Update: Why PayPal does not offer its services in Pakistan?

PayPal in Pakistan
 

I have decided to update the answer I had written below. A lot of people have asked me why PayPal isn’t operating in Pakistan especially after I wrote an Open Letter to David Marcus (President of PayPal), See: Open Letter to David Marcus, President of Paypal by Faisal Khan on Posts

It seems the reasons are not inherently that of country risk, but rather a business case. Though the back-channel (read: unofficial) communication with PayPal I have learned the following:

  • The previous President of PayPal Scott Thompson (former Yahoo! CEO) who was also former CEO of PayPal expanded PayPal into a lot of territories/countries.
  • Out of the 193 UN recognised countries, PayPal operates in 190 of these countries.
  • Whilst it is true PayPal is in all these countries, it must be stress, that it does so with restrictions.
  • In its truest sense PayPal operates in 29 countries (the number is a little vague, but +/- 2 countries). These are the countries within which PayPal users can send/receive funds without an issue.
  • India is not one of those 29 countries.
  • Why PayPal did not include Pakistan as part and parcel of its initial roll-out in the early years? I do not have an answer for that, nor has one been provided to me.
  • PayPal has spread itself too thin for a lot of the markets it is in, including India.
  • My understanding from talking to a lot of people is that PayPal is now looking at key markets with a revised business plan (or blueprint).
  • Once PayPal reevaluates India (for example) with its revised business blueprint and achieves success, PayPal will replicate the model for similar regions (including Pakistan)
  • Just to be clear, there is no issue with the banking system and/or existing law at present in Pakistan that prevents PayPal from working here.
  • It has also been indicated to me, that country risk is also not the main issue (it might be a periphery issue, but it is not a main issue per se)
  • As to the Question: “When?” will PayPal come here. Its anyone’s guess. It would be optimistic to say 2013, but most agree by 2014 something should be in place/play as far as PayPal and Pakistan is concerned.
  • There is a business case being developed inside of PayPal. They have their own way of evaluating new markets, and Pakistan would be subjected to the same evaluation.
  • To say Pakistan is not on their radar would be incorrect, but then again, Pakistan is not a priority either.
  • David Marcus and his team are more involved in improving (read: increasing) business for PayPal in the existing markets (I am told this is one of his primary goals).
  • What PayPal will be looking at are some of the important facts and figures about our market. The number of merchants online, the Internet statistics, the average cost of a purchase online, etc. I am hoping to get more information from PayPal as to what specifically they look for when entering new markets.

The above (and below) was my answer on Quora: Why doesn’t PayPal offer its services in Pakistan?


PREVIOUS ANSWER (As of July 2011)

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 on faisalkhan.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.

Update
As an update, the government of Pakistan has constituted a committee recently to look into the issue of Paypal. This is being reviewed under the umbrella of State Bank of Pakistan. It is still in its nacent stages, but nonetheless, it is being looked at, which is a positive step. The goal here is to connect with PayPal and inquire officially what are the hurdles that prevents them from entering this market, and if possible, SBP will see if they can address them (if it is under their purview).

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  • […] Open Letter to the President of PayPal, arguing a case for them to come to Pakistan. Also, see an update to this letter as to why they are not coming to Pakistan. For 10 years, I did not hear back from PayPal. Not once. No matter how ingenious the approach, I […]

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