Pakistan’s transition towards a cashless economy has gained fresh policy attention, as evidenced by a recent high-level government meeting on digital payments.
The latest figures offer good reason for optimism: active QR merchants have reportedly increased threefold over the past year to more than two million, mobile banking application users have risen from 95 million to 137 million, and Pakistan recorded 11.9 billion digital transactions during FY2025–26. Digital channels are also being used more extensively for remittances, social protection transfers and payments for public services.
Yet cash is not retreating. Currency in circulation stood at nearly Rs12 trillion by the end of June 2026, up from around Rs10.9 trillion twelve months ago. Digital transactions and cash holdings are therefore rising simultaneously. This is not necessarily contradictory: an expanding economy can support both, and many digital transfers ultimately end in cash withdrawals. But the growth of digital transactions should not be confused with the displacement of cash from commerce.
What, then, do these seemingly conflicting trends actually tell us? The question is no longer whether digital payments are expanding – they clearly are – but what kinds of transactions are becoming digital, how deeply electronic payments are penetrating everyday commerce, whether businesses are moving receipts and supplier payments away from cash, and how effectively the emerging infrastructure can advance inclusion, documentation and revenue mobilisation.
The State Bank of Pakistan’s recently released payment-systems review for Q3FY26 provides useful evidence. During the quarter, 3.7 billion retail payments worth Rs168.8 trillion were conducted through formal banking and payment channels. Transaction volume rose 9.0 per cent over the previous quarter, with digital channels accounting for 92 per cent of retail payments by number.
Retail payment volume increased steadily from 2.76 billion transactions in Q1FY26 to 3.38 billion in Q2 and to 3.70 billion in Q3. Mobile banking apps, branchless banking platforms and electronic money wallets were the main drivers, processing 2.89 billion transactions worth Rs41.7 trillion.
These figures show that digital payments have become part of routine financial behaviour. Yet the distinction between transaction volume and value remains important. While digital channels accounted for 92 per cent of retail-payment volume, they handled only about 40 per cent of the Rs168.8 trillion transacted. Bank branches processed just 128 million transactions but handled Rs99.5 trillion.
Pakistan has therefore digitised the frequency of payments much faster than the value of economic activity. Smaller and routine payments – personal transfers, bills, mobile top-ups and online purchases – are increasingly digital. High-value commercial transfers, cheque-based payments, deposits, withdrawals and other business settlements remain disproportionately linked to branches and traditional instruments.
This does not diminish the progress. Smaller payments are usually the natural starting point of digital transformation. They build user familiarity and trust and can gradually support more complex economic activity. But the 92 per cent headline cannot be read as evidence that Pakistan is already close to becoming a cashless economy.
The composition of RAAST transactions reinforces this point. During Q3FY26, RAAST processed approximately 742 million transactions worth Rs23.3 trillion. This was a remarkable increase from around 544 million transactions worth Rs12.75 trillion in Q1FY26. Yet 664 million of the Q3 transactions were person-to-person (P2P) transfers. Person-to-merchant (P2M) payments stood at 55.9 million, representing only around 7.5 per cent of total RAAST volume and an even smaller proportion of value.
RAAST has already transformed the movement of money between individuals. The harder transition is moving everyday purchases, business receipts and supplier payments away from cash. On this front, however, the direction is encouraging. RAAST P2M transactions increased from only 4.3 million worth Rs17 billion in Q1 to almost 56 million worth nearly Rs320 billion in Q3.
The broader QR-payment trend is equally significant. QR-enabled merchants increased from around 1.17 million in September 2025 to more than 2.5 million by March 2026. Quarterly QR payments rose from 28.4 million, worth Rs91.5 billion, to 87.3 million, worth approximately Rs550 billion, over the same period. This may be more consequential than the overall transaction count because it indicates that digitalisation is gradually moving from account transfers into actual retail commerce.
The next challenge is to distinguish registration from meaningful use. A merchant may display a QR code without regularly receiving digital payments. A shop may accept occasional wallet payments while conducting most sales, supplier settlements and wage payments in cash. Future reporting should therefore focus more on active merchants, repeat transactions, the digital share of total sales, business-to-business payments and the movement of money across supply chains.
Pakistan’s wider digital economy offers a strong foundation for this transition. The Pakistan Economic Survey 2025–26 reports 207.2 million telecom subscriptions and 161 million broadband subscribers as of March 2026, with broadband penetration at 64.2 per cent. Information and communication services grew by 7.52 per cent, ICT export remittances increased by almost 20 per cent to $3.38 billion, and freelancer export earnings rose by 51 per cent to $856 million. Digital payments are therefore part of a broader expansion in connectivity, technology-enabled services and digital economic participation.
E-commerce provides perhaps the clearest intersection between digital payments, documentation and revenue collection. During Q3FY26, account- and wallet-based channels processed around 434.5 million online purchases worth approximately Rs470 billion. Card-based e-commerce added another 32.3 million transactions worth around Rs138 billion. While these categories are reported separately and should not be mechanically combined into a single measure of unique purchases, they show that online commerce is no longer marginal.
The Finance Act 2025 attempted to use this growing traceability to broaden the tax base. Under the new income-tax framework, banks, financial institutions and payment gateways collect 1.0 per cent withholding tax on online payments for digitally ordered goods and services. Couriers handling cash-on-delivery transactions collect 2.0 per cent. The lower rate on digitally settled transactions is explicitly intended to encourage online payment over cash on delivery. Marketplaces and couriers must also support seller registration and provide seller-wise transaction information.
A parallel sales-tax framework assigned collection and reporting responsibilities to payment intermediaries and couriers. Online marketplaces, banks and logistics providers are expected to report supplier-wise payments and tax liabilities, while electronic invoicing and other digital reporting systems are intended to strengthen visibility across the supply chain.
This approach has genuine potential. Rather than attempting to identify thousands of dispersed online sellers individually, the state can obtain information and collect some revenue through a smaller number of platforms, banks, gateways and couriers. A digitally settled sale creates a clearer trail connecting the seller, payment and underlying transaction.
However, the fiscal promise of a cashless economy lies in identifying commercial receipts – not in treating every digital transfer as taxable turnover. Aggregate payment figures include personal transfers, remittances, government payments, bill payments, refunds and movements between accounts. Even within e-commerce, withholding on gross receipts may impose very different burdens on high-margin and low-margin businesses.
Poorly designed implementation could also undermine the objective. If registration is complicated, tax treatment unpredictable or compliance costs excessive, micro and small sellers may shift back towards cash, informal social-media selling or platforms outside the formal system. The goal should be to make formal digital participation easier and more beneficial than remaining invisible.
The same principle applies to financial inclusion. Pakistan may have millions of app registrations, but multiple accounts can belong to the same person and some may remain inactive. Meaningful inclusion should be measured by regular use among women, rural households, low-income workers and microenterprises, and by access to savings, credit and insurance - –merely the ability to receive or forward money.
Trust will be equally important. Fraud prevention, data privacy, reliable dispute resolution and rapid reversal of failed transactions are not secondary concerns. A merchant or consumer who loses money through fraud or waits weeks for a reversal may quickly return to cash.
Pakistan has built much of the essential architecture of a modern digital-payment system. The next phase is more difficult: moving from registrations to active usage, from personal transfers to merchant and business payments, from digital access to meaningful inclusion, and from transaction trails to intelligent and proportionate revenue administration.
The country’s cashless ambition should therefore not be judged solely by how many payments are made electronically. The real test is whether digital settlement becomes deeply embedded in commerce, reduces reliance on cash, expands opportunity and strengthens transparency without placing disproportionate burdens on those being brought into the formal economy.
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