PayPal in Pakistan

For the past 11 years I have been writing religiously every January an 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 never got so much as a peep out of them. All that changed in 2013. For the first time ever, I did get a reply back from PayPal via unofficial channels. Before I delve into the content of the communication with them, let me say, there will be no more letters from my end now to PayPal. There is only so much one can do and invest time in. I think I have done enough from my end. For reasons that are personal, I shall not be pursing this cause any further. The baton and cause now needs to be passed on to others.

I wrote a clarification post as to why PayPal has not entered the Pakistan market which can be read here. The answer today is simple. In the greater scheme of things, Pakistan is not a low hanging fruit for them. PayPal is a business, and as a business they seek hard data on each country with respect to its e-commerce dynamics, payment dynamics and the market potential. Sadly, on all three fronts Pakistan is not able to defend and/or substantiate its argument.

I cannot possibly sum up 11 years of research here in a few paragraphs, but I will let you know heuristically what some findings / issues / points are (in my opinion, feel free to disagree):

  • Most of the hue and cry with regards to PayPal not being present in Pakistan is by freelancers who want to be able to seamlessly accept payments from their foreign counterparts.
  • There is no domestic market for PayPal (as such), the demand is more cross-border.
  • The domestic market person-to-person payment solutions are already out there in the form of branchless / mobile banking and these will continue to improve and be supplemented with transactions done on the smart phone via IBFT (Inter Bank Funds Transfer).
  • PayPal’s trusted brand makes it seamless for to do business using PayPal.
  • Most people in Pakistan do not have a credit card (or debit card that can work abroad, or are hesitant of providing their details online) and PayPal is one of surest, safest way to pay online.
  • There is a larger demand for PayPal to receive than pay via PayPal..
  • If PayPal will enter the Pakistan market, due to Pakistan’s prevailing foreign exchange rules, majority of the users would be upset that they cannot keep their money in US Dollars, etc. and the money would be converted to Pakistan Rupees and into their bank accounts. Income declared for short.
  • The export related demand for PayPal is diminishing by the day. Everyone has figured a way out to accept payments online.
  • The ones making the most hue and cry are the ones who simply do not have a way to obtain a PayPal account, whilst sitting in Pakistan (i.e. their family and/or friends abroad are of no help).
  • There is a huge deficit in the perceived demand for PayPal vs the on-ground demand. The demand is huge, but we are all placing our bets that we will have the same easy in and out of flow of money as one gets with the US based PayPal accounts. That most likely would not be the scenario.
  • Collectively, out of 10 years of limited surveys, 2/3rd of the people who would like to use PayPal for business or freelancing purposes would not like to declare their incomes to the Government.
  • It must also be said about 90% of the people are oblivious to the tax benefits one gets by surrendering US Dollars for Rupees. You get something called a Proceeds Realization Certificate and the income is now tax free.
  • No one is willing to collectively fight for the cause for PayPal. They just want it. They expect that to magically happen.
  • Even the most educated lot are seriously misguided and ill-informed as to why PayPal is not entering the Pakistani market. And for some reason, they refuse to believe the truth.

So, what is the truth? The truth is, we are extremely lacking   when it comes to…

  • data gathering and/or data sharing
  • we refuse to be under the white economy (or documented economy)
  • we will prefer our numbers on statistics without providing much basis for them. When we see something contradictory in the foreign press, we cannot adequately defend our numbers.
  • we do not want to contribute for statistical purposes the income we are making from overseas freelancing.
  • we produce near zero levels of sustainable data that large companies outside of Pakistan can use to make their case
  • despite all the progress, online shopping is still largely a cash-on-delivery business model (as merchants prefer it that way, due to GST, read my article on it here)
  • the growth rates (at present) do not justify PayPal’s entry. If I were to look at it from their viewpoint, it makes sense.

What exactly does PayPal look at when entering a new market? Lots of things actually, here is what was suggested by Denise Aptekar (a former PayPal employee, who was in Senior Management) along with suggestions by others at PayPal.

E-commerce

  • Total $ volume of goods & services bought online by Pakistani consumers
  • Total $ volume of goods & services for sold online by Pakistani merchants
  • Growth rate of both
  • Percent of the total $ transferred online that is intra-border (between Pakistani consumer and Pakistani merchant)
  • Percent of the total $ transferred online that is cross-border (between Pakistani and non-Pakistani)

Payment Methods

  • Payment methods are available online (credit cards, debit cards, pre-paid cards, bank payments, etc.)
  • Penetration rate of each payment method (i.e. You mention 21M debit cards, what % is that of the population that could own debit cards?)
  • Payment methods are used for e-commerce and the % of total e-commerce used by each method
  • Risk profiles of these methods

Online Merchants

  • List of major online merchants that might use PayPal
  • Total transaction volume
  • Concentration of e-commerce (i.e. what % of total e-commerce are the top 5 & top 10 merchants responsible for?)
  • Can you gather a group of their executives who would commit to adding PayPal to their site?

Risk Management

  • List of the privacy, compliance, legal & financial regulations relevant to PayPal
  • Are there obvious ways PayPal could abide by these without making major product changes? Your note seems to suggest the answer is yes.
  • Authentication methods for establishing identity
  • Credit worthiness information for merchants (similar to credit scores in the US)

 eBay

  • What are the metrics of eBay Pakistan?
  • This includes # of buyers/sellers, transaction volume, payment methods, fraud rates, dispute rates, etc… (I realize this is internal data and not public but I’m including it to highlight that these metrics are critical in the decision to go live given the immediate business to PayPal)

Culture

  • What cultural factors exist with regards to e-commerce?
  • For example, Klarna, which allows consumers to buy & receive goods prior to paying is popular where lower levels of consumer trust & comfort with online purchases exist.

In these past 12 years, I have learned a lot about payments and PayPal, and for that I am thankful to each and everyone whom I have communicated with on this issue. However, its time the cause to bring PayPal is now taken up by others. I wish them the best of luck.

 

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