digitalization,” he said.
On the positive side, he said many digital wallets on their way to kick start operations in Pakistan as the SBP has granted them the required approval to operate in the country.
Due to SBP measures, freelancing will grow in 2021 as companies introducing digital wallets are looking for a huge freelancer base. In absence of digital wallets, freelancers used to receive amounts from abroad in dollars and banks offered poor conversion rates so ultimately they faced losses.
This is the prime reason behind the soaring demand for PayPal in Pakistan, he said.
However new wallets that expected to become functional in 2021; will offer competitive exchange rates; the absence of PayPal might not feel in a few years.
Taking about digital wallets, P@SHA Chairman Barkan Saeed said Pakistan needed a payment gateway that offered the facility; to receive and retain money in dollars as well as to make dollar based payments. He said if such as gateway introduced and it had a feature where the money could transfer; from the e-wallet to link a bank account and converted into rupees; then Pakistan would not need PayPal at all and all demands of freelancers would meet.
Outlook for 2021
All stakeholders remain positive that digitalization will rise steeply in 2021.
Shaffi said that e-commerce expected to grow manifold next year; even those who remained averse to e-commerce in 2020 would shift towards it in 2021; because it seems that the virus would remain evident throughout next year as well.
“Those people who used digital payments for the first time in 2020; had a good experience with it, would enhancing their use in 2021,” he said.
On the other hand, he said local companies would continue observing work from home in Pakistan; but its post-virus implementation was questionable as it would depend on a lot of factors.
At present, many local enterprises have enhanced work from home model till June 2021, he said.
Rauf added that digital payments would persist well in 2021; the spike witnessed during first wave of the pandemic will not experience because during first lockdown; many people had no option but to make digital payments.
“Even during second lockdown such is not the case and though digital payments are on an upward trajectory; they are not where near March-May 2020 levels,” he said.
Nevertheless he remained optimistic for improvement in digital infrastructure in 2021.
Saeed said the growth of digital channels will persist in 2021 fintech would particularly on the rise.
Digitalization will increase further in 2021
Iftikhar was positive that the trajectory of digitalization will increase further in 2021.
“Right now, we are at a tipping point and I expect a massive change [in 2021],” he said.
He underline that Covid seemed to stay for the time being as a new strain; discovered in UK and South Africa, is proving to more infectious than the Covid-19.
We should ready for a worst-case scenario and ICT is the solution for it however the country has to make stringent efforts to uplift digitalization.
SBP measures
The central bank remained active throughout 2020 and provided massive support to digitalization.
In October 2020, the central bank launched the SBP FX Regulatory Approval System (RAS); for end-to-end digitalization of the foreign exchange related case submission process.
According to SBP, the objective of this initiative is to provide a fully digitalized platform; to the business community and individuals in approaching banks for their foreign exchange related requests.
“The initiative will transform foreign exchange operations by replacing the paper-based requests with electronic submissions; which is not only efficient but also cost-effective,” SBP said. “This development is also congruent with the government of Pakistan’s vision of Digital Pakistan.”
In addition, SBP expected to launch the micropayment gateway (MPG) in the next few days; to allow government and private sector entities, banks, merchants, and consumers to make swift digital payments.
In this regard, the SBP collaborated with international partners, experts, vendors and the financial industry.
The SBP expects rapid digitization of public and private sector collections and payments; particularly of salaries and pensions, following completion of the project.
MPG is an instant payment mechanism. The central bank took the initiative to achieve the strategic goal of developing modern; robust payment systems in the country, the report added.
In September 2020, the country launched the digitalization will increase further in 2021 for overseas Pakistanis; which provide banking solutions to expatriated seeking to undertake banking, payment and investment activities in Pakistan.
Roshan Digital Accounts
The account can open in both foreign currency and Pakistani rupees mode. Through the Roshan Digital Accounts, overseas Pakistanis can invest in the capital markets of Pakistan. Roshan Digital Account initiative remained one of the most successful schemes of 2020; as over $200 million remitted through them till December 24, 2020.
Alpha Beta Core CEO Khurram Schehzad said since its launch; a total of 59,700 accounts have opened by overseas Pakistanis from 91 countries.
The average deposit per account comes at around $3,350; up from nearly $1,100 in the initial month when the Roshan Digital Account which shows a 300% growth per account.
“In the last one month, about $100 million have come into the country; through these accounts, or about $3.6 million per day,” he said
He added that at this pace and given the rising number of accounts and flows per account; achieving a couple of billion dollars would not a big deal.
