Why PayPal  is Not Launch in Pakistan?

PayPal is an electronic payment system founded in the US that operates as a third party for two parties to make financial payments. In the internet transferring business it occupies a strong position.

However, despite a lot of demand and effort, it is regrettably not working/coming in Pakistan. The lack of PayPal is a few spokesmen in the market. The most important reasons given in this respect were money laundering, FATF, and exchange control systems.

However, no official review on this topic is available. This little short is an attempt.

A detailed study on the advantages of PayPal, the challenges facing Pakistan in becoming operational, the regulatory and control criteria that need to be in place before PayPal is adjusted, and what Pakistan has to give to the payment platform to consider establishing a store at home. What the report disclosed is as follows:

Why does PayPal work for us?

Although PayPal is needed for several financial transactions, this service is directly connected to the freelance community. In particular, for the last three years, Pakistan is the largest factor exporter with a rising market.

As such, in the lack of trusted electronic payment service providers, the freelancing community has major problems in obtaining money. As result, the PayPal accounts in Pakistan are created by informal/illegal or indirect means.

Pakistan has an appealing location for offshore services and a solid contribution to the open market. According to the 2019 GSLI, Pakistan is the 11th most desirable offshore service location in Asia and its position is among the 30th most attractive in the globe.

But the financial attractiveness is the most positive number. Pakistan is 5th among the 50 most prominent countries and 3rd among the Asian countries. Despite these positive facts, they have no electronically paid method that is reliable, user-friendly, safe, and globally accepted.

As a result, they use risky, informal, and illegal financial transfers platforms. They would choose PayPal, which is more secure, more private, and provides fast customer assistance in this circumstance.

What are the hurdles to PayPal's arrival in Pakistan?

The difficulty of the payment platform to commence activities in the nation may be explained by several considerations. The study noted that these include regulatory constraints, money laundering, fraud, and capital flights.

The long list of room to allow is most likely the main issue for PayPal's entrance into the Pakistani market. The EMI has to maintain the original capital needs of Rs. 200 million to be functioning in Pakistan in line with the EMI Regulations of SBP for the Electronic Money Institution (EMI).

In addition, the EMIs must always retain the minimum continuous capital. The Outstanding E-Money Balance shows several plates of continued capital (OEB).

The second significant issue with the regulatory constraints is that a three-stage approval process must be carried out on payment service providers - including EMI - for a license: in-principle approval, pilot operations, and full operations.

They need this to be a payment service provider in Pakistan with a great deal of time and money.

Further, several consumer due diligence laws need also to be fulfilled. Once EMI laws have been revised, it may readily be inferred that the whole responsibility for unlawful or suspected money transfers would be passed to EMI.

Thus, perhaps these companies cannot start a business in the US if such severe rules exist. PayPal also may be noted that, compared with other online funds such as Payoneer, PayPal operates with minimum profit margins and that these high expenses, for regulatory applications, would not be appropriate for its business model.

Sadly, Pakistan's regulatory quality is almost the lowest among Asian countries, just above Bangladesh. Moreover, Pakistan ranks 135th of 180 nations in the 'Economic Freedom Index (EFI)' (2020).

Unnecessary rules are therefore one of the greatest challenges to accepting PayPal in our market. PayPal is a company. They will not thus come with severe restrictions and poor profit. For them, the Pakistani market is not a slender fruit. Incentives instead of limits are always available for businesses.

Money Laundering and FATF Argument

Money laundering is another important matter for PayPal because it does not join the Pakistani market. In recent years, there have been worries that money laundering operations in Pakistan have risen.

As a result, Pakistan has been on the grey list of the Financial Action Task Force (FATF). As a result, FATF requires international e-payment providers and EMIs to adhere to strict consumer rules and avoid money laundering. SBP has the authority to terminate its licenses otherwise.

For the PayPal firm, we claim that money laundering is not a major problem. The firm has a higher risk of money laundering than Pakistan in various zones.

The report depicts the nations in which PayPal works or provides full or partial laundering services, which are at significantly greater danger than Pakistan.

Interestingly, many nations are listed on the FATF grey list, but PayPal works fully or partially in these countries. Therefore, from the point of view of PayPal, AML and FATF are less concerned.

Government and SBP's Willingness

"There is no support for digital money and numerical payments in Pakistan overall attitude of the Government. Digital money such as Bitcoin in Pakistan is not allowed, for example. In Pakistan, the fraction of regular consumers of alternative delivery routes is still quite low."

The central payment gateway may also have been a problem. However, for certain nations, PayPal is just an institution for money transfer while acting as the digital wallet in the USA market.

However, a central platform must be provided to transfer them to any bank. In Pakistan, there is no such central platform.

The controls of capital

From an SBP viewpoint, PayPal is the main hindrance to its access to the Pakistani market through the exchange control scheme and data privacy.

By the SBP, the transfer mechanism for PayPal funds is based on the two-way approach. Thus, foreign exchange flows might impose further strain on Pakistan's foreign sector.

"The other countries with weak foreign exchange buffers might. This may be true. Curiously, Pakistan is not the only country that has strict control over capital. The capital control regimes of the nations are equal to or strict than Pakistan in almost every country except Singapore and the UAE. PayPal works interestingly in almost every country. The study thus stated that capital control is not PayPal's primary issue.

What is PayPal in Pakistan going to need?

PIDE further said in its study that" We have found the argument that the launch of PayPal into any market does not include FATF, money laundering, exchange control limits, etc. PayPal is a company with a strong profit margin and a lot of business comfort."

"There are many things that PayPal analyses before entering a market, but we list here a few that are based on stories. These apply to e-commerce, means of payment, online traders and risk management," the study added

E-Commerce

The business of e-commerce lies at the heart of PayPal's existence in any market. You would like to study:
  • Total volume and value of Pakistani consumers' online shopping.
  • Similarly, Pakistani merchants have a total volume and value for online sales.
  • The firm PayPal is also looking for longer periods of growth in sales and payments.
  • The percent of all intra-border internet transfers, namely transfers between local customers and dealers.
  • Likewise, the percentage of international money transmitted online is the shift between Pakistani customers and non-Pakistani Customers.

Methods of payment and penetration rate

  • Which methods, payment systems, and platforms of payment exist and how many are available online and digitally.
  • What is the rate of penetration of each payment system? In other words, which percentage of the people own the online payment - credit/debit cards. How they use it actively.
  • In each electronic payment system, what is the percentage of overall e-commerce activities?
  • The risk characteristics of various payment methods are also evaluated, importantly.

Merchants Online

You also look carefully at a list of some major traders who can use PayPal services for payments they get or make.
The total volume of the main dealers' online transactions is also recorded.

The focus of e-commerce in this regard is also important. In other words, what is the percentage of overall e-commerce/online transactions for leading retailers?

Management of risks

The firm also looks at the list of privacy, due diligence, and PayPal or payment service providers' applicable rules. If PayPal can easily accept these laws and regulations without major changes to the product, this is a good sign that the company starts out on any market.

So what's next to do?

This note concludes that PayPal is greatly worried about the legal framework for EMIs in Pakistan, the Government's online information base, and the market, in particular the friendly market environment.

PayPal, on the other hand, has no big problem with money laundering, FATF, and control systems. If Pakistan's government and the SBP are serious about inviting PayPal, they must take serious measures. The latest reform plan of PIDE (2021) similarly argues that the essential drivers for future economic activity are e-governance, good regulation, internet access, and a favorable business environment.

Now note this suggests that this is a really crucial time for officials to consider this way. Still, Pakistan would be a significant component of future transactions far behind its competitors in the sector of electronic payments.

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