According to a 2017 World Bank study, Pakistan has one of the lowest rates of financial inclusion in the world, with only 21.3% of the population having access to banking services and only 14.3% of the population making digital payments. It is given to the digital payment system either due to the traditional banking mindset such as the use of paper for checks and money orders or other structural issues.
In the current epidemic, the use of digital payments and online shopping has suddenly increased. However, businesses, merchants and freelancers still face problems with digital payment services as PayPal - a global banking channel that offers online transactions - has refused to launch its services in Pakistan.
PayPal is a US company and is the largest provider of third party services internationally for first class financial management systems operating in approximately 200 markets with cash transactions and high tech account security. There are 277 million registered accounts. It also allows its customers to send, receive and deposit money in 25 currencies.
The Pakistani self-employed community consists of about 200,000 independent workers and over 7,000 registered small and medium enterprises (SMEs) who primarily need PayPal services so that they can do business with international companies without the need for currency conversion.
Pakistan is ranked as the fourth fastest growing self-employment market in Freelance Work (Payoneer, 2019) with a 47% increase in revenue, leaving behind regional countries like India, Bangladesh and Russia. has been given.
Pakistani freelancers grew by 38%, slightly lower than India's (41%) from 2018 Q3 (Q3) to 2019 Q2 (Q2).
In the case of Pakistan, the increase in the number of self-employed is due to the youth of 77.3% of the population under the age of 35 (Fig. 3).
This was made possible by technical training with the help of practical young people who are increasingly involved in economic activities.
Mohsin Muzaffar, Head of Pakistan Business Development at Payoneer, said, "4G coverage across Pakistan has given freelancers unprecedented access to international jobs."
If 4G coverage contributes to more self-employed, freelance earnings, and international jobs, then providing digital payment services like PayPal would be beneficial for getting easier and more secure access to international jobs.
While the key partners are young, independent Pakistanis who are fueling the gigantic economy, why can't they run their businesses more easily in the fourth largest self-employed country? Why isn't a major international payment gateway like PayPal operating in Pakistan? Why are freelancers denied a secure and reliable payment system? PayPal works in backward countries like Nigeria, Kenya, Somalia, Angola, Burundi, Chad and Comoros but why not in Pakistan?
Pakistani government delegations have met with PayPal officials in recent years to discuss these issues, but they have refused to begin providing services in Pakistan.
Senator Mian Muhammad Atiq Sheikh in a meeting of the Senate Standing Committee on Information Technology said that PayPal is afraid to come to Pakistan unless there are laws to protect the interests of the company.
There are other serious concerns behind PayPal's refusal to operate in Pakistan that are hindering the development and effectiveness of its digital payment system. First, there is zero tolerance for money laundering in major international payment gateways like PayPal, Google Pay and Stripe which is very high in Pakistan due to various shortcomings. The Pakistan Financial Action Task Force (FATF) remains on the gray list and is heavily monitored for money laundering.
Second, credit cards have been the mainstay of the digital payment system and are monitoring PayPal Point of Sale (POS) and credit card access, which is not healthy in Pakistan.
Third, according to the State Bank of Pakistan (SBP), any international company wishing to operate in Pakistan would have to pay a $2 million license fee, which is a huge amount for companies like PayPal, which can cost up to 2 per transaction. Earns 3%.
Fourth, after PayPal offered its services in India and Bangladesh, it faced severe restrictions on keeping any money in PayPal accounts due to state bank regulations. Because of this fear, PayPal and similar companies are reluctant to come to South Asia, especially Pakistan.
As an alternative to PayPal, freelancers in Pakistan go through a lengthy and insecure process of making international transactions online. They start by opening US bank accounts to get verified PayPal accounts in Pakistan. Then, they link their PayPal accounts to other third party cash transaction providers such as Payoneer and Xoom to transact in Pakistan. These alternatives are not as efficient, reliable and practical as PayPal. Payoneer Prepaid MasterCard holders have recently lost access to their accounts as card issuers - a scandal involving a German company called "Wire Card AG".
The Government of Pakistan, Ministry of Information and Communication Technology and SBP should formulate policies to launch programs to promote and promote a culture of self-employment by providing digital payment solutions so that the digital payment system grows in Pakistan. For example, India has launched programs like Startup India, Skill India, and Digital India to promote local businesses. These programs facilitated a 52% increase in the number of Indian freelancers compared to a 42% increase in Pakistani freelancers from the third quarter of 2018 to the third quarter of 2019 (Figure 2).
The government must fundamentally eliminate money laundering, reduce over-regulation of the banking system, curb cybercrime, and modernize the financial industry with legacy systems to facilitate the integration of different service providers. can go.
Given the current state of Cowid-19 and the catastrophic economic crisis, it is time for the current government to take the right steps to provide more favorable conditions for self-employment and to enhance the e-commerce and digital payment system to facilitate Pakistani traders. Start doing To join them in big cities like Karachi, Faisalabad and Gujranwala.
About the Author
This article is written by Safyan Shams, who is pursuing a Masters in Public Policy at the Pakistan Institute of Development Economics in Islamabad. He is conducting research on public policy in Pakistan in the context of COVID-19.
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