Pakistan’s payments landscape is undergoing rapid digital expansion, but cash remains deeply embedded in the economy, according to the State Bank of Pakistan’s Payment Systems Quarterly Review for the second quarter of financial year 2025-26. The report presents a striking paradox: digital channels now account for 92 percent of all retail payment transactions by volume, yet a substantial share of these digital interactions ultimately convert back into physical currency. During the quarter, cards were used for 279.4 million transactions at automated teller machines, primarily for cash withdrawals, revealing that for a significant portion of users, mobile wallets and digital banking platforms are not endpoints in the payment journey but rather transitional tools through which funds pass before being converted to cash for use in an economy where informal markets continue to dominate everyday commerce.
The strain this places on physical infrastructure is considerable. With 279.4 million automated teller machine transactions processed across a nationwide network of 20,976 machines, each unit handled an average of approximately 144 transactions per day, a utilisation rate that frequently results in outages and extended queues, particularly during salary disbursement cycles and festive periods. Within the digital space itself, however, a notable structural shift is underway in the way e-commerce payments are being processed. Account-based transactions have emerged as the dominant mode, accounting for 95 percent of total e-commerce activity, or 305 million transactions during the quarter, marking a decisive move away from card-based payment methods. This shift is largely driven by cost considerations, as both merchants and consumers are increasingly bypassing card schemes to avoid the Interchange Reimbursement Fee, which can erode profit margins. Direct account-to-account transfers allow merchants to retain a larger share of revenues while consumers pay lower service charges, creating a mutually beneficial dynamic within the domestic payments ecosystem.
The limited penetration of credit cards reinforces this picture. Of the 66.7 million payment cards in circulation, 58.2 million are debit cards, while credit cards account for just 3.1 million, representing less than five percent of the total, a reflection of high borrowing costs, low levels of documented income, and a broader cultural reluctance to engage in consumer credit. In contrast, Pakistan’s instant payment system Raast is emerging as one of the most significant enablers of digital financial inclusion, having expanded rapidly from person-to-person transfers into person-to-merchant payments. The number of merchants onboarded has crossed 2.1 million, while Quick Response code-based payments reached 288 billion rupees during the quarter, a threefold increase over earlier periods. This expansion into everyday commerce, from small neighbourhood stores to street vendors, is also generating a digital transaction trail within the informal sector, creating an opportunity for policymakers to improve economic documentation and potentially broaden the tax base over time. At the macro level, the State Bank’s real-time gross settlement system PRISM+ settled 370 trillion rupees during the quarter, largely driven by government securities and interbank transfers, underlining the dual character of Pakistan’s financial system, where high-value institutional transactions are fully digital while retail payments continue to straddle a hybrid cash-and-digital model with 126 million mobile banking users now forming the foundation for the transition ahead.
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