Digital Finance in Pakistan: Growth, Challenges, and the Road Ahead

Usama AnjumLast Updated: Mar 25, 2025

Digital financial services in Pakistan are expanding, but widespread adoption remains a challenge. The Asian Development Bank (ADB) highlights the need for urgent policy action to remove cost barriers, build trust, incentivize adoption, and ensure interoperability. Regulatory authorities must take swift steps to protect both consumers and businesses. Pakistan has made significant progress in financial inclusion. Over the past 15 years, financial institution accounts have surged by 127% from fiscal year 2019 to fiscal year 2024. Despite this, access to formal financial services remains limited. Out of the country’s 241 million people, 60% are adults. However, only 91 million have financial institution accounts, leaving two-fifths of the adult population unbanked.

The problem is particularly severe for women. Financial exclusion impacts them disproportionately, with women being half as likely as men to have a bank account or access mobile money services. Many rely on informal financial networks, limiting their ability to participate in the formal economy.

Digital Finance: A Game Changer

Digital finance has the potential to transform financial inclusion in Pakistan. It offers a faster, safer, and more accessible alternative to traditional banking. Mobile money services eliminate the need for physical bank branches, which are scarce. In 2022, Pakistan had only 10.8 commercial bank branches per 100,000 adults, one of the lowest ratios in the region. During the COVID-19 pandemic, digital financial services saw rapid growth. Consumer behavior shifted, accelerating the adoption of mobile and cashless banking. The share of online and mobile transactions jumped from 17% in early 2020 to 75% by September 2024, according to the State Bank of Pakistan (SBP).

Raast, Pakistan’s first instant payment system launched in 2021, has played a key role in financial inclusion. It simplifies person-to-person (P2P) and person-to-merchant (P2M) transactions, making digital payments instant, reliable, and free for users. The system enables money transfers using mobile numbers or bank accounts, extending financial services to the unbanked population. Adoption has surged. In 2022, Raast processed 7.9 million P2P transactions. This number soared to 102 million in 2023. By September 2024, daily transactions had reached 3 million, with 39.5 million registered Raast IDs.

Businesses have also benefited. Small and medium enterprises (SMEs) and retailers have gained efficiency through P2M transactions, introduced in February 2022. Lower transaction fees and faster settlements have boosted economic activity and encouraged digital payments.

Learning from Global Leaders

Pakistan can draw lessons from global digital payment leaders like India and China. India’s Unified Payments Interface (UPI), launched in 2016, has transformed financial transactions. In 2023, it processed 117.6 billion transactions, making it the world’s most popular alternative payment system. Its growth was driven by P2M transactions, which encouraged merchant adoption.

China’s Alipay and WeChat Pay also followed a similar path. Alipay began with P2P transfers in 2004, followed by WeChat Pay in 2013. Widespread adoption only occurred when P2M transactions were introduced, leading to exponential growth. Pakistan’s retail sector, which accounts for 18% of GDP, offers a massive opportunity for digital finance expansion. The sector consists of around 2.5 million retail and wholesale outlets. However, it remains largely untaxed, contributing only 4% of total tax revenue.

Taxation and the Retail Sector

Recent pressure from the International Monetary Fund (IMF) has led the government to increase taxation efforts in the retail sector. Initiatives such as point-of-sale (POS) registers and the Tajir Dost scheme has been introduced to bring more businesses under the tax net.

Initially launched in six cities, the Tajir Dost scheme was expanded to 42 cities in 2024. Under this initiative, businesses can declare their income and assets, benefiting from reduced tax rates and simplified compliance procedures. The government hopes digital financial systems will support tax collection efforts by increasing transparency in business transactions.

Overcoming Barriers to Adoption

While digital financial services are growing, adoption remains slow due to multiple challenges. High transaction costs, lack of trust, and limited merchant participation are key barriers. A supportive regulatory framework is essential to accelerate adoption. ADB recommends that authorities encourage merchants to embrace digital payments by offering working capital loans. These loans should be based on digitally documented financial performance, reducing the risks for lenders and boosting business growth.

Financial institutions also need to innovate. The introduction of new payment methods, such as tap-and-pay and buy-now-pay-later (BNPL) schemes, could make digital payments more attractive to retailers and consumers.

The government must promote digital finance. Using digital platforms for tax collection, pension payments, and other public services can set an example for businesses and consumers. Strengthening digital ID systems can also make it easier for citizens to access financial services.

Consumer trust remains a crucial factor in digital adoption. Data privacy, cybersecurity, and consumer protection policies must be prioritized. At present, less than half of developing Asian countries have strong data protection laws. Without clear regulations, individuals and businesses struggle to understand their rights and obligations when handling digital transactions.

Financial Inclusion for Women

Targeted efforts are needed to improve financial inclusion for women. Over half of Pakistan’s population remains underserved by the financial sector. Ensuring equal access to banking and mobile money services can unlock economic opportunities for millions. The transition from cash to digital payments is a long-term process. However, Pakistan can accelerate its journey toward a fully digital financial ecosystem with the right policies, regulatory support, and financial innovation.