- The challenges involved in adoption of P2M module by banks in Pakistan
The state of financial inclusion in Pakistan is an example of squandered opportunities due to our failure to effectively highlight progress. For years, the penetration of formal financial institutions remained abysmally low however, between FY17 and FY24, more than 141 million accounts — scheduled plus branchless accounts — were opened, reaching 211 million which is almost two-thirds of our adult population. Much of this was made possible because of digital wallets, which have become a major mode of conducting transactions.
In the past, most of the focus had been on P2P i.e. peer-to-peer transfers but lately, SBP has been aggressively pushing Raast’s person-to-merchant (P2M) module. While it may be too early still, the results so far aren’t promising.
According to the latest Payment Systems Review, P2M processed only 1.5 million transactions worth PKR 4.5 billion between January and March. To put the numbers in context, the average daily volume through the P2P module was 4.1 million during the same period. In other words, there were more transfers in a day via P2P than P2M in the entire quarter. Throughput-wise too, it was the same story.
There could be countless reasons why the adoption of P2M is slow, most common being as under:
1- financial institutions not doing enough acquiring efforts to expand the merchant network
2- retailers shying away from digital because of:
a- tax; or
b- cost
At present, most of the merchants most likely accept online fund transfers — whether through a bank or JazzCash/EasyPaisa. So the payment is definitely digital, just that the underlying channel is P2P instead of P2M. Although both are digital, there are some broad differences such as design or dispute resolution mechanisms. Most importantly, who bears the cost of the transaction: in P2P, it’s typically the sender who pays the charges. On the other hand, the merchant absorbs the fees, i.e. Minimum Deposit Rate (MDR) in P2M.
So the question is when both parties are already comfortable with transfers, paid for by customers, why would the merchant willingly share the burden? For example, if one buys a meal for PKR 1,000, the merchant will get PKR 980, leaving the remaining to the many service providers in the value chain from acquirer to issuer and everyone in between. For many, including some retailers, that’s a fair price for the convenience. However, for high value items like a brand new flag ship mobile, the pricing structure may no longer be worth the additional convenience. So for higher value items, not be particularly attractive to the merchant. This is why many e-commerce stores charge customers additional 2-3% if they pay via card, thus passing on the MDR.
The reason behind such a pricing structure is that payment providers, like any business, make the largest chunk of their revenue from a small set of high value customers, who basically enable them to offer the same services to a broader audience, often at a lower margin. These are just some of the cost-related reasons as to why P2M is less attractive for merchants and if SBP want people to transition to something new, there should be some incentives. For years, banks have been promoting P2P channel and didn’t seem too interested in increasing the acquiring efforts, probably except for JazzCash, which accounts for the majority of the 770,000 Raast-enabled merchants active on QR. It requires heavy investments and an uncertain return, at least in the medium term.
If we study India’s example of unified payments interface, just in August this year, UPI had processed 20 billion transactions which has been possible because of monetization, coupled with increasing mobile phone / broadband adoption and the removal of merchant discount rates. As a result, neither the small retailers nor the end customers had to bear any costs for transacting via UPI. According to PwC, the cost of processing a P2M transaction is on average 0.25% of the transaction volume. For smaller markets with lower economies of scale, it may be higher. Given the FY25 volumes in India, it translates into operational expense of $2.1 billion on part of acquirers while the government subsidies have covered only 21% of this cost.
In Pakistan, according to media reports, PKR 3.5 billion has been earmarked to support the usage of Raast P2M, for which it will reportedly pay the lower of 0.5% or PKR 200 (some reports suggest PKR 100). Let’s put the numbers in context: based on the current average ticket size of PKR 3,000, this translates into MDR support of PKR 15, enough to cover volumes of almost 233 million. To put the numbers in context, the uptake of P2P payments took seven quarters to reach the trajectory because of high organic growth but in case of P2M, the amount of PKR 233 million will last for only four quarters as there is lots of existing friction in the system. In order to address this issue, similar pricing structure as interbank fund transfers could be introduced as it will work well with all the stakeholders involved i.e. customers, merchants and banks.
Apart from cost, retailers avoiding documentation is another factor. The problem is that tax comes under the mandate of provincial and federal tax authorities, not the State Bank, creating a distributed responsibility. However, it seems that the government is getting serious now as Finance Division has mandated all shops in the country to 1) display a QR code and 2) as a rule, accept digital payments if a customer asks for it. Oil & Gas Regulatory Authority has also directed all marketing companies, gas utilities, CNG stations, LPG and LNG operators, refineries and lubricant marketers to introduce and prominently display digital payment options, including Raast QR, at their outlets. Similarly, the SBP has given hard targets to all its regulated entities to activate 2 million merchants for digital payments by the end of June 2026.
The issue is that most financial institutions have little or no merchant acquiring expertise. Until recently, only nine banks were doing point of sale, half of whom work in closed-loop with some 179,000 POS terminals as of March 2025. Recently, 1LINK and Paysys Labs launched a QR acceptance platform for banks, who no longer have to buy or build tech from scratch. Instead, they can simply integrate with the 1GO platform, allowing them to focus their energy entirely on acquiring merchants. So it means that government subsidies, regulatory mandates and technology infrastructure is there, the only missing link is the buy-in from federal / provincial tax authorities for digital payment adoption which will help in documenting retail economy by overcoming merchant resistance.