Pakistan's cashless dream has a cash problem

Walk into any busy bazaar in Lahore, Karachi, or Peshawar and ask a shopkeeper if he accepts digital payment. Chances are, he will look at you like you’ve asked a question he wasn’t quite ready for. A polite smile, followed by a firm: ‘Cash hi de dein" (give cash). This small everyday exchange says more about Pakistan’s cashless ambitions than any policy document ever could.

To be fair, the numbers do tell a fairly promising story. According to the State Bank of Pakistan's Annual Payment Systems Review for FY2024-25, digital transactions now account for 88% of all retail transactions — up from just 78% two years ago. Mobile banking apps alone processed over 6.2 billion of those transactions. These are not small gains. By any measure, Pakistan's digital payment infrastructure is moving forward.

But progress on paper and progress on the ground are often two very different things. In Pakistan, that gap has usually been wider than expected.

Consider that same SBP report more carefully. Of Pakistan’s more than 20,000 ATMs nationwide, around 98% of all transactions are cash withdrawals — not deposits, not transfers. Just cash out. In a country where the central bank is celebrating the growth of digital payments, people are still using digital infrastructure primarily to get their hands on physical notes.

In many retail outlets, paying by card quietly costs more — merchants routinely add an informal 2% to 3% surcharge to recover bank charges, a cost that is almost always passed silently to the customer.

A significant portion of Pakistan's economy remains informal. Small traders, daily wage earners, domestic workers, and street vendors operate almost entirely in cash — not because they are unaware of digital options, but because cash works for them in ways that digital systems still do not. There is no transaction fee. There is no app that crashes. There is no requirement to explain a suspicious transaction to a bank manager.

Pakistan's financial inclusion rate reached 64% in 2023, up from just 16% in 2015. Many accounts, particularly mobile wallet accounts, sit dormant. The SBP itself acknowledges that "behavioural and trust barriers" continue to hold back real adoption, especially among small traders and informal workers who cite high transaction fees, unreliable networks, and low digital literacy as their main deterrents.

Raast's peer-to-peer transfer system has seen genuine adoption in urban areas. Mobile wallets like Easypaisa and JazzCash have brought basic financial services to segments of the population that traditional banks never reached. QR-enabled merchants more than doubled in FY25 — from 516,000 in FY24 to over 1.9 million by end of 2025 — which is a real sign of merchant-side momentum, even if still concentrated in urban centres.

The fintech ecosystem, while still young, is producing interesting solutions — from digital lending to merchant payment tools tailored to small businesses. The SBP's Regulatory Sandbox, launched in May 2025 under its Vision 2028 strategy, allows banks and fintech firms to trial innovative products in a controlled environment before full-scale deployment. These are structurally sound steps, and they matter.

There is also genuine energy at the consumer end. Young urban Pakistanis — freelancers, gig workers, online shoppers — are increasingly comfortable with digital payments. For this growing segment, cash is already becoming the backup rather than the default.

The cattle markets this Eid told a similar story. Digital payments at mandis surged during Eidul Azha 2026 — Rs 34 billion across 123 markets, up from Rs 4.6 billion the previous year. But ask anyone who paid digitally why they did it, and the answer is rarely convenience. It is because carrying lakhs in cash to a mandi, in a city where street crime rises every Eid season, is a risk most people would rather avoid. That is not a cashless mindset. That is a security calculation.

But there is a difference between building the right infrastructure and assuming that infrastructure will automatically change behaviour. The human side — trust, habit, incentive, and inclusion — has to follow.

India's UPI story is often cited as a benchmark for what Pakistan could achieve. India's digital payment revolution was built on years of consistent policy, aggressive merchant onboarding, and a population that was increasingly smartphone-connected. Yet even India, with all its scale and regulatory momentum, has not eliminated cash from daily life. Rural cash dependency persists.

Pakistan's challenge is also more complex in one important way: its informal economy is proportionally larger, its digital literacy gaps are wider, and its cybersecurity frameworks — though improving — are still catching up with the pace of digital expansion. The SBP's own review flags vulnerabilities in authentication, data privacy, and fraud detection, particularly as phishing and social engineering scams targeting mobile banking users have grown alongside transaction volumes.

The government's target of 75% financial inclusion by 2028 is directionally right. But the path there runs through the kiryana store owner in Faisalabad and the daily wage labourer in Quetta — not just through fintech apps in Karachi and Islamabad.

Consider one telling reality: when the Federal Board of Revenue introduced its Tajir Dost scheme in 2024 and since expanded to 42 cities — requiring small traders and shopkeepers to register for tax — many responded not by complying, but by doubling down on cash. For a shopkeeper who has operated informally for decades, a QR code is not just a payment tool. It is a paper trail. And a paper trail means taxes. Until that fear is addressed through genuine incentives and simplified compliance, no payment infrastructure — however well-designed — will convince the informal economy to go digital.

One concrete starting point would be a time-limited tax grace period for small traders who register digitally — not a permanent exemption, but a two or three year window that removes the fear of immediate audit. Merchant incentives need to be real, not symbolic. Tax policy should reward formal digital transactions rather than punish them. And financial literacy in smaller cities and rural areas remains the most underfunded piece of this puzzle. Consumer protection frameworks need to keep pace with the expansion of digital systems — because one high-profile fraud incident can undo years of public trust-building.

Pakistan will become cashless, in some form, over time. But the true measure of this transition will not be the number of QR codes installed or apps downloaded. It will be whether the street vendor in Peshawar, the daily wage earner in Quetta, and the kiryana owner in Faisalabad are part of that future, or left outside it, once again.

by: Jamal Roomi

The author is a Karachi-based freelance columnist. He can be reached at jamalroomi@yahoo.com.