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Can the future of Pakistan be cashless?

Currently, only about 21% of Pakistan’s adult population has formal access to financial services whereas, 34% of Pakistan’s population uses a smartphone with a broadband connection and this number is expected to grow significantly due to increasing availability of inexpensive smartphones and internet services in near future. This discrepancy provides an opportunity to accelerate financial growth without the need for major investment in costly additional infrastructure. A recent study revealed that there are 27.3 million mobile wallet users in Pakistan with 87% year on year increase. Google, in a study, projected Pakistan as quickly becoming a digital-first country expectedly the fourth fastest growing digital economy by 2030. The major players for e-wallets in Pakistan are linked with Telecoms such as Easypaisa, UPaisa, Omni and JazzCash among other service providers. Given Pakistan’s current dynamics, development and use of digital financial services, the market is just ready for transition to cashless payments.

One of the major advantages of a cashless society is convenience in terms of ease of transactions. One no longer needs to carry cash, debit cards or even queue up for ATM. It is a safer and widely accessible option as it provides the freedom to transact from anywhere at anytime. Cash in hand is valuable but most vulnerable to theft ranging from individual crimes like muggings and robberies to institutional level crimes such as corruption, tax evasion, organized crime and other fraudulent activities. Even though, cyber fraud and hacking act as major threat in going cashless, they are easier to tackle with proper technology and setup in place whereas the worst part about cash is that it’s mostly untraceable so once it’s gone, it’s really gone. It can be easily hidden and circulated without accountability.

Thus, linking all the citizens to an online database and all transaction being done through organized channels will enable the authorities to keep track of money and identify unusual activities in bank accounts. For example, tax agencies can effectively tackle tax evasion as all transactions, which were previously done illegally in cash will have to flow through the banking system helping government to increase tax revenue and target money laundering, a priority set by the current government.

Moreover, especially in developing countries like Pakistan, transparent cashless digital transactions can instil greater confidence in international investors. Previous research provides evidence that access to finance tends to lead to wider outreach, social inclusion and overall economic prosperity.

Cashless economy has both pros and cons, thus, any government planning to adopt this model should carefully analyse the situation in country-specific context. Pakistan needs to address several social issues before entirely giving up on cash. One of the most important questions being, how the cashless society will impact the marginalized groups such as women, disabled, old people and poor in order to achieve the goal of ‘leaving no one behind’ as part of Agenda 2030. It emphasizes the need for policies that support smooth transition for people who depend on the cash the most so that future digital economy involves all.

 

At present in Pakistan 75% of the unbanked population have primary education or less, whereas, cashless transactions require a certain level of basic reading skills and financial literacy.Hence, the implementation might not be as inclusive as expected. Additionally, roughly 30 to 70% of Pakistan’s economy operates in informal sectors, where daily wages are paid and spent in cash only. E-wallets are more inconvenient for low wage labour due to the disproportionate transaction fees as lower the transaction the higher the fee. Hence, until the informal part of economy is properly documented, cashless system will further fuel inequality.

Similarly, technical system malfunctioning and power outages have severe impact in the electronic world. Even as simple as a dead phone can leave you stranded with no means to access the money you own. Thus, issues related to internet connectivity, power infrastructure, digital payment set-ups and lack of necessary insight among wider society will constrain the outreach of digital transactions.

Cash is not an option but a necessity for a major chunk of our population, as only 21% of Pakistanis have access to formal financial services. Therefore, cashless economy cannot be imposed on people rather it has to be gradually adopted by general public for successful implementation.

Consequently, economists have recently started to advocate ‘less-cash society’ rather than an absolutely cashless one. Digitization of financial services has systematic advantages and provides a lucrative opportunity with huge untapped market for financial institutions.Government has also paid substantial attention to electronic payment system of Pakistan known as Pakistan Real-time Interbank Settlement Mechanism (PRISM). This entity along with private sector has played a key role in transforming our economy from an over-reliance on paper currency to electronic system under a broader fin-tech revolution. Though, the most marginalized groups are expected to face greatest challenges from a move to digital-only transactions but comprehensive and inclusive policy initiatives combined with adequate relevant infrastructure, government and private sector can work together to realize this digital dream.

The writer Amna S. Sandhu is a Research Associate, Sustainable Development Policy Institute (SDPI)

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