The State Bank of Pakistan (SBP) has stressed making concerted efforts to tackle the various supply- and demand-side constraints to the high digital divide in the country, which would be vital to ensure inclusive economic growth in the country.

SBP in its latest “The State of Pakistan Economy” report highlighted that the growing availability of and access to ICT services over the past two decades has brought a structural shift in business operations and activities across the world.

“In Pakistan too, recent developments in the digital ecosystem have been impressive. During the Covid-19 crisis, the importance of digitization became more prominent; from cash transfers to telehealth, and e-learning to e-commerce, the ICT-led response helped consumers, households and government authorities to minimize the socio-economic fallouts of the pandemic-induced lockdowns and disruptions,” said the report.

Going forward, the government’s increased focus under the Digital Pakistan Policy and the National Payments System Strategy would ensure that progress on the digitization front would continue. However, concerted efforts are required to tackle the various supply- and demand-side constraints to the high digital divide in the country. This would be crucial to ensure inclusive economic growth in the country.

The SBP report informed that amid COVID-19 businesses shift towards improving their online presence and as a result, the e-commerce market in FY20 is estimated to have expanded to Rs 234.6 billion, up 55.5 percent on YoY basis. Within the digital payments, ecommerce transactions made via branchless banking channels more than doubled from last year.

“That said, during the fourth quarter, the YoY growth in digital payments for ecommerce activities dropped to only 10.6 percent compared to the average growth of 74.1 percent during the preceding three quarters,” said the central bank report.

This might suggest three things:

The cash-on-delivery transactions might have increased due to a sharp increase in cash penetration in the economy. Most people still rely on the branchless banking agent networks to top-up their mwallets, as well as on physical branches of commercial banks, to carry out cash payments and transfers, as opposed to using credit or debit cards.

Whereas, reduced working hours and restricted mobility made it challenging for people to access these avenues. At the same time, cash preference in general remained elevated, as people tried to hold money as a precaution, given the high uncertainty.

From the businesses’ perspective, getting into e-commerce was the only option to keep operations afloat. However, given the restricted mobility, enterprises found it challenging to get on-boarded with the commercial banks and thus had to resort to providing deliveries on COD basis only.

This increased the proportion of cash transactions in the overall e-commerce market.Further, it seems that the e-commerce industry was not ready to cater to a sudden surge in customer demand due to the Covid-19 crisis. Resultantly, a large number of orders were reportedly cancelled and refunds were either not processed on time or were indefinitely delayed.

Since digital payment-based orders are processed on a pre-payment model as opposed to a post-payment model in case of COD, customers were swayed away from digital payments and towards cash settlement, as they could minimize their risk by holding the payments until order completion.

On the other hand, most of the existing non-retail e-commerce players with digital payment options had to suspend their operations due to restrictions in major cities.