The State Bank of Pakistan (SBP) said little progress has been made in introducing the most widely used digital payment service of PayPal, as things stand, data privacy is one of the major hurdles in the way of PayPal to enter Pakistan. Recently, Finance Minister Asad Umar has said that he has given four months to the IT ministry to convince PayPal to come to Pakistan. The most widely used payment method across the globe, and which both employers and freelancers consider relatively more convenient, cheap and safe. It is estimated, if PayPal comes to Pakistan it will facilitate about 2, 00,000 freelancers, who earn more than $500 million. These freelancers currently use non-banking (informal) channels to receive payments. The SBP in its first quarterly report on the State of Pakistan’s Economy for FY19, said since PayPal’s funds transfer mechanisms work in a bidirectional fashion, there are concerns for countries with weak external buffers to risk excessive outward remittances of foreign exchange. In past, PayPal had to cease or narrow down its operations in multiple countries by failing to satisfy the local regulatory authorities on the issue of data security. The platform stores information on datahandling from all the countries on a universal cloud platform. This practice is often inconsistent with the banking regulations of the countries, as sensitive information of the citizenry is held offshore. The SBP said as far as cross border payment solutions are concerned, although exchange services of intermediaries such as Payoneer and Skrill are available for individuals and startups associated with the freelancing and BPO industry. Nonetheless, to facilitate freelancers and the BPO industry, SBP has recently allowed commercial payments – both B2C and C2B – through the bulk payment processing channel under the Pakistan Remittance Initiative (PRI), which may not perfectly substitute PayPal but can potentially provide some relief in the form of lower financial charges relative to other channels. Cumulatively, such efforts would help improve industry’s fundamentals going forward. Informal exports are probably higher than formal exports According to the central bank, industry experts place the total size of Pakistan’s ICT exports at around US$ 2.5 billion. Of these exports, registered firms using formal banking channels to collect export receipts account for around US$ 1 billion, however, roughly US$ 1 billion is attributed to SME exports in the grey market, and the remaining US$ 0.5 billion is accounted for by freelancers in the IT and IT-enabled services (ITES) space that serve international clients. Reasons behind the under-representation of receipts in the official statistics include, the absence of PayPal, therefore, a number of ICT and business process outsourcing (BPO) firms prefer to receive their revenues using money transfer organizations like Western Union, with some even preferring to have their revenues deposited in banks outside Pakistan to avoid the associated transfer costs. In the case of former, the export receipts reflect as workers’ remittances, whereas in case of latter, these earnings remain unrecorded altogether. Also, anecdotal evidence also suggests that some firms and individuals themselves bypass proper documentation in order to either stay under the radar of tax authorities, or avoid the hassle of filling out SBP’s Form ‘R’ (considered both cumbersome and redundant). Furthermore, most firms simply opt out of negligence and lack of awareness about the proper export procedures, added SBP. Published in Daily Times, January 31st 2019.