Pakistan: Why Marketplaces & Other Stored Value Payment Networks need to be treated like Remittances

Why State Bank of Pakistan’s PRI (Pakistan Remittance Initiative) needs to be proactive. Their complacent manner is costing Pakistan Millions of Dollars worth of valuable Foreign Exchange.

What is Remittance?

The technical definition of the word Remittances varies from market to market. Financial Regulators have their own homegrown definitions for it. Here are a bunch of definitions for Remittance.

Wikipedia’s definition: (Source)

A remittance is a transfer of money by a foreign worker to an individual in his or her home country. Money sent home by migrants competes with international aid as one of the largest financial inflows to developing countries.

Investopedia definition: (Source)

The process of sending money to remove an obligation. This is most often done through an electronic network, wire transfer or mail. The term also refers to the amount of money being sent to remove the obligation.

World Bank definition: (Source)

Personal remittances is the sum of personal transfers and compensation of employees. Personal transfers, a new item in the Balance of Payments Manual 6th Edition (BPM6), represents a broader definition of worker remittances. Personal transfers include all current transfers in cash or in kind between resident and nonresident individuals, independent of the source of income of the sender (and regardless of whether the sender receives income from labor, entrepreneurial or property income, social benefits, and any other types of transfers; or disposes assets) and the relationship between the households (regardless of whether they are related or unrelated individuals).

Compensation of employees refers to the income of border, seasonal, and other short-term workers who are employed in an economy where they are not resident and of residents employed by nonresident entities. Compensation of employees represents remuneration in return for the labor input to the production process contributed by an individual in an employer-employee relationship with the enterprise. Compensation of employees has three main components: wages and salaries in cash, wages and salaries in kind, and employers’ social contributions. Compensation of employees is recorded gross and includes amounts paid by the employee as taxes or for other purposes in the economy where the work is performed.

In Pakistan, State Bank of Pakistan’s EPD (Exchange Policy Department) has various definitions pertaining to the word or group of words containing “Remittance”. The most pertinent one is Workers Remittance which is defined as follows:

Workers’ remittances are current transfers for family maintenance by migrants who are employed and residents in new economies. (A resident is a person who stays, or is expected to stay for a year or more in an economy.)


Most of the money being channeled into Pakistan into personal accounts, are classified as Worker’s Remittance. Having spoken with various bankers in Pakistan, specifically their Remittance operations people, the flavor of the month has always been to classify incoming money (if possible) under remittances. I’m a huge fan of this.

Government of Pakistan did one unique wonder for which it must be applauded. Incoming remittances when converted to Pakistan Rupees, by surrendering the foreign currency, would then be 100% Tax Free. So much so, if you look at your Wealth Tax form that one has to file at the end of September, under the exemption section, “Remittances” are clearly mentioned.

This is a great initiative by the Government of Pakistan to improve its foreign exchange reserves and it incentivizes the incoming remittances. An additional benefit is that most workers now prefer to send the money through official channels and take advantage of this tax break, as opposed to the Hawala system.

Freelancing & Freelancers in Pakistan

Freelancing has been the backbone of the internet, since its early inception. Ever since businesses & individuals discovered the ability to hire resources from across the world to work for them remotely, the industry has blossomed.

Today, Freelancing (which typically involves remote working) is a way of life for millions of people around the world.

100s of marketplaces sprung up over the years, becoming the de facto platforms on which freelancers seek work. Some of these marketplaces are: Fiverr, Upwork (formerely oDesk), Elance, GetACoder,, 99Designs,, Creative Market, Theme Forrest, etc.

The Freelance Ecosystem

Freelancers toil late hours to earn a decent living for themselves and their families. This income channels its way to the home country in which the freelancer is working. This is no different from how remittances work, where the working diaspora send money back home for family maintenance. The only difference here is that instead of the diaspora, the worker is local to your economy. The income earned is foreign exchange.

A typical workflow of a freelancer using a marketplace is as follows:

Freelancers Payments & Process

This model is true for almost all marketplaces and their payment service providers that are offering payments processing for freelancers on various marketplaces.

As marketplaces have evolved and are now truly trading with freelancers from around the world, there is an increased demand to convert this money into the local currency at their bank account, with minimum cost.

This is where the disconnect currently lies. Between the financial regulator (SBP/PRI) and the Marketplaces & their Payment Service Providers.

Present Day Earnings Retention & Spending Method

When a freelancer account holder gets paid on a marketplace, the money is deposited in a licensed banking institution with whom the marketplace has partnered. This can be either in Europe or the United States.

The money is held in a pooled account, and the respective IOUs (Balances) are reflected for each user in this dashboard.

A freelancer currently has two ways of cashing the money out:

  • Go to a VISA/Mastercard connected ATM and do a cash withdraw
  • Or use their VISA/MasterCard card at various POS locations where VISA/MasterCard is accepted.

In both cases, the transaction is an international transaction for the end-user, as the authorization for the transaction is being granted by the issuing bank in Europe or US.

Freelancers in Pakistan

For the beneficiary country this represents three areas of disconnect:

  1. The transaction is relatively expensive (because it traverses internationally on the VISA/MasterCard payment rails). Per each transaction (or even query) a network charge is applicable.
  2. The pooled money is sitting outside the country. A significant portion of this could make its way into the country if the marketplace’s money transfer efforts are approved by the host country as a remittance payment.
  3. The transactions – that freelancers make – provide any benefit to the remittance industry. The transaction will be shown as a card present transaction for VISA/MasterCard as if a foreigner was visiting your country and making these purchases. A small fraction of this payment goes back to Europe/US as the interchange income earned by the issuing bank.

Way Forward

The continuing goal of any payment service provider is to continually improve on factors that determine customer loyalty and retention. Marketplaces too are no exception to this rule. They are always trying to pursue the following:

  • Be acutely aware of customer needs (i.e. market demand)
  • Enhance the customer experience when they use their products and services.
  • Become more tied-in to payment networks and payment systems around the world, so as to have smooth (read: frictionless) transaction of money
  • Always be compliant and legal in all the countries & territories in which they operate.

One of the very basic requirements which is commonly seen across the board marketplaces is the ability for a freelancer to natively transfer money from the marketplace to a local bank account in their country.

Pakistan Freelancers

It is this very issue that plagues banks, because of the reluctance of PRI (Pakistan Remittance Initiative) to deal with it. PRI has been mulling over tie-up applications for months now but no decision has been made so far.

It is vital that pending applications be processed, and more over, freelancer’s income on marketplaces needs to be treated as remittance income.

Pakistan Scenario

Pakistan is one of the top 10 countries for almost any freelance marketplace and hence represents a very important country for the companies.

The estimated value of freelancing done from Pakistan is between US$ 200-300 Million per year. An exact amount cannot be gauged (again, blame SBP for not asking the right questions and not polling information and datasets to obtain these numbers with certainty).

The goal of any marketplace wishing to work in Pakistan is for their customer to be able to seamlessly be able to transfer money into the local account.

Some ground reality points are:

  • Freelancers in Pakistan have prioritized this as a much needed facility.
  • Currently, the bulk of the money does not come into Pakistan via the remittance channel, but via ATM Cash Advance &/or Point of Sale Terminal Sale.
  • As a licensed payment service provider, marketplaces and their payment service providers are fully regulated and compliant with the local laws from where the transactions are originating, and recording all KYC / AML information.
  • A transaction from a Marketplace card to Pakistan would have the same name in the Sender & Beneficiary.
  • Don’t expect the Marketplace’s payment service provider to share with Pakistani regulators the breakdown of the original transactions that resulted in the pooled amount for a particular marketplace user (see diagram below).
  • The original sources that were sending the money to the user, as these are separate transactions and US and EU laws would most likely forbid from that data being shared in Pakistan due to privacy concerns.

What do marketplaces want from SBP?

Various marketplaces are involved with State Bank of Pakistan, in particular with Pakistan Remittance Initiative. Speeding up these applications and their respective tie-ups will help our economy a lot.

Here is what marketplaces seek from the regulator:

They request that such a transaction (freelancers brining money back home) be given an official go-ahead by the financial regulator. Though this is not a typical remittance transfer, it has nonetheless all the traits of a remittance transfer.

If the transaction were to be structured as a non-remittance product, and be treated as a commercial transaction, then the following would hold true:

  • Freelancers would be hesitant to use a method by which money coming into the country would then be subject to tax (as it is a commercial transaction) and also would require additional form-filling.
  • Freelancers will then continue to rely on the ATM Cash Advance & POS Terminal Sale as the means of getting money into Pakistan.
  • The bulk of the money will remain outside of Pakistan, thus not helping the economy or the financial regulator to improve their foreign exchange reserves.
  • The remittances figures would not be improved if a marketplace transaction is structured as a commercial transaction.

Summary Highlights

  • Freelancers in Pakistan would like to have a facility to legally bring their hard earned money into Pakistan using their marketplace platform of choice.
  • Such a setup needs to be frictionless and one that comes under a traditional (non Free-Send) PRI model.
  • SBP/PRI must recognize that marketplaces in the US/UK/EU are fully licensed and their payment service providers are also fully licensed and regulated entity in the markets in which it originates the transactions.
  • The goal of marketplaces and their supporting payment service providers is to facilitate easy transfer of money into Pakistan.
  • As a direct result of this integration, marketplaces will aid in growing the numbers for inward remittances for Pakistan.
  • The transaction structure of the same To/From needs to be accepted by the financial regulator. (Sender/Beneficiary is the same)
  • Marketplaces / PSPs cannot share the multiple sources/transaction information that led to the accumulation of funds into a freelance user’s pooled account. That information however is available for any AML/investigative purposes when requested through the proper channels.

5 thoughts on “Pakistan: Why Marketplaces & Other Stored Value Payment Networks need to be treated like Remittances”

  1. can’t the freelance platform (e.g. just send this money across directly to the bene’s bank account using a 3rd party provider like xoom? or is the issue that that’s too much work for them?

  2. Thanks for this brilliant overview.

    I wonder what’s holding the SBP back? Are there legal/AML and taxation issues involved. Because on the face of it this looks pretty simple and will have a positive impact not only for Pakistan’s freelancers but also for Home Remittance numbers.

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