ayapay, Sadapay, Esaypaisa, Jazzcash etc are some of the many microfinance banks offering newways of digital banking. Traditional banks have also embraced this shift by launching mobile banking apps and digital wallets. New digital-only banks are emerging to offer a variety of financial services. Despite these advancements, Pakistan’s economy remains predominantly cash-based due to cultural preferences and trust issues related to digital transactions. This is true especially in rural areas where digital infrastructure is underdeveloped. This reliance on cash stems from deep-rooted cultural habits and a general mistrust of digital transactions.

Apart from there being a deep-rooted preference for cash transactions, limited access to reliable internet and mobile networks in rural areas constrains the reach of digital banking services. Low levels of financial literacy hinder the adoption of digital financial services. Many people are unaware of the benefits and functionalities of digital banking. This hinders their willingness to transition from cash. Moreover, concerns over cybersecurity and data privacy are significant deterrents. Incidents of fraud and data breaches can severely undermine user confidence in digital banking systems.

The regulatory framework surrounding digital banking has also been reactive rather than pro-active. The State Bank of Pakistan has introduced key regulations such as the Payment Systems and Electronic Fund Transfers Act, 2007, and guidelines for branchless banking to facilitate secure and efficient digital transactions. The National Financial Inclusion Strategy aims to increase access to financial services, particularly through digital means. By 2023, the strategy envisions significant improvements in financial inclusion, with digital banking playing a central role. Additionally, the Digital Pakistan Initiative, launched by the government, focuses on promoting digital infrastructure, literacy and innovation to create an enabling environment for the growth of digital financial services.

However, this is not enough. More enhanced legal initiatives are needed to create a digital-friendly regulatory framework. For instance, interoperability standards, such as the development of unified payment systems and standardised APIs for digital banking services are crucial for seamless transactions across various platforms and service providers. Incentives for digital transactions, including tax rebates for businesses that adopt digital payment methods and subsidies for expanding digital infrastructure in underserved areas, can significantly boost adoption. Although the reduced (5 percent)GST has provided some motivation for cashless payments, it has also enhanced the consumer gap between those who are able to make card payments and those who do not have the resources of bank accounts. Consumer protection and education must be prioritised through clear guidelines on consumer rights, comprehensive dispute resolution mechanisms and nationwide financial literacy campaigns.

Promotion of fin-tech innovation is essential. Regulatory sandboxes can allow fin-tech start-ups to test innovative products and services in a controlled environment with relaxed regulatory requirements. Grants and funding opportunities for fin-tech companies can enhance financial inclusion. Implementing a robust digital identity system for secure authentication and promoting biometric authentication methods can further enhance security and user convenience.

Collaboration with international organisations to adopt best practices and frameworks for digital banking and payments, as well as facilitating cross-border digital transactions by harmonising regulations with neighbouring countries, can also drive progress. Enhanced cybersecurity measures, including a comprehensive cybersecurity framework for digital financial services and mandatory advanced security protocols, are necessary to protect user data and build trust. Infrastructure development, particularly expanding broadband access and encouraging public-private partnerships to accelerate digital payment infrastructure development, is vital.

Data privacy and protection laws should be enforced stringently to safeguard user information and build trust in digital financial services. Transparent data policies and obtaining user consent for data collection and sharing are essential. Programmes to promote merchant adoption of digital payment systems, including training programmes and subsidies for purchasing POS terminals and other digital payment infrastructure, can also drive widespread adoption.Regular assessments of digital banking adoption and the effectiveness of regulatory measures, along with mechanisms for consumers and businesses to provide feedback on digital banking services and regulatory policies, can ensure continuous improvement and address emerging challenges.

In Pakistan, several digital banks and fin-tech companies are leading the charge. JazzCash and Easypaisa, two leading mobile wallets, provide a wide range of services from bill payments to money transfers and have extensive agent networks, making digital financial services accessible even in remote areas. Traditional banks like UBL and HBL have also launched digital banking services to reach unbanked populations through platforms like UBL Omni and HBL Konnect, offering services such as account opening, funds transfer and bill payments.

InIndia, the success of the Unified Payments Interface highlights the importance of a unified digital payments platform. Driven by strong government incentives and policies, the UPI has revolutionised digital transactions, making them simple, quick and secure.

In China, digital payment platforms like Alipay and WeChat Pay dominate the landscape. The widespread adoption of these digital wallets is supported by a robust digital infrastructure and a tech-savvy population, demonstrating the potential of digital wallets to transform everyday transactions. Kenya’s M-Pesa platform is a notable success story in mobile money, significantly contributing to financial inclusion by providing accessible financial services to the unbanked population.

To enable a similar cashless economy in Pakistan, developing a national unified payment interface similar to India’s UPI can facilitate seamless transactions across various banks and fintech platforms. Implementing standardised APIs for digital banking services, mandated by the State Bank of Pakistan, will ensure compatibility and ease of integration among various financial service providers.

Digital identity and authentication can be enhanced by integrating digital banking authentication with the National Database and Registration Authority to leverage Pakistan’s robust national identity database. Encouraging the use of NADRA’s biometric verification for secure digital transactions and account opening processes will improve security.

Finally, infrastructure development is critical. Investing in expanding broadband internet access through public-private partnerships, particularly in rural and underserved areas, coordinated by the Ministry of IT and Telecom, will improve connectivity. Promoting the development of digital payment infrastructure through incentives and collaborations between banks, telecom companies and fin-tech start-ups will support the transition to a cashless economy.

The writer is the CEO at ZAK Casa and Verde as well as a managing partner at a law firm, namely Lex Mercatoria