Previous Editions

Financial technology, commonly known as fintech, has been transforming the financial industry worldwide in recent years. Fintech services are considered technology-driven innovations that provide a range of financial products as well as services to customers and the purpose of these services is to enhance the effectiveness, velocity, and convenience of traditional financial services. Advancements in the fintech business worldwide have resulted in the creation of procedures such as lending, mobile payments, blockchain-based solutions, robo-advisors, and more sophisticated crowd-funding techniques. The industry already accounts for a sizeable 2 per cent of the world economy, but by 2030, it is expected to provide an astounding $1.5 trillion in revenue annually, or over 25 per cent of all high-value industry sectors. The fintech industry in Asia-Pacific is expected to develop at a compound annual growth rate (CAGR) of 28.2 per cent from 2021 to 2026, reaching $324 billion.

In 2001, 1.3% of people worldwide had an internet connection. This is a very small percentage of the population. But by 2012, it had increased to 10.0 per cent. Approximately 118 million Pakistani residents, or 54 per cent of the country’s population, have internet connections as of July 2021. The mobile penetration rate has risen beyond 77 per cent, signifying a noteworthy surge in the number of individuals using mobile phones. This demonstrates that fintech may thrive in Pakistan if given the necessary tools. Due to the country’s mixed cash-based economic structure, most Pakistanis still prefer to transact in cash and are dubious of digital methods, despite studies showing a rise in the usage of digital banking, with 12 per cent of respondents indicating they used less cash in 2022.

In 2009, the telecom firm easypaisa launched the first fintech service in Pakistan. Initially, the service was limited to money transactions. But since then, it has released a mobile app that provides a multitude of financial services, making it the first fintech platform in Pakistan. Pakistan now offers a large selection of mobile financial services. Because these services enable users to create a mobile money account using their SIM card, their utilisation level is noteworthy. Essential financial services like bill payment and money transfers are provided via mobile financial services, which are also quite handy. These services rely on agents, or vendors, around the country rather than on real banks. Banks frequently develop portals or apps to give their customers an online banking experience. Nevertheless, only a small number of bank MFS applications let users conduct financial transactions; the majority just offer financial status information. While the current services take care of necessities and provide their consumers with a reasonable mobile banking experience, this is hardly fintech at its real size. Fintech startups have increased significantly in Pakistan in the last several years. These neobanks don’t have any physical banking networks; they run completely online. They let users establish virtual cards, pay bills, send and receive money instantly, and open bank accounts.

Obstacles to Pakistani Fintech
  • Limited Market and Short of Investment: There are already many established companies in the fintech sector. Up-and-coming fintech startups that are looking for collaborations or investments may encounter difficulties since these organizations are not always open to innovation.
  • Fintech firms have limited access to venture capital and financing options since incumbent banks and telecom corporations dominate the majority of Pakistan’s fintech services. As a result, nearly all funding and investments go toward these companies.
  • Inadequate Financial Inclusion: Pakistan ranks 16th out of 26 nations in a Brookings analysis on financial inclusion, which is below average. Although the banking industry provides 80 per cent of financial services, it only caters to 15 per cent of the population, a rather low proportion. According to a State Bank of Pakistan poll, only 23 per cent of Pakistanis are even vaguely aware of basic financial concepts. According to the World Bank, about 100 million persons in Pakistan do not even know that the nation offers regulated financial services. This figure amounts to 5 per cent of the 2 billion unbanked individuals worldwide.
  • Insufficient Infrastructure: Pakistan’s digital infrastructure also has to be enhanced. A notable example is the widespread internet outages, which make internet services in Pakistan unstable. Transaction processing and service delivery may be hampered by the internet’s unpredictability and unreliability. The fact that PayPal and other payment systems are nonexistent in Pakistan demonstrates the extreme dearth of digital payment infrastructure in that country’s cash-based economy.
  • Regulatory Pitfalls: While Pakistan’s government has implemented regulations that greatly benefit fintech startups, such as the regulations for Mobile Banking Interoperability and the Third Party Service Provider (TPSP) Licence, not all of its policies are supportive of these developments like the 2018 ban on cryptocurrency.

The State Bank of Pakistan has been making significant efforts to advance Pakistan’s fintech industry. One blatant illustration of this is the Roshan Digital Account (RDA). I think the nation’s regulatory framework and financial literacy may be enhanced by collaboration between the government and reputable financial firms. Additionally, the government may assist in strengthening its digital financial infrastructure by encouraging an industrial environment that is more hospitable to international payment systems like PayPal. Fintech companies, in my opinion, should concentrate on meeting clients’ wants to develop cutting-edge goods and services that the general public can use in this unsteady nation. Fintech businesses may do this by shielding their systems from security risks with the use of firewalls, the newest security procedures, and technology. Through financial solutions, fintech innovators have the active ability to optimize the process of financial inclusion with high expectations that are predicted in advance.

It is recommended that the creation of services that provide clients with measurable advantages should be given top priority by commercial banks and fintech service providers. This might entail providing individualised services, accelerating transaction speed and ease, and facilitating easier access to financial goods where equal distribution of government financing and investments gives all fintech services an equal opportunity to establish their worth in a connected and healthy ecosystem. It is realistic to assume that Pakistan’s younger generation would contribute to the adoption of fintech solutions because more than half of the country’s population is under 30 so, a great future for a financially conscious, digital Pakistan would result from meaningful partnerships between the government of Pakistan and its fintech industry.

The Author is MD IRP/ Faculty Department of H&SS, Bahria University Karachi