Why Pakistan needs fintech

Published on: September 24, 2018

Want to manage your finances through a phone app?

Wish you had a robo-advisor to help you with investments?

Never want to walk into a bank branch again?

If the answer is yes, then you’re part of a multi-billion dollar global industry.

It’s called fintech.

Fintech is short for financial technology and regardless of how familiar you are with the term, you have been using it for decades via credit cards and ATMs – some of the earliest examples of the use of technology in the delivery of financial services.

But over the past 10 years, the term fintech has become ubiquitous on the global stage. Game-changing technologies have started offering more innovative financial products and services that are not only bringing more people into the financial net but are also improving customer experience.

Many people now expect financial services on their fingertips and on their own terms. Consumer behaviours around the adoption of technology are progressing at a faster rate than companies can keep up with.

You may think of this tech-savvy consumer as part of the young and affluent group in Pakistan, which is a small minority in a country of over 200 million people. So an obvious question is; Why is fintech relevant in a country where most people are struggling with basic needs? But many industry stakeholders believe that fintech may be a viable solution to bring millions of Pakistanis that do not have access to a bank account, into the financial net.

Right now, less than 20 percent of Pakistanis have banks accounts, which means that financial inclusion for an overwhelming majority is dismal. What this means is that tens of millions of people are not in the system and are restricted to cash-only transactions leaving them with no credit history against which to get loans.

Pakistan has already seen the wonders of fintech with services such as Easypaisa – Pakistan’s first mobile financial services platform launched by Telenor Microfinance Bank in 2009. Easypaisa is now the largest branchless banking service in Pakistan in terms of agent network, active accounts and transaction value, according to the State Bank’s most recent report on branchless banking. An Easypaisa mobile account enables customers to make financial transactions, including money transfers, and bill payments via their phones or one of 70,000+ Easypaisa shops located all over the country.

Another major development that shows the market’s potential for fintech is that one of the world’s largest finechs, Ant Financial, recently invested $184.5m for a 45% stake in Telenor Microfinance Bank (TMB). According to the President and CEO of Telenor Bank, Shahid Mustafa, they valued the bank at approximately $410 billion, which is about 8.7 times the book value. Ant Financial is a subsidiary of the Chinese company, Alibaba, which is the world’s biggest e-commerce provider. You may also remember Alibaba’s interest in Pakistani markets from its 100% acquisition of Daraz Group, Pakistan’s leading online retailer.

In addition to the increasing affordability of smartphones, we know that key indicators such as the volume of mobile banking and the number of high-speed mobile internet users are showing significant growth each year.

But unlike countries like the US, Pakistan’s fintech industry has yet to take off – let alone mature. Some experts attribute this sluggishness to complicated regulation and the slow pace at which traditional banks have opened up their APIs (application programming interfaces) to fintech companies. Having access to a bank’s API enables a third-party developer to build applications and services around it.

It’s clear that smart regulation on the part of the State Bank of Pakistan and collaboration between all players is required for this industry to develop in the years to come.

But there are a host of factors that go into building an ecosystem that allows fintechs to thrive, and VCast Online will be covering different aspects of the industry and the detailed conversations taking place around it.

In our introductory story on fintech we have simplified the global and local industry and highlighted why Pakistan needs innovative technology to better serve the country’s population, especially the ‘unbanked’.