By Moaaz Manzoor

Digital payment channels accounted for 92% of Pakistan’s total retail transactions during the second quarter of fiscal year 2025-26, reflecting a sharp shift away from cash-based and over-the-counter (OTC) payments. According to the Payment Systems Quarterly Review for Q2 FY26, available from Wealth Pakistan, of 3.4 billion total retail payments recorded during the quarter, around 3.1 billion transactions were conducted through digital channels.

These include mobile banking applications, internet banking portals, ATMs, point-of-sale (POS) machines, e-commerce platforms, and call or IVR banking services. The report shows that only 8% of total retail payments were carried out through OTC channels, such as bank branches and branchless banking agents. In absolute terms, OTC transactions stood at around 272 million, compared to more than 3.1 billion transactions processed digitally. In terms of value, digital transactions also recorded notable growth.

The value of payments conducted through digital channels reached Rs64 trillion during the quarter, up from Rs56 trillion in the previous quarter, reflecting a 14% increase. Digital payments accounted for a growing share of the total retail transaction value, which stood at Rs167 trillion during the period under review. The report indicates that digital channels are being widely used for a range of financial activities, including fund transfers, merchant payments, bill payments, and online purchases.

The expansion of digital banking platforms, combined with increasing access to mobile applications and internet services, has contributed to the rising share of digital transactions. Banks, microfinance banks, and electronic money institutions have expanded their digital offerings, enabling customers to carry out transactions without visiting physical branches.

These digital channels are integrated with various payment instruments and services, allowing users to make payments to individuals, businesses, and government entities. The shift toward digital payments is also reflected in the increased use of channels such as ATMs and POS machines, which continue to support card-based and account-based transactions.

In addition, e-commerce platforms and online payment gateways have facilitated a higher volume of digital purchases. Despite the increasing dominance of digital channels, OTC transactions continue to play a role in the payment ecosystem, particularly in areas where access to digital services is limited.

Bank branches and agent networks remain operational for services such as cash deposits, withdrawals, and certain types of fund transfers. The report highlights that the continued rise in the share of digital payments is supported by ongoing developments in payment infrastructure and the availability of multiple digital platforms.

The growing reliance on these channels reflects their integration into routine financial activities across different segments of the economy. Overall, the data for Q2 FY26 shows that digital payment channels have become the primary mode of conducting retail transactions in Pakistan, with a significant majority of payments now being processed through electronic platforms rather than physical cash-based systems.

Credit: INP-WealthPk