The vast majority of Pakistan’s economy is based on cash. Consumers pay cash when eating at restaurants, buying groceries, purchasing clothes, and even with large business transactions.
This may sound peculiar to some, but the reasons behind this predisposition are manifold. Firstly, almost all private sector banks have been slow to promote alternative payment methods as they see little return-on-investment and are content to reap their profits in more traditional sectors of retail, consumer and corporate lending.
As a result, Pakistan’s independent retailers are put off adopting modern point-of-sales (POS) systems – which accept debit and credit cards – by transaction fees as high as 3.5 percent. In turn, that inhibits retailers from modernizing their inventory systems using technology, which might prevent them from scaling the business.
Current POS technology available in Pakistan is many years behind the rest of the world. POS machines that support mobile data networks, like 2G or GPRS, are almost non-existent – which means only those merchants that have access to fixed line internet can adopt such tech. Given the aging and precarious state of Pakistan’s web infrastructure, fixed line network outages are far too common.
Slow to evolve
Such factors have combined to prevent mass acceptance of plastic money amongst Pakistanis. It is estimated that there are only 3 million credit cards and around 15 million debit cards in circulation, says Ali Rahman, head of secured assets at Habib Bank – and that’s in a nation of 180 million people. The reluctance to use debit and credit cards is further exemplified when one considers the fact that most debit cards are mainly used to withdraw money through ATM machines, and not much else.
But 2015 might be the year all that changes.
At the start of the year, a collaboration between Habib Bank and Monet resulted in thelaunch of the first mobile point-of-sale (mPOS) system in the country. It allows retailers of all sizes to take payments using a mobile phone and can run on a slow GPRS connections. While it doesn’t sound ground-breaking – and it’s something commonplace in other countries, using gizmos made by companies like Square – it’s a breakthrough moment for Pakistan. Simply, it’s a card-swiping gadget that plugs into smartphones; it looks like this:
This could finally disrupt the cash-only culture and local payments industry. It could even chart a course that emerging and future startups can take.
Ahson Saeed, head of marketing and business development at Monet, says the aim is to change the way both consumers and retailers focus on cash payments in Pakistan. “Complete digitization is our end goal,” Saeed says. This can give retailers “a data-centric system that is absolutely free from error,” he adds.
Useful for startup services
Saeed points to the ride-sharing app Savaree and the recently-launched contractual worker startup Labourforce.pk as examples of services that would benefit from the mPOS system that his firm has launched. “It is imperative for early-stage startups to have streamlined cash flows, and by employing mPOS the threat of pilferage as well as higher insurance costs are both removed.”
For startups to scale up in Pakistan, it is imperative for a larger proportion of the population to be comfortable in using their services. This means that smaller grocery stores, tobacconists, tea stalls, vegetable retailers, and even transport and communication services all need to be brought on board with digital payments. To do this, Monet is venturing into areas which private sector banks have traditionally ignored.
The first web company to deploy this new mPOS system is Daraz, the Amazon-esque ecommerce startup run by Rocket Internet that has been operating in Pakistan since July 2012. Amyn Ghazali, head of alternative payments at Daraz, is similarly optimistic about the impact that this will have on the business. “Over 90 percent of our existing orders are done on a cash-on-delivery basis,” he reveals to Tech in Asia. “This model is inefficient and restrictive, as insurance costs burgeon for big ticket items such as electronic goods, mobile phones, and home appliances, thereby impacting our bottom line [This]. mPOS is a workaround which benefits both the end consumer and Daraz.”
It is still difficult to ascertain how quickly this would reach mass-acceptance. The positive indications are that this kind of smartphone-connected POS is low-cost technology to implement. The Monet gadget itself comes with the backing of one of Pakistan’s largest private-sector banks, and the founders are working aggressively to market it to segments that are not effectively covered by conventional POS systems. In time, this kind of phone-mounted payment system will certainly redefine how small and big businesses work and how consumers pay for things.