Opportunity Landscape for Payments in Pakistan

Introduction

Pakistan, no doubt, has potential when it comes to banking & payments. The ecosystem is developing, the market segment is ripe, the population numbers are high, yet, when it comes to financial products for purposes of e-commerce or m-commerce, the uptake is low.

In order to better educate myself and others, I’ve taken an initiative on my own to collect, correlate and distribute data that would help everyone else understand the potential the Pakistani market offers in financial services, specifically in the payments arena.

This initiative is just a start. Over the next few weeks, I will be conducting more research and be publishing the results (including raw data) for everyone to use.

If you have any questions &/or queries regarding this research, you can contact me via the Contact Form on my website.

The Comparison

Although everyone would like a comparison with India however, in my opinion, it would make more sense to compare Pakistan’s market to two countries that have quite a lot in common to Pakistan than India. The two countries are Iran and Turkey.

Not to beat the pulp, but a lot has been said about the tremendous progress we are making in our banking & payments sector. The truth is, our progress (as we call it) has been dismal and the end result disappointing.

The goal of this post is not to amplify pessimism, but to provide a benchmark against which we can gauge our progress (or lack thereof). It truly puts things into perspective as to how ahead (or behind) we are when it comes to payments.

The only thing that stands between a mediocre product and a stellar product is data.

I have cited this many, many times. Data Drives Decisions.

Basing decisions on hearsay is the worst thing you can do for your product/service.

Not everything can be categorized into black and white. Some questions can be asked easily by a survey, yet many questions don’t have a black & white answer. Studying these nuances is where the success story will come out.

Population

The population of Pakistan is more than Iran and Turkey combined!

Think about that for a minute.

Both countries are Islamic (though one is secular), they both have a large population (over 50% that is under 30), the socio-economic factors of these countries mimic ours, etc.

 

Pakistan Turkey Iran
Population (in Millions) 191 79 79

Population of Pakistan vs Turkey vs Iran

If one excludes the BRIC (Brazil, Russia, India and China) and MINT (Malaysia, Indonesia, Nigeria and Turkey) countries, one of the largest countries (population-wise) is Pakistan. Clearly, it is a market that cannot be ignored. Emerging markets are attractive to both investors and businesses, because of the return-on-investment (ROI) that they offer vis-a-vis the developed nations. Granted the risk factor is there, but if that is taken out of the equation, then the argument for investing and working in Pakistan is pretty compelling.

Our large population size is one heck of a promising factor. It just cannot be ignored. You have to start from somewhere, so I decided to look at our population figures and then extend it outwards to see where we stand on some very basic verticals.

Mobile Phones & Broadband Internet

The next logical measure would be to look at the mobile phone density and broadband penetration in all three countries.

 

Pakistan Turkey Iran
Mobile Phone Users (in Millions) 128.00 73.60 71.00
As percentage of Population 67.02% 93.16% 89.87%

 

Though we may seemingly have a very high mobile user base (which we do), but when viewed as a percentage of the population, we measure up third behind Turkey and Iran.

Mobile Phone Users in Pakistan vs Turkey vs Iran

Broadband usage in Pakistan, Turkey and Iran is as follows:

 

Pakistan Turkey Iran
Broadband Subscribers (in Millions) 27.90 48.60 5.50
As percentage of Population 14.61% 61.52% 6.96%

 

Iran has a disappointing number (less than 7% broadband density), but then again, you have to understand the fact that it is a country that was under sanctions and limited investment was allowed to be made in this sector (telecommunications) because of that. To add further salt to the wounds, the ruling regime in Iran also very heavily controls and monitor the Internet in Iran.

Broadband Internet in Pakistan vs Turkey vs Iran

These numbers are expected to change, and I will tell you why in a minute. Over the coming years, measuring broadband would need to be redefined. As more and more users are gravitating towards the mobile phone and tablets, fixed lines broadband adoption is dropping rapidly. A good measure of broadband use would be to gauge how many broadband devices are actively being used in the market. Mobility and broadband go hand-in hand.

Pakistan has a pretty decent internet setup. Granted we lost a lot of the DSL players and now have to deal with the likes of PTCL or WorldCall. Apart from a few sporadic fiber providers in select cities, almost everyone I know is constantly on a lookout for a better internet provider.

Cellular companies have come to dominate this space. As we spend more and more time on our mobile devices, the bulk of the internet traffic in Pakistan is now generated by our mobile devices.

I don’t have a source for this (yet), but I’m working on it.

Point of Sale (POS) Terminals

POS devices are those terminals at which you usually swipe your cards (debit / credit) to make payments. It is a great way to instantly come to grips with the acquiring market size of any economy.

 

Pakistan Turkey Iran
POS Terminals (in Millions) 0.0412 2.500 4.500

 

This is where Pakistan is really left behind in the race (as can be seen below):

POS Terminals in Pakistan vs Turkey vs Iran

As per State Bank of Pakistan, we only have 41,000 terminals in the market. By comparison, Turkey has 2.5+ Million and Iran has 4.5+ Million. Remember, Iran was a sanctioned country till very recently, and despite that, they have managed to create an extremely vibrant payment system in their country (called Shetab). When I quizzed a local vendor (who prefers to remain anonymous) about how many terminals in Pakistan are Chip/PIN ready, they cited less than half, and an even smaller number support contactless payments.

By comparison, Turkey has over 2.2 Million Chip/PIN ready terminals! Iran, over 2+ Million.

We are less than 2% the size of the POS market in Turkey, and less than 1% the size of POS market in Iran, and we are not even a sanctioned country.

Let that sink in for a minute.

Think about the possibilities in this domain. Even if we experience a x10 growth over the next 3 years, we will still be 10% the size of the Iranian market.

Exceptional growth potential here.

Debit Cards

A true measure of any country’s banking sector is to measure how many debit cards are in circulation. Note, I did not say credit cards as that equates to extending credit and underwriting risk, but rather debit cards.

 

Pakistan Turkey Iran
Debit Cards (in Millions) 25 112 152
As percentage of Population 13.09% 141.77% 192.41%

 

Just look at the debit card density of Turkey and Iran where it is well over 100% while Pakistan has less only 13% (this is including the Benazir Income Support Program issued cards as well).

Debit Cards in Pakistan vs Turkey vs Iran

A population of 190+ Million and less than 25 Million debit cards in circulation. We must ask ourselves why. Why do we have such low numbers? If someone will cite financial inclusion, then do note that the number of unbanked people in Iran and Turkey is nearly comparable on a normalized basis.

There is something that the banking community is not doing right, which is the growth in debit cards has been slow (despite the fact that a large volume has been issued for BISP).

The four indicators:

  • Population
  • Mobile & Broadband penetration
  • POS Terminals
  • Debit Cards

Represent a great starting point when trying to grapple this payments problem. We could have started with any other indicator, but these four are my personal favorite, as it instantaneously puts into perspective the low numbers that Pakistan has. Our numbers in isolation tell a very different story. Contextualizing them brings more structure and placement to the problem.

India vs. Pakistan (E-Commerce)

Probably the only comparison with India I would like to make is the per capita E-Commerce spend.

Last year, I did a little bit of research in comparing the E-Commerce spend (on a per capita) basis between India and Pakistan. The results were astonishing. Even though this was 2013 data, it hasn’t really improved much.

E-Commerce: Per Capita Spend Pakistan vs. India

Depending on what number you take into account for Pakistan’s domestic E-Commerce sales and for the population figure, the differential between Pakistan and India can be as low as x56 and has high as x77.

Clearly something is wrong here. We are not comparing two economies that are vastly different when it comes to culture, language, geography, etc. We are not doing something right – and herein lies the opportunity.

If we are able to x2 – x5 our domestic E-Commerce sales, we will make a big dent. The upside is mind boggling – so why aren’t people ordering more? Or are merchants now reporting their true numbers?

I think it is a bit of both.

Merchants keep complaining about a lot many issues, well, Mr. (or Ms.) Merchant, how about you honestly start sharing your revenue numbers. Not deflated numbers to throw a spin to the tax authorities or competition, but true numbers. Perhaps KPMG or a similar outfit can be hired to verify numbers of various merchants, and aggregate them anonymously?

Short Survey

So over the weekend of 18th/20th March 2016, I decided to conduct a short survey. The survey was posted on Twitter, LinkedIn and Facebook. Most people who answered, came in via Facebook.

I was looking for a sample size of 150-200 people and in a very short span of time, I got 356 people to respond. Here are the results:

Do you use EasyPaisa or MobiCash?

This number is certainly larger than I expected. I was thinking perhaps 5%-8% – clearly, I was not only wrong, but off target.

Nearly 2/5th of the surveyed population have EasyPaisa (or MobiCash) accounts.

Impressive. However, the 3/5th who do not have it – those are the ones that are extremely important.  These are the white-collared workers. Or people up the food (and wealth chain) so to speak.

Do You se EasyPaisa or Mobicash

Do you have “desi” (local) mobile apps installed on your phone? (Uber, FoodPanda, Careem, etc. do NOT count).

This particular result did surprise me. I did not expect a little more than a 1/3rd of the users to have local apps installed. However, just to be clear, a lot many users misread the question, citing FoodPanda, Careem, Uber are not local apps. Which is what I cited, but they thought that these apps were to be included. It is not a large number, but these erroneous responses are in there. I doubt they would make much of a difference (perhaps 1%-3%).

Do You Use Any Desi Local Apps

What is your preferred PRIMARY payment method for shopping online in Pakistan?

The IBFT portion (in orange below) was 6.5% (or 23 respondents). I expected the IBFT number to be higher than Credit/Debit cards.

The EasyPaisa / MobiCash numbers were 1.1% (or 4 respondents). Clearly, despite the claim, EasyPaisa / MobiCash are not the preferred methods of payment online… yet!

Cash on Delivery is still king! However, one with a losing reign. I feel this number can come down significantly in the coming year. To be fair, this is the story told by the consumers. One also needs to do a survey from some reputable merchants and see what payment methods they are seeing (if only they would share such information).

What is Your Primary Payment Method

Do you have games installed on your mobile phone?

I don’t play games, nor do I care. Clearly, I’m in the minority.

A large portion of the users queried, do indeed play games on their mobile. Gamification is a very important aspect of any stickiness and loyalty program, so this number is extremely important if you know what to do with it.

Do You Have Games Installed On Your Mobile Device

Data Source

The raw data of the survey can be downloaded from here.

Note:

You can agree or disagree with the findings, that is your prerogative. I’m not here to have a he-said/she-said debate with you.

My goal here is to shed light on some of the underlying issue, some of which I will try to explain, and some I cannot. How you take these results into consideration for your own project or use, is best left up to you.

Sure the research could be done this-way or that-way. I welcome you to go ahead and do it. Please do not malign my results or find faults on how I should have done it. The very fact that hardly any information is published from this region, is disappointing. I’m spending my own time, working on this pro bono because I want to see Pakistan prosper.

Data Sources:

 

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8 thoughts on “Opportunity Landscape for Payments in Pakistan”

  • Dear Faisal,

    Excellent effort and may you succeed sooner than later with this effort.

    I have an observation and I would like to hear your opinion on it. I believe one of the major reason debit cards havent taken off is because merchants are not willing to invest in a technology (POS) that is not only going to delay their payments, but will also start showing up in their bank accounts and would thus force them to join the tax net. I have seen a number of big shops in large cities not offering card payments, or offering them with 2.5% additional cost. A big hospital in Islamabad does not have any POS machines and only works on cash (imagine paying the sum of anything around 50k to 500k if faced with an emergeny surgery).

    Do you think this attitude of retailers just discourage users not to use the cards for payments?

  • A worth-able information. Our govt financial institution are not serious so that’s why this is happening. Otherwise many of the big companies will add POS machines and add their business with the Banks.

  • I have almost the same opinions if we compare the difference in numbers in Debit Cards / POS terminals (Pakistan Vs Iran). The government of Iran, including the central bank of Iran offer Zero% MDR to the merchants resulted in a significant increase in the number of POS terminals at merchants and the retailers. Before 2010, there were 2 major challenges, faced by the PSPs in Iran, who were really involved in marketing and implementing POS terminals.
    1. The merchants preferred cash tranx and they were not willing to pay an MDR fee for running a POS terminal.
    2. The merchants hated the idea of EOD settlements where money would not be readily available in their accounts on the same day of earning.

    Currently, the MDR rate around the world is between 2-3%. But the regulators in Iran came up with a model to tackle the resistance of the merchants and may be you can’t found this type of model anywhere else in the world.

  • Faisal,
    The only information which is available on the subject is here. What is the authenticated source to know the numbers of e-commerce transactions YoY and if 3D secure has added some confidence in consumers to change the numbers anyway although drastically are not expected.

    • There is no authenticated source for 3DS payments. The banks are not required to post this information in any reports to SBP, nor does the State Bank of Pakistan ask for it. VISA/MasterCard reps can definitely tell you more.

      If you survey (roughly 100-200 people) you will find out than less than 1 in 7 even knows what 3DS is, out of those who know, 1 in 10 transactions or LESS are 3DS enabled. Uptake is very low.

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