Karandaaz Report Highlights Digital Payments’ Potential to Transform Pakistan’s Economy

A recent report by Karandaaz Pakistan, titled “Transforming Pakistan’s Payment Landscape,” underscores the immense potential of digital payment adoption in driving economic growth. The report reveals that embracing digital payments could increase Pakistan’s GDP by 7% by 2025, create 4 million jobs, and boost formal banking deposits by $263 billion. Additionally, the shift would reduce the financial strain on the State Bank of Pakistan (SBP), which spent Rs. 31 billion in FY24 on cash management, including printing and replacing damaged currency.

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Despite these opportunities, Pakistan faces challenges due to high Currency in Circulation (CiC), which stands at PKR 9 trillion, resulting in a CiC-to-deposit ratio of 34%. This is significantly higher than regional counterparts like India (17.8%) and Bangladesh (16.7%), highlighting the dominance of cash-based systems. Excessive cash outside banking channels limits the SBP’s ability to manage inflation and stabilize the economy effectively, emphasizing the need for increased digital payment adoption.

Pakistan’s National Financial Inclusion Strategy (NFIS), launched in 2015, aimed to address these challenges by promoting digital financial solutions, including the introduction of RAAST, the National Payment System. However, the adoption of digital transactions remains low, with unmet goals such as achieving 65 million active digital accounts by 2023. The RAAST Person-to-Merchant (P2M) module is a promising initiative targeting the country’s retail sector, which contributes 18% of GDP. This model aims to digitize payments for millions of small merchants, fostering financial inclusion and growth.

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The report calls for collaborative efforts among policymakers, financial institutions, and technology providers to overcome challenges and accelerate Pakistan’s transition toward a cashless economy. By increasing digital payment adoption, Pakistan could reduce the dominance of its informal economy, enhance fiscal stability, and unlock its full economic potential, as seen in regional comparisons with countries like India and Indonesia.

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