The promise of digital payments

AI Summary

Pakistan has seen a rapid expansion in digital payments infrastructure, significantly transforming its economy. Digital payment adoption has increased substantially, enabling better financial inclusion, credit access, and economic traceability across the country.

TECHNOLOGY has a way of solving problems that policy struggled with. When telecommunications deregulation failed to connect rural Pakistan, mobile phones arrived and did the job. When grid electrification could not reach large sections of the population, solar panels arrived and enabled off-grid power. Where policymakers debated, technology simply moved forward. The lesson is simple: sometimes the bottleneck is not money or intent. It is the wrong tool. Digital payments are an underreported revolution of this sort. They solve a problem that decades of policy effort could not touch. From near zero in 2010, the last year in which Pakistan tried to launch a massive, policy-driven documentation exercise, digital payments are one of the fastest-growing transformations quietly changing the face of the economy. Look at what the data shows. In FY25 something like 88 per cent of retail payments flowed through digital channels. Branchless banking app users grew to 79.2 million. Mobile banking app users separately grew to 24.1m. Point-of-sale (POS) machines increased from 54,490 in FY17 to 195,849 in FY25 — a 260pc increase in nine years. QR-enabled me­­rchants jumped from essentially zero to more than 1m by FY25. Branchless banking agents grew from around 350,000 a decade ago to 731,814 by FY25. By value, digital payments rose from 21pc to 29pc of retail payment value in a single year. These numbers describe a massive transformation of how money moves through the economy. Imagine what happens as this accelerates. A merchant in Multan accepts payments through QR codes and soft POS machines on his phone. His customer base expands because payment friction disappears. He shifts from cash-only to digital. His supplier also shifts. Supply chain payments become traceable. A manufacturer in Sialkot now tracks every payment from distributors across the country. Business credit becomes easier to assess because transaction history exists. Banks lend to businesses they previously could not evaluate. New enterprises start because credit is no longer scarce. A gig economy emerges because instant payments make freelancing viable. A driver in Karachi receives payment from a ride-hailing app in real-time. He can invest that money immediately. This is not futuristic. This is what happens when payment infrastructure matures. But beneath this economic transformation lies something else. Transactions now create records automatically. A merchant accepting a QR payment does not need to understand taxation. The payment system records the transaction anyway. A consumer buying on e-commerce does not need to know about tax policy. The wallet processor records the transaction anyway. Government age­n­­cies do not need to create special reporting systems. Raast records every transfer in real-time anyway. The shift to digital means the largest money flows in the economy now leave trails. For decades, Pakistan tried to document the economy through taxpayer cooperation. Amnesty schemes asked people to voluntarily declare income. Deemed income provisions forced assumptions about undeclared earnings. POS machines were deployed but merchants often bypassed them. The state tried repeatedly to use ID cards as a way to document payments between registered and non-registered suppliers of goods ever since 1988 when the budget attempted to use this stipulation for the first time in a vain effort to document the economy. The system depended on people doing what was required to create a record of all transactions in the economy. It failed because people made rational calculations about compliance costs. Digital payment infrastructure changes this equation. The transaction itself becomes the document. No cooperation required. No voluntary disclosure needed. No reliance on merchant compliance. When Raast processed 496.1m transactions worth Rs11.56 trillion in FY24, each one left a record. When E-Money Institutions processed 165m transactions worth Rs471 billion in FY25, the data existed. When 684m e-commerce transactions occurred through digital wallets and 93pc of online shopping went through these channels, visibility followed automatically. Consider the scale of what is being documented. Government payroll processing moved to Raast. The Accountant General Pakistan Revenues processed 850,000 transactions worth Rs100bn through the system. Social safety net payments used digital channels. Cattle markets experimented with digital payments. When government transacts digitally, records follow. A salary payment through Raast is time-stamped and traceable. A BISP card transaction is documented. This matters because government is Pakistan’s single largest transactor. Its shift to digital means the largest money flows in the economy now leave trails. The critical insight is this: documentation happened incidentally. The State Bank built payment infrastructure to improve financial inclusion and payment efficiency. Regulators issued licences to E-Money Institu