Pakistan’s population of over 240 million makes it the fifth most populated country in the world, with two-thirds of it under the age of 30. Despite facing a plethora of challenges, could fintech hold the key to unlocking the nation’s potential?
Recent history has not been particularly kind to the South Asian country of Pakistan. Amid the Covid-19 pandemic, the country experienced catastrophic floods in 2022, alongside significant macroeconomic volatility.
However, Pakistan has shown signs of a resurgence. Its gross domestic product (GDP) per capita peaked in 2022 at just shy of $1,700, according to the World Bank. Meanwhile, despite the country’s low-middle income status, digital adoption in the region has also risen.
In 2001, only 1.3 per cent of the Pakistani population had access to the internet. In the two decades following this, internet usage grew, albeit slowly – from 10 per cent in 2012 to over 54 per cent in 2021. Meanwhile, mobile penetration has now surpassed 77 per cent, while the World Bank suggests it sits closer to 87 per cent.
Pakistan’s fintech potential
Fintech is hardly a new concept in Pakistan. The country’s first fintech, telecom Easypaisa, was established in 2009. It initially offered money transfers but later launched a mobile app, offering a variety of financial services. Now, Pakistan boasts a number of fintech success stories including that of JazzCash a mobile wallet, mobile payments, and branchless banking services provider.
Local alternatives to traditional accounts have also taken off. The State Bank of Pakistan (SBP) introduced branchless banking licensing in 2008, providing a foundation for Digital Financial Service Providers (DFSPs) to have agent networks across the country. This move enabled formal financial services to spread to smaller cities for the first time – beginning to close the financial infrastructure gap between the urban and rural areas.
In 2021, an estimated 45 fintechs existed in Pakistan, of which 40 per cent operated in the payments space. While a considerable gap exists between Pakistan and other more developed countries in Asia, the local fintech sector in Pakistan is growing rapidly. SBP expects the market potential for digital finance services in Pakistan to exceed $36billion by 2024.
In addition, during the pandemic, Pakistan followed global trend, with digital adoption and fintech growth. During this period, mobile banking transactions grew by 50 per cent and mobile money transactions by 34.3 per cent from 2019 to 2020.
Challenges to overcome
Despite clear growth and advancement in its financial services ecosystem, Pakistan has a long way to go before it fulfils its fintech potential. To best foster fintech innovation, it will need to work on stronger regulatory and data protection legislation. Currently, Pakistan lacks any sort of personal data protection. In fact, its Personal Data Protection Bill is yet to be formalised as law.
The main regulators in this space are the SBP and the Securities and Exchange Commission of Pakistan (SECP). SBP oversees digital payments and consumer protection, while the SECP focuses on the investment and securities-related elements of the local fintech landscape.
Traditionally, Pakistan has been primarily reliant on cash for transactions, which is usually the case in developing economies. It also has one of the world’s highest rates of financially excluded people. However, times seem to be slowly changing. In 2022 12 per cent surveyed said they used less cash in the era of digital banking.
Recent estimates suggest that between 20 and 30 per cent of the population have access to financial services. A gender divide also appears to exist regarding financial inclusion. the Asian Development Bank reports that 92 per cent of women are financially excluded, compared to 70 per cent of men.
Pakistan’s economic challenges have not helped improve foreign direct investment. Global fintech players CareemPay and Checkout.com withdrew licenses due to difficulties in the country’s financial ecosystem.
Steps in the right direction… but more work required
To conclude, the government has supported digital transformation in Pakistan, as well as a boost in financial inclusion. SBP launched a financial inclusion strategy in 2015, as well as its five-year Vision 2028 plan in 2023. Key aims include further improving data protection, boosting the local fintech ecosystem, and launching its own regulatory sandbox framework.
With much more to improve, fintech could have a significant role to play in boosting financial inclusion and furthering economic development in Pakistan.
