- Easypaisa, a leading digital wallet in Pakistan, reported a significant increase in activity during the lockdown
- This is an indication, and reinforces our view, that Covid-19 could drive a shift to digital payments in Pakistan
- Pakistan represents an ideal environment for digital banking to thrive; Bank Alfalah is our top tech play
Reinforcing our view that the Covid-19 crisis could drive a shift to digital payments, Easypaisa, a leading Pakistan digital wallet, recently reported a significant surge in activity. We reiterate our view that the Pakistan digital payments industry is underpenetrated with a strong potential for structural growth.
Easypaisa reported a 35% increase in new customers during the lockdown, with inactive customers also returning to the service, according to reports. The number of daily transactions from the Easypaisa application has increased 17% since the lockdown was enforced. The company has also seen an overall increase of 184% in bank transfers via e-wallets and c15% growth in mobile top-ups. We have already seen Covid-19 accelerating e-commerce in Pakistan – an indication of what could happen worldwide.
Pakistan represents an ideal environment for digital banking to thrive. It has a high unbanked population (79% of adults do not have an account at a formal financial institution), strong mobile penetration (78% of the population have a mobile subscription) along with high cash dependence (currency in circulation to M2 at c30%, one of the highest in emerging markets). Mobile wallet penetration is currently low with the total number of accounts standing at 46mn (34% of the adult population) and active accounts at 25mn (18% of adults). By way of comparison, in Bangladesh the total number of mobile wallet accounts is equivalent to 70% of the adult population while in Kenya this number is well over 100%.
|Number of accounts (mn)||46||-2%||32%|
|Number of active accounts (mn)||25||n/a||36%|
|Number of agents (000s)||437||3%||7%|
|Number of transactions (mn)|
|Value of transactions (PKRbn)||4,505||23%|
The industry is concentrated, but a new entrant aims to disrupt the status quo. Pakistan's digital payments industry is very concentrated with the top-two players (Easypaisa and JazzCash) controlling 87% of the market (as of 2018), and around ten other players (such as UBL Omni, HBL Konnect) competing for the remaining 13%. Recently, the State Bank of Pakistan has granted an in-principle approval to SadaPay, a new start-up that is aiming to disrupt the industry with competitive pricing and a focus on the freelance customer segment.
Banks would also benefit from digitalisation. Following the rise in digital payments, banks in Pakistan had ramped up their IT expenditure in 2019 and we now see more management focus on digitalisation, for example, in recent investor briefings. Having said that, not all banks are progressing equally. Bank Alfalah (our top tech play) has a strong focus on technology and is continuously improving and aggressively promoting its new mobile application, Alfa. Among larger-cap names, we think HBL is the most tech-savvy; both its Konnect (digital wallet for the unbanked) and HBL Mobile (for existing banking customers) products have been witnessing strong growth.
Figure 1: IT expenses/total assets ratio
Source: Company accounts, Tellimer Research
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This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...