Recently Business Recorder reported that 1Link has proposed that PayPak branded cards should be made mandatory for government adjacent payments - salaries, subsidies, and public sector payments. PayPak was founded in 2016 - 10 years ago, and its penetration into consumer choices has been low as most cards are not double branded and are either Visa or Mastercard branded. However, Pakistan is not the only country that has focus on ensuring that there is a local payment network - China's card network is branded with UnionPay, which is at par with Visa and Mastercard in terms of transaction value and volume. For retail WeChat & Alipay are ubiquitous. India implemented UPI and RuPay which underwent an astronomical adoption rate due to the ease with which transactions were settled with merchants being the primary drivers for adoption.

Just a couple of months ago a number of European countries announced the European Payment Alliance (EuroPA) with the member countries planning to implement a cross-border payment network that would reduce reliance on Visa/Mastercard within their internal borders and would be built in a way that it can be adopted by other European countries too.

Why have Internal Rails?

Various countries have varying degrees of reasons for implementing rails but without even getting into the economic and strategic reasons most countries have some form of internal payment networks and systems usually operated by their banking and fintech ecosystem, but it is adoption that varies from location to location. Secondly, cash is becoming less prevalent in the economy globally. McKinsey's research shows that Global Payments revenues have been increasing steadily for the past 12 years and cash usage from 2023 to 2024 dropped 4%. Pakistan's internal channels for digital payments have been increasing exceedingly as well.

Lower Costs & Localized Investment

Large payment networks benefit from massive economies of scale and the ability to deploy their technology and solutions across multiple regions, but that does not always translate into a cheaper product. As the bulk of the payment networks resources and technology is employed at high income countries, the exchange rate differentials, petrodollar knock on effects, lax regulations regarding labor laws, host of other factors, and lack of interchange fees results in Visa/Mastercard being more expensive especially in low to mid-income countries.

One other benefit is the investment that needs to be done if local rails are set up - it setups industries and a large section of related services and employment.

Data & Regulation

As data and technology have become more pervasive in the world data payment companies get access to a bunch of information that can convey a lot of information about personnel but also about neighborhoods, streets, localities, and regions. This information is used by companies for advertising and selling but it can also be used for counter espionage and other related actions. Therefore, states will implement laws - GDPR, California Privacy, to counteract how information can be collected, used, and discarded. In Pakistan's case and other global south countries, which do not have strong implementation networks for legislation the alternative is to create local payment solution networks that only share data with external companies when needed - cross border payments or international transactions, because in many cases a company will have to comply with requests of information from its origin country.

Sanctions & GeoPolitics

Russia, North Korea, Iran, Venezuela all have sanctions on them and that freezes them out of global payment networks, and they have to rely on internal payment systems, in the case of Russia it is Mir, Iran has its own Shetab system, and Turkey created Troy for domestic cards. While Pakistan keeps close ties with western states the nature of the state has been precarious for decades and it has been the subject of FATF scrutiny in the past and from a geopolitical strategy it makes sense to insulate from being frozen out of payment systems as they operate outside your borders.

What does it mean for Investors?

This question is a bit nuanced because in Pakistan the issuance of Credit Cards is far lower than the number of Debit Cards issued, but they are issued with Visa or MasterCard brands, while some are also issued with UnionPay. Most 'digital transactions' happen via other channels - RAAST, Bank Transfers, EMI. Additionally, the consumers require flexibility so implementing purely PayPak cards is not going to be received well - highlighted by the low adoption of PayPak cards, but dual brand cards can be super beneficial enabling reduced costs for domestic transactions but keeping the flexibility of MasterCard and Visa for international transactions without any change in consumer behavior.

Successful implementation will reasonably result in quicker velocity in attracting card clients and increased retail cash conversion due to lower friction costs and quicker settling. While there is no particular company right now that investors can target to take advantage of this development, we can expect the technology sector to produce more output across three main lines avenues:

• Remittance Efficiency.

• Easier to invest in startups.

• Higher Financial Inclusion.

These factors will definitely move the supply of production within Pakistan and this is something investors should keenly be watching.

Based on the charts we can see a clear emergence of domestic payments migrating to digital channels. This concentration is more for smaller transactions while around 70% are still done in cash - this is for larger transaction, but this will take time to reverse as consumers develop more trust in the institutional solutions. Another impediment is that the internal rail around RAAST is growing at a rapid rate with 2026 showing particular growth around Peer to Merchant transactions, however this should not dissuade the procedural work that should go into setting up PayPak as a default source or atleast be cobranded on cards.