Why doesn’t PayPal offer its services in Pakistan?

The questions that everyone wants an answer to. I have been writing to PayPal for 10+ years to solicit a reply from them – as to why they are not here in Pakistan (you can read that correspondence onfaisalkhan.com)
PayPal operates in various countries but a few countries like Pakistan, Bangladesh, (amongst the larger ones) are missing. When countries like Somalia, Yemen and Rwanda are included in the list of countries where PayPal is available, one begins to wonder why Pakistan is not included.

It is not primarily about market size, I am sure Pakistan’s market size is a whole lot larger than many countries (combined) where PayPayl currently operates in.

The issue is country risk. <- I cannot sum it more accurately.

A financial institution like Paypal does risk assessment in their own way to assess which country it should and should not do business with. PK, whilst a large market size (compared to say Sri Lanka or Yemen or Rwanda) still poses a high-risk due to the factors like:

  • KYC (Know Your Customer)
  • AML (Anti-Money Laundering)
  • OFAC (Office of Foreign Assets Control)
  • SAR (Suspicious Activity Report)
  • Beneficiary Information

The above (IMHO) are the major issues that PayPal faces, not being able to accurately gauge the above, is a risk that PayPal does not want to take.

They, PayPal can be penalized by the financial regulator in the country they operate FROM (not To), and the risk of account freezing, etc. All these factors they have to weigh against how much money they can earn (and they have a pretty good estimator for this). The risk vs the income – makes them conclude that PK is a risk country as far as business is concerned.

In addition to this, a small group with PayPal is trying to convince their management to look into Pakistan, whilst a large portion of members within the PayPal corporate world are literally biased and oblivious towards Pakistan as well (this is not an empty statement, but the ground reality within PayPal). PayPal itself is not entirely ‘clean or fair’ in its efforts. The ruckus that Pakistan is a money laundering country, etc. fails and pales in comparison to the amount of money laundering done in the US, and Latin America. As with every Pakistan/Indian issue, there are bigoted people within PayPal who are still harboring the animosity towards each other, is also another unsaid reason why Pakistan and Bangladesh have not gotten PayPal.

There is absolutely NO written notification and/or official circular from the US Government or Federal Reserve that ‘prevents’ Pakistan from having PayPal or tells organizations PayPal to discourage the Pakistani market. This myopic stance within PayPal is biased and unfair.

As previously speculated on many forums, it has NOTHING to do with SECP, SBP, FBR, etc. – – – that is not the issue (nor ever was).

A lot many forums and discussion boards have proposed that if PayPal cannot come to Pakistan, we should have our own payment system for the world to accept and adopt.

If you track payment systems, there are currently over 250+ payment system, after discounting the top 10-15 payment system, the rest of them COMBINED together probably do not do more than say #14 or #15 on the list. Having a payment system is one thing, having it adopted and be utilized and accepted by others is another matter entirely — and in some cases the key.

Lets talk about inward micro-payment options (barring PayPal) – you have none. No other micro payment system exists currently other than Paypal (sub $1 payments notwithstanding) that is worth mentioning or worth trading or transacting on. Even if you will make one, do you actually think your buyers in the international arena will adopt it? (I dont think so). Even some famous ones are having issues adopting.

The same can be applied for outward settlement. The fees structure for settling payment outside of Pakistan is quite complex. Daily reporting on transactions, along with the KYC and AML needs to be reported to the PRI division of SBP.

Without having any a priori information on the subject matter, people can comment and propose all they want, but seriously ask your self a question, how many hours? days? week? months? or years? have you applied towards the understanding of various payment systems that exist today? Have you ever spoken to them? Understood the back-office and legal issues, met with them in a seminar, etc.

So proposing that Paypal do this or that — is frivolous, (they are way more informed than you and I – combined).

Also – proposing an alternate payment system – how will that fair, if say tomorrow Google checkout becomes a micro-payment system, or the same were to happen with Twitter, or what many consider the inevitable, that Facebook launches either itself or in partnership with someone else, launches an payment/virtual-currency, that allows cross-border settlement and micro-payments? How will you payment system work.

Also remember, Paypal does not allow external payment system to integrate with them.

I do not mean to stomp the idea, but believe me, I have spent many years reading this all and do not make a statement just on heresay, but one that is based on hard statistics, fact and a whole lot of communication.

We may be #3 or #2 on some freelancing project network site, but what are we processing in terms of real-$-value per day? Do we do $30 Million a month – if not – we’re nothing as far as the financial transaction settlement world is concerned – an average ACH in the US transaction more than the $1 Trillion per day (yes, that’s is correct 1 Trillion, and no its not a typo). US ACHs transact more than $30-$45 Trillion per day, depending on the day of the week.

So, swallow your pride and understand and live with what we have. In the fiscal world as far as income – we are NOTHING. Accept that. In the world of RISK, believe me when I say we are almost #1. If people (rather financial institutions are NOT willing to do business here), then there is nothing you can do about it – Government or No-Government Pressure!

Let me give you an analogous example, please bear with me on the humor. The mangoes export of this country is FAR greater in number ($-wise) than say the inward and outward money combined from freelancing. Yet, the US chooses that we cannot export mangoes to the US, and there is NOTHING we can do about it. This has been true for over 25 years. Now – if we cannot export mangoes to the US, then what comical sense do we bring to the table asking Paypal to come here, because we are #2 or #3 on some work portal. [Yes, as an update, I know of the recent mangoes export to the US  –  for the first time.]

Comments

comments

12 thoughts on “Why doesn’t PayPal offer its services in Pakistan?”

  • As a Pakistani who has worked at PayPal, I can say that this is fairly close to the mark. The one big “elephant in the room” that didn’t make it on this list is “terrorist financing”. That more than anything scares anyone connected to PayPal, and it’s a very real threat coming out of Pakistan. Of course, there are other ways to fund terrorism, but if PayPal was somehow used in some plot and the money originated in Pakistan, well, that sort of negative publicity can really hurt a business like PayPal.In the end, it’s a matter of risk-and-reward. In Pakistan, unfortunately, the reward of doing business (for a company like PayPal) is minor but the risk is very high. PayPal’s main business revolves around payments on the web, not mobile payments … and there just isn’t a market for it in Pakistan yet. When PayPal gets its mobile payments act together, there might be an opportunity to leverage our huge mobile usage numbers as an opportunity for rapid growth for PayPal, but we’re a few years away from that right now.

  • @zulfishah I almost feel vindicated by your reply. When I cited country risk, I meant all sorts and the predominant risk is terrorist financing.

  • @jawwad Paypal requires linking with a CC to work. So it’s not fair to compare it with EZ Paisa or any other local story when there’s still no widespread use of credit cards online in Pakistan.

  • If i agree to what you have said, i must ask you the viability of western union, alert pay and others who are working fine in Pakistan…

    What i believe is the lack anti-laundering regulation, plus lack of gateway/ecommerce infrastructure is what prohibits paypal to hit Pakistan.

    Pakistan’s isn’t worst than costa rica, Sudan or so many other African countries.

    Faisal, i am not happy seeing you giving up here.

  • @aamir7 So let me elaborate on some of the points you have mentioned:

    For starters, Western Union or MoneyGram are inherently very different money systems. They are P2P but regulated under the MTS (Money Transfer Service) with physical In and Out transactions – this means, you physically have to go to WU/MG store with cash or charge it and the beneficiary physically has to go to a WU/MG store to retrieve it.

    PayPal’s financial holding model is slightly different. They either hold the funds for you in Escrow or direct deposit into your Bank Account. All this is technical in nature and can easily be done via the two ATM switches we have in Pakistan (1Link and MNet). An IBFT (Interbank Funds Transfer) mechanism is already running on it. SO if PayPal would have some form of an escrow account in PK, then their system can simply do an IBFT and the money would be electronically deposited into your bank account.

    I write all this to tell, that the technical portion is not the issue. The regulatory framework may need to be modified, butt that’s about it.

    Pakistan is a whole lot better of than many many countries. We definitely have an image issue and we need to have our Government, politicians, the Ambassador to the US, and others work to on this ‘country risk’ issue.

    I received an email from someone in PayPal, who is senior enough, and it was sent via his personal email, and he summed it up best:

    “Asking PayPal to come here to Pakistan, is like asking an American to visit, who doesn’t want to for fear of lot many things, you cannot force him to visit your country if you have security problems. Why should he if there are so many other destinations to choose from?

    Make it attractive enough for him to visit and he will – but you cannot force him, even if he has visited all the countries of the world except a few. Have patience in due time it will happen, I appreciate your efforts.”

  • Faisal

    Businesses make choices that are sometime based on inaccurate assessments. Lets hope that the Paypal story falls in that category. If they have made a business decision because of a non-business bias, at some point in time they will pay for it.

    I am not sure if you have been following the EZ Paisa story which as a payment medium crossed 2 million bill payment transactions, 600,000 domestic remittance transactions and 40,000 inward bound international remittance transactions a month in May 2011. In less than 18 months they have already reached 9 million unique CNIC’s, something that the entire banking sector was only able to achieve in 60 years. Given the 3.5% fee they charge it gives you an idea of the type of opportunity this market represents when approached with the right lens. While for a while I believed that we really really needed Paypal to work with us, if they don’t want to, they don’t want to. We will figure something out.

  • @ImranHussain @jawwad EasyPaisa is a great success story, no doubt. But it is still a localized payment solution. The need is to tap into the ‘PayPal” ecosystem to which we are not connected to, and I for one feel alienated that its one party bloc to which we have no access to.

  • @zulfishah Point taken. And it’s PayPal’s prerogative to operate or not in a given country. What I do wonder, however, is how Pakistani-Americans who are otherwise very loudly patriotic and emotional can work for a company that has made a business decision not to have anything to do with Pakistan.

  • @iFaqeer @zulfishah This is hardly something to make an emotional decision about. There are thousands of countries in the world that don’t operate in Pakistan, many due to these risk factors. Should Pakistanis not work for any of them? That sort of childish attitude isn’t going to get us anywhere. If anything, more Pakistanis need to be working in the US in companies like PayPal and doing their best to push Pakistan in the spotlight for good reasons and not just the bad ones. There is a small group of Pakistanis working there (I left a few months ago myself, but it had nothing to do with Pakistan) and some of them are working hard to push the Pakistan agenda, but its hard to convince the decision-makers when every day some other wretched story is coming out of the country.

  • @iFaqeer This is hardly something to make an emotional decision about. There are thousands of companies in the US that don’t operate in Pakistan, many due to these risk factors. Should Pakistanis not work for any of them? That sort of childish attitude isn’t going to get us anywhere. If anything, more Pakistanis need to be working in the US in companies like PayPal and doing their best to push Pakistan in the spotlight for good reasons and not just the bad ones. There is a small group of Pakistanis working there (I left a few months ago myself, but it had nothing to do with Pakistan) and some of them are working hard to push the Pakistan agenda, but its hard to convince the decision-makers when every day some other wretched story is coming out of the country.

  • @zulfishah @iFaqeer Well said. No need to doubt your credentials or motives. I am sure if a campaign it put in long enough from ‘all’ quarters, some good will come out of it. I don’t make a half-empty statement here. I have communicated with some people from PayPal, others who have talked to them and many more countless people associated in this. We definitely have country risk issue which we need to take care of.

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