Since COVID-19 became a global health pandemic, economies across the board have seen a sudden shift towards digital payments. Pakistan, a culturally cash-reliant economy, also saw a significant rise in digital payments ecosystem from March 2020 onwards. All major banking, retail and e-commerce outlets have reported a change in consumer payment habits once the country went into lockdown.
It doesn’t take a rocket scientist to analyze why this is the case. The change in payments habit has not only been brought upon by the need to reduce physical contact but also due to rising concern for risk of contamination when it comes to handling banknotes.
Digital payment options like credit and debit cards, mobile wallets, QR codes, etc. make the virus spread less likely at the point of sale, while also allowing consumers the comfort of purchasing essentials from their homes. This is one of the reasons why most businesses, small and large, are opting for quick e-commerce solutions to continue revenue inflow.
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Considering this development, it didn’t come as a surprise when the Punjab government, in its annual budget, announced a significantly reduced GST on payments made via digital platforms. As per the announcement, five percent GST will be charged on payments made from credit and debit cards at restaurants and beauty parlors across the province; on cash transactions, the GST remains unchanged at 16 percent.
Heralded as a big step towards proper documentation and digitalization, this move not only encourages customers to use their credit and debit cards but also pushes more retailers to install the point of sale (POS) machines and reduce tax malpractices.
But, in a country where only about 21 percent of the adult population owns a bank account, mobile money platforms are a bigger hit. As per estimates, there are over 50 million mobile money wallets nationwide with people in tier-2 cities and towns being the greatest proponents of this service.
Compared to last year, mobile money platforms like JazzCash and Easypaisa have both seen a significant rise in their Wallet based activities. While Easypaisa noted an increase in wallet activations by 35 percent, JazzCash observed an equally high increase in its active wallet base. The rise of these two players along with a host of other fintech solutions is due to quicker delivery, greater privacy & security, simpler app-based digital payments and more flexible collection options in comparison to formal banks.
These digital payment solutions are also gaining popularity because they are equipped with a host of useful payment options i.e. traffic challan payments, tickets purchase, school fee payments, international remittance collection to corporate fund disbursements apart from peer to peer money transfers.
Merchants nationwide are also benefitting from the use of these platforms. Innovative digital payment features like QR and online payment gateways ensure easy access and reliability in accepting cashless and contactless transactions.
Although Punjab government’s move to promote digital payments and increase the adoption of POS machines is worthy of praise, it does warrant a second look. Card payments make up a small portion of total transactions while Credit Cards are even more insignificant. With the advent of branchless banking and innovative uses of contactless payments like QR and online payment gateways, it is important that millions of individuals who use digital wallets are also catered to.
Similarly, focus should not only be on restaurants and beauty parlors. To maximize the impact of this digital payments incentive scheme, it is imperative to include delivery businesses and other direct B2C setups under this scheme as well. The more retailers and businesses move away from traditional cash transactions, the more chances of people adopting digital payment solutions as a necessity, even those not part of the formal banking setup.
All-in-all the step taken by the Punjab government showcases how it is the state’s obligation to provide an active pathway for the spread of digitally ingenious solutions, especially in the financial sector. By taking this as a model development other provinces should follow suit and introduce incentives and mechanisms that promote a digital payments ecosystem. This should start closer to home with one smart solution being the active digitization of public employee salaries, state pensions, and public procurement processes.
Around the world, COVID-19 has proven to be a once-in-a-generation boost for digital solutions, especially in the payments arena. Now is the right time to ensure that millions without access to formal banking are enabled via the digital payment solutions on offer by mobile money platforms. Without the state’s intervention, the unbanked not only miss out on an important device to ensure quarantine measures during outbreaks, but also miss out on the benefits available to those who are a part of the formal financial sector, including falling behind in a world fast adopting a digital payments ecosystem.
[1] https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Pakistan.pdf
