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  • Fintech is a revolutionary contribution to the growth of the Pakistani banking industry

Pakistani traditional banks are playing a key role in the financial industry but the rapid technological development in the financial sector has evolved the world economy to shift to digital channels gradually. Financial technology (fintech) is a revolutionary contribution to fasten the pace of financial services. There is no doubt that the Internet is the main enabler for the fintech industry. Combining the words ‘financial’ and ‘technology’, fintech is technology-enabled financial innovation, which is changing the way financial institutions provide – and consumers and businesses use – financial services. Although ‘fintech’ is a relatively new term, innovation has always been important in the financial sector. The key difference now is the pace and impact of change. 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. Fintech is the domain connecting technology to the world of finance. The sector currently holds a significant 2 per cent 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 per cent 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 per cent from 2021 to 2026.

Landscape in Pakistan

In 2001, only a tiny fraction of the population, specifically 1.3 per cent, had access to the internet. However, by 2012, it had grown to 10.0 per cent. As of July 2021, approximately 118 million citizens in Pakistan now have access to the internet, which accounts for 54 per cent of the population. Notably, the mobile penetration rate has surpassed 77 per cent, indicating a significant increase in mobile phone users. This shows that if provided with resources, fintech can be a booming industry in Pakistan. A survey by the State Bank of Pakistan revealed that basic financial literacy is possessed by only 23 per cent 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 per cent of the world’s 2 billion unbanked people. 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 per cent of those polled saying they used less cash in 2022.

First fintech service

The first fintech service in Pakistan was introduced in 2009 by a 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.


1- Market saturation and limited investment

The fintech market is already filled with incumbent organisations. These organisations 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 towards them, leaving fintech startups with limited venture capital and funding opportunities.

2- Financial inclusion

Pakistan’s financial inclusion status is below average, ranking 16th out of 26 countries in a Brookings report. Despite 80 per cent of financial services being provided by the banking sector, they serve only 15 per cent of the population, which is a significantly low percentage.

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.

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 utilising 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 per cent 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. Pakistan is actively exploring how developments in fintech might support to promote the good of the people of Pakistan by maintaining monetary and financial stability.

On Friday, December 9, the State Bank of Pakistan Governor Jameel Ahmad directed commercial banks to play their role in supporting economic activities, deploy Artificial Intelligence (AI) to detect cyber threats in a timely manner and liaise with tech firms to advance banking to the next level. Addressing the 7th Edition of Pakistan Banking Awards, he said “Banks must speed up efforts towards financial inclusion. More importantly, they must not be content with just raising the number of unique bank accounts, but aim to integrate the use of financial services by individuals, entrepreneurs, SMEs (small and medium enterprises) and large businesses in their day-to-day transactions”. “Banks must remember that their foremost and fundamental, responsibility is to deliver quality services to customers and support the economy”.

In the local scenario, although the technological disruptions will unleash new opportunities, they also entail certain risks that will need to be identified and managed proactively. It is the call of the day to embrace advanced technologies such as Analytics and Artificial Intelligence to improve threat visibility and deter fraud effectively. These risks are best addressed through a concerted response by all stakeholders, a fact that the industry must acknowledge and act upon in a timely manner. Indeed, data will be the new currency and will be pivotal in attaining a sustainable competitive advantage in the industry.

Pakistan’s banking industry has several factors already in place that enable digital financial innovation and the proliferation of a tech-based financial ecosystem in Pakistan. These include a fully functional digital ID system, ubiquity of mobile devices, penetration of mobile and broadband services, availability of faster payment rails, remote account opening process, and facilitative regulatory environment to enable the entry of non-bank entities into the financial arena. Definitely, digitalisation is likely to shift the balance of power from banks to tech-savvy entities such as fintech. Leveraging digital technology is essential, not only to promote financial inclusion but also to ensure that the industry keeps pace with emerging global trends. The banks investing in capabilities to aggregate customer data, and leveraging AI and Big Data for analysis to effectively anticipate customer needs, will be more likely to deliver a superior customer journey and ensure customer loyalty. In the rapidly evolving financial landscape, Artificial Intelligence (AI) in banking is not just an emerging trend but a transformative force.

Banks need to reimagine the term “Know Your Customer (KYC)” and expand its scope, from just the due diligence requirement to developing deeper insights about customers’ habits, preferences and spending choices.

Though Pakistan is the world’s sixth most populated country, is still a cash-based economy with 85 per cent of its population being financially excluded. Along with that, high banking infrastructure costs act as a barrier to the diffusion of financial services beyond a small fraction of the population. At present, only a few fintechs operate in the country, and those are primarily in the developed cities of Lahore, Karachi, and Islamabad. However, Pakistan possesses the potential to be an attractive market for fintech growth, owing to the increasing youth population, disruptive internet and smartphone penetration, consumer preference for mobile phones and social media, a booming e-commerce market facilitating digital payments and an overall financial system having the absorption capacity for innovation. According to the Pakistan Telecommunication Authority, a whopping 101 million people use the internet in Pakistan, 46 per cent has access to broadband services and 85 per cent of Pakistan’s population has mobile connections which account to 183 million mobile subscriptions, a high penetration in the population. The Economist’s Global Microscope 2018 report ranked Pakistan at 21st place out of 55 countries surveyed for an enabling regulatory environment for financial inclusion and rapid growth of mobile financial transactions.

SBP initiatives

The State Bank of Pakistan has introduced several initiatives to promote open banking in the country. To offer principles and rules for the adoption of open banking practices throughout the nation, the State Bank of Pakistan established the Open Banking Framework. When sharing customer-permitted data with third-party service providers, banks and other financial institutions were obliged to adhere to the criteria and guidelines outlined in this framework.

To enable safe and uniform data transmission between banks and approved third parties, the SBP placed a strong emphasis on the creation and uptake of standardised APIs. The smooth operation of open banking systems depends on these APIs. To promote innovation in the financial industry, particularly open banking, the SBP built a regulatory sandbox. “Fintech firms and financial institutions can test new goods, services, and business models in a regulated setting under regulatory watch,” explained a federal ombudsman banking officer. The SBP concentrated on making sure that clear and strong customer consent procedures were in place. This includes options for clients to expressly authorise the exchange of their financial information with outside service providers. In open banking projects, customer privacy and data protection are essential factors to take into account.

The SBP released guidelines to make sure that banks and other financial institutions have strong cybersecurity safeguards in place because it understood how important data security is to open banking. This includes safeguards for consumer data while it’s being exchanged across various participants in the open banking ecosystem. To help with input and insights, the SBP has been trying to bring all stakeholders on the table, which include banks, fintech firms, and other pertinent entities. By working together, we hope to overcome obstacles and improve the regulatory framework as the open banking landscape develops. To start within Pakistan two years ago RAAST was launched as a pilot project to channelise the transactions and Karandaaz is the third party that manages it on behalf of the regulatory authority. Open banking has revealed the potential of traditional financial services, it facilitates the dissemination of data to financial institutions and third parties. It will help create a better ecosystem for market users in Pakistan. Karandaaz has issued a white paper on open banking, presenting its benefits and outlining the future path of open banking. Karandaaz has also hosted a roundtable conference on Open Banking recently with stakeholders to deliberate on the future of Open Banking in Pakistan, offering a platform for dialogue and exploration of its prospects.

Fintech companies can flourish in an atmosphere that is supportive of open banking. These organisations can use open APIs to create cutting-edge products, such as budgeting tools and payment apps, fostering a thriving financial technology ecosystem that helps both consumers and companies and not just that but also they need a regulator to control the flow of data too. Transnational transactions go more smoothly when open banking is used. Standardized APIs facilitate cross-border financial management for people and companies, fostering global commerce and economic activity.

People can transfer between financial service providers more easily when open banking is available. Consumers can move their financial information between institutions with ease thanks to standardised data sharing, which encourages healthy competition among banks. Sharing an example such a platform like WhatsApp, if we make it that easy by just providing information transactions are done within no time and cost less why would a customer not use it? It is not something that will happen after two decades but with the ease and not going to branches concerned youth want everything in their mobile phones and that is why many consumers will apt for open banking but the serious concern is data which eventually the fintech will use to make money either by regulating charges or with data.

What will banks gain?

Banks can integrate offerings from other sources to broaden their service offerings through open banking. Because of this, banks are able to offer their clients a wider range of financial services and products without having to create them all from scratch. The main idea is to understand that with customers transactional data the bank can offer them deals and discounts such as if they know a customer travels every year during these months they can offer him a great deal which can benefit the customer but also by using the specific bank services can help the bank to generate profits too.

Bank operating costs are decreased through the automation of many financial procedures made possible by open banking. Banks can take advantage of the advantages realised from open banking practices while concentrating on their core strengths by utilizing outside expertise and technology.

Through partnerships with other service providers, banks can reach new clientele that might have certain financial requirements. This can assist banks in reaching a wider client base and broadening their market reach. It has also established an ecosystem conducive to innovation and progress, opening up new avenues of services for banks and businesses. Account management and consumer onboarding are made easier with open banking. Standardised data sharing facilitates easy bank switching for customers and streamlines and expedites the onboarding process.

Collaboration between established banks and emerging fintech companies is encouraged by open banking. Through this agreement, banks will be able to make use of the fintech companies’ agility and creativity, which could result in reciprocal benefits. The major step is that any fintech can develop an app and be the provider of the service where banks will be exposing their data and the app can consume it and help both end users. Open banking efforts have the potential to enhance financial transparency by offering more extensive and instantaneous access to financial data. Consequently, this may boost endeavors to counteract unlawful financial operations. However, how well these programmes go with more general regulatory and compliance standards will determine how effective they are in resolving FATF concerns but with these sanctions, Anti-money laundering (AML) and countering the financing of terrorism (CFT) are two aspects of FATF compliance. Pakistan must priorities the implementation and reinforcement of its AML and CFT regulatory framework, financial transparency, customer due diligence procedures, and the efficient enforcement of these measures to allay FATF concerns.

The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger and motivational speaker. He writes articles on diversified topics. He can be contacted at