News

The freelance community in Pakistan has received a boost with the introduction of a new framework by the State Bank, allowing freelancers to open Exporters’ Special Foreign Currency Accounts to retain their dollars. In addition, Sadapay’s integration with Apple Pay and GPay has made it easier for freelancers to receive direct payments into their digital wallets. This move reflects the shift towards digital financial services among the tech-savvy population in Pakistan.

However, the overall landscape of the industry is not all positive. Several Electronic Money Institutions (EMIs) have recently exited the market, with at least half of the 12 entities that had approvals in the past no longer operational. TAG’s license was revoked due to fraud, YAP quietly left the country after reportedly exhausting its funds, Finja sold its EMI business to focus on lending, and other entities such as Careem, Checkout, and Zong’s PayMax withdrew their applications.

The challenging nature of the EMI business, coupled with the economic climate in Pakistan, has played a significant role in this exodus. It takes an average of 295 days to move from in-principle approval to pilot operations and another 495 days to reach commercial operations, with limited mandates that primarily focus on payments. This makes it difficult for EMIs to generate profits, especially with the introduction of Raast, a new payment system.

Despite these challenges, two entities that have been actively pursuing digital wallets have managed to thrive. According to the State Bank of Pakistan’s Payment Systems Review, EMIs recorded a throughput of Rs 222.2 billion across 81.5 million transactions in the first full year of their commercial operations. Quarterly data reveals significant growth, with the fourth quarter of FY23 showing a 824% increase in transactions and a 656% increase in value compared to the previous year.

Funds transfers accounted for the largest share, followed by cash transactions and e-commerce payments. While cash transactions still hold a significant share, there is an expectation that the introduction of Raast’s person-to-merchant module will encourage more digital payments. The number of e-wallets and EMI-issued cards has also seen substantial growth, surpassing the figures seen by traditional banks.

On the acquiring side, e-commerce merchants onboarded by EMIs remained steady, while the number of freelancers utilizing digital wallets experienced significant growth. This can be attributed to the central bank’s efforts to update regulations and expand the scope of EMIs, including increasing transaction limits and allowing cross-border payments.

The adoption of digital wallets in Pakistan’s freelance industry is a positive development, providing freelancers with a convenient and secure method of receiving payments. It also offers new opportunities for growth and product development within the industry. However, the exodus of EMIs highlights the challenges faced by financial institutions in this sector.

Definitions:
– Electronic Money Institutions (EMIs): Financial institutions that provide electronic money services, such as digital wallets and online payments.
– Raast: A payment system introduced in Pakistan that facilitates digital payments between individuals and businesses.
– State Bank of Pakistan: The central bank of Pakistan.

Source:
– The Business and Finance Weekly, Dawn Newspaper (October 30th, 2023)

The post Pakistan’s Freelance Industry Adapts to Digital Wallets Amid Exodus of Electronic Money Institutions appeared first on Fagen Wasanni Technologies.