Khurram Akhtar – Co Founder of ProgrammersForce.
Fintech is the domain connecting technology to the world of finance. Globally, the fintech industry has brought about various advancements that have led to the development of processes like mobile payments, P2P lending, solutions based on blockchain technology, robo-advisors and more advanced crowdfunding methods.
The sector currently holds a significant 2% share of the global economy, and it is estimated to generate an impressive $1.5 trillion in annual revenue by 2030, which would account for almost 25% of all high-value industry sectors. The Asia-Pacific fintech market is predicted to reach $324 billion by 2026, growing at a CAGR of 28.2% from 2021 to 2026 (paywall).
The Fintech Landscape In Pakistan
In 2001, only a tiny fraction of the population, specifically 1.3%, had access to the internet. However, by 2012, it had grown to 10.0%. As of July 2021, approximately 118 million citizens in Pakistan now have access to the internet, which accounts for 54% of the population. Notably, the mobile penetration rate has surpassed 77%, indicating a significant increase in mobile phone users. This shows that if provided with resources, fintech can be a booming industry in Pakistan.
Pakistan has a mixed cash-based economic system, which means that most people in Pakistan prefer dealing in cash and are skeptical of digital methods—though surveys show digital banking gaining traction with 12% of those polled saying they used less cash in 2022.
Mobile Financial Services
The first fintech service in Pakistan was introduced in 2009 by telecom company, Easypaisa. At first, the service only provided money transfers. However, it has since introduced a mobile app that offers a wide range of financial services, making it Pakistan’s first fintech platform.
Now, Pakistan has a wide range of mobile financial services (MFS). Their usage level is significant because these services allow individuals to set up a mobile money account using their SIM number. Mobile financial services are convenient and offer essential financial services such as money transfers and bill payments. These services do not have any physical banks but instead rely on agents (vendors) nationwide.
Banks often provide their users with an online banking experience either by creating a portal or an app. However, only a few bank MFS apps enable customers to perform financial transactions while others simply provide information on a user’s financial status.
Fintech Startups: Neobanks
Even though the existing services offer a decent mobile financial experience to their users by taking care of basic needs, this is not fintech at its true scale. Pakistan has seen a significant increase in fintech startups in recent years. These neobanks operate entirely online without any physical banking network. They allow users to open a bank account, make instant payments, transfer money, pay bills and create virtual cards.
However, the question remains, what are the keys to a successful fintech startup in Pakistan?
Challenges Faced By Fintech Startups In Pakistan
1. Market Saturation And Limited Investment
The fintech market is already filled with incumbent organizations. These organizations are not always welcoming of innovation, which is an issue for upcoming fintech companies trying to find partnerships or investments.
And since most of the fintech services in Pakistan are owned by well-established banks or telecommunications companies, almost all funding and investments are directed toward them, leaving fintech startups with limited venture capital and funding opportunities.
2. Poor Financial Inclusion
Pakistan’s financial inclusion status is below average, ranking 16th out of 26 countries in a Brookings report. Despite 80% of financial services being provided by the banking sector, they serve only 15% of the population, which is a significantly low percentage.
A survey by the State Bank of Pakistan revealed that basic financial literacy is possessed by only 23% of Pakistan’s population. The World Bank states that about 100 million adults in Pakistan are not even aware of the regulated financial services provided in the country. This number represents 5% of the world’s 2 billion unbanked people.
3. Unreliable Infrastructure
The digital infrastructure in Pakistan also needs to be improved. A clear example is the nationwide internet blackouts, which make internet services in Pakistan unreliable. This uncertainty and unreliability of the internet can disrupt transaction processing and service delivery. Payment services like Paypal are also nonexistent in Pakistan, which shows the massive lack of digital payment infrastructure in Pakistan’s cash-based economy.
4. Regulatory Failures
Despite implementing regulations such as the Regulations for Mobile Banking Interoperability and creating the Third Party Service Provider (TPSP) License that highly favor fintech startups, not all policies by Pakistan’s government are friendly to fintech advances; a clear example of this is the 2018 ban on cryptocurrency trading and mining.
Navigating Challenges: Embracing A Positive Future
Still, The State Bank of Pakistan has been actively working to improve the fintech sector in Pakistan. The Roshan Digital Account (RDA) is a clear example of this. I believe that the government and well-established financial institutions can work together to improve the country’s financial literacy and regulatory environment.
Moreover, the government has the opportunity to promote a more welcoming industry environment for global payment platforms such as PayPal, which can help improve its digital finance infrastructure. I believe that in a country this uncertain, fintech startups need to focus on customer needs and emerge with innovative products and services that benefit the masses. Fintech companies can do this by utilizing the latest security technologies, protocols and firewalls to protect their systems from security threats.
A healthy and interconnected environment is one where government funding and investments are equally distributed, providing all fintech services with an equal chance to prove themselves. With over 60% of Pakistan’s population under 30, I think it is safe to say that the younger generation will help push the adoption of fintech solutions.
Meaningful collaboration between the government of Pakistan and its fintech sector would help promote innovative fintech startups and create a positive future for a financially aware, digital Pakistan.
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