The hospitality industry in Pakistan is undergoing a major transformation, with more and more hotels and restaurants are encouraging their customers to use credit/debit cards for payments instead of cash. The major reasons for this slow but steady shift are enhanced security and operational efficiency, coupled with changing customer preferences.
This changing culture also reflects the broader global trends towards digital transactions, and according to the ‘Extinction of Cash Chart’ by the made using WorldPay’s Global Payments Report 2024, credit/debit cards and digital wallets are being preferred across the world, with cash payments decreasing drastically.
Despite technological advancements and the economy becomes more digitized, a majority of hotels and restaurants across Pakistan, until recently, preferred cash payments instead of accepting credit/debit cards for a number of reasons. The foremost reason was under-reporting of sales and services provided.
Even those apparently offering the facility of digital payments used to make excuses like “the machine is out of order” or “the service link is down at the moment”. The customers had no option but to believe the management, and subsequently make cash payments.
In order to counter this under-reporting and encourage documentation of economy, the Federal Board of Revenue (FBR) came up with a new scheme in the beginning of the last fiscal year, offering a massive discount on general sales tax to customers for making payments digitally at restaurants.
According to the measures implemented on July 1, 2023, the Federal Board of Revenue announced that customers would be charged just five percent sales tax instead of 15 percent (later increased to 17 percent) if they made their payments at through credit/debit cards, or via mobile wallets and QR scanning at restaurants. Initially discouraged, business owners have started to realize that the modern payment methods are beneficial to both them and their customers.
First, digital payments are all about enhancing efficiency and speed, which is something that every business wants. Digital transactions are undoubtedly quick and automated, as modern point-of-sale (POS) systems process payments rapidly. On the other hand, cash payments could be very slow and timewasting, not no mention the cash’s handling, which involves counting and safekeeping.
Everyone should keep in mind that security concerns have been a major factor that pushed people to adopt the digital form of payments. The risk of theft is minimal when it comes to customers and cash-heavy restaurants and hotels. To counter digital frauds, the same credit cards offer built-in security features, like advanced encryption, while card companies also offer dispute resolution and chargeback options.
The hospitality industry has started to realize that digital payments have streamlined and simplified the recordkeeping process, and generating digital records has never been easier. Although there is no tax relaxation at hotels, motels and other such facilities in Pakistan – except for those having built-in restaurants, where sales tax is charged at a reduced rate – the automation has significantly reduced the potential for human error, besides simplifying the accounting processes, which is very helpful in the tax season.
Other than the operation benefits, these digital payments provide restaurants and hotels with valuable data regarding their customers, especially with regard to their spending patterns and preferences. They use this data to offer personalized customer experience, building, renewing and augmenting their relationship with their customers.
These are the very reasons hotels and restaurants are offering not just card payment options but also mobile payment solutions such as Easypaisa, JazzCash, while customers can directly make the payments using banking apps on their smartphones. The trend towards digital transactions is likely to grow, and Pakistan’s hospitality industry is playing its part well in this regard.
By embracing these changes, all the hotels and the restaurants are not only providing a convenient and rewarding experience for their customers but also streamlining their own operations, hence creating a win-win situation for both sides.