Fintech, or financial technology, has revolutionised the world by transforming traditional financial methods into technology-driven, easily accessible financial services. Matching the global pace, Pakistan has made significant strides in the fintech industry at the domestic level. The fintech industry in Pakistan has two major target audiences. First, the financially educated class i.e., freelancers and e-commerce businesses. Second is the unbanked or underbanked population of Pakistan. Fintech has allowed these individuals to enjoy access to digital payments, mobile banking, and microfinance, albeit on a limited scale. Similarly, on the global level, Pakistan needs to do a lot to build its credibility and integrate itself into the international fintech landscape.
Domestic level
Currently, fintech applications cater to only 21 percent of the total population. Back in 2009, Pakistan launched its first digital payment platform, EasyPaisa, which rapidly grew from a simple money transfer app to now supporting a host of financial transactions. EasyPaisa has around 14 million active users, with annual transactions exceeding Rs 1.5 trillion. Similarly, JazzCash, another popular mobile wallet app, now has 17 million active users and has successfully crossed the Rs 3 trillion mark in transactions.
Pakistan has also introduced several other such platforms including Raast, Abhi, KalPay, Loop, etc. Fintech companies in Pakistan are diligently utilising technological advancements such as artificial intelligence and machine learning to provide top-notch financial services and products. By integrating these emerging technologies, fintech companies have been able to deliver instant, easy, and secure access to a wide portion of the country’s unbanked and underbanked population.
Back in 2009, Pakistan launched its first digital payment platform, EasyPaisa, which rapidly grew from a simple money transfer app to now supporting a host of financial transactions.
However, there are certain persistent challenges. Due to regulatory limitations and legal constraints, none of these platforms support international payments. The lack of integration between domestic and international fintech markets results in a loss of business opportunities for freelancers and e-commerce businesses. While the dollar continues to move out through card services like MasterCard and Visa, etc., there are limited ways for the dollar to pour in, contributing to slow economic growth.
Global level
Globally, the fintech industry has already crossed $260 billion in market value and the short-term projections showcase a further 17% increase by 2030. Compared to that, Pakistan’s fintech market stands at less than $500 million. This huge gap can be attributed to the absence of international fintech and e-commerce companies in Pakistan.
For example, PayPal, one of the leading international digital payment platforms, does not provide services in Pakistan while it is functional in several African countries with lower GDP than Pakistan. However, Payoneer is now entering into a partnership with PayPal to act as a third-party intermediary which will allow Payoneer users in Pakistan to receive payments through PayPal indirectly.
Similarly, Amazon, after granting permission to Pakistani sellers to set up accounts in May 2021 closed down more than 10,000 accounts only a year later due to financial scams and tax frauds. Now, Pakistani businesses attempting to create such accounts are either never approved or are required to go through rigorous vetting procedures and long delays.
Challenges and Recommendations
The major factors behind international fintech companies not initiating operations in Pakistan remain concerns around data privacy, money laundering and fraud. Moreover, due to the absence of a credible regulatory and compliance framework, international fintech companies are hesitant to provide services in Pakistan. Local stakeholders and potential investors also face legal ambiguities and mistrust in such a sceptic regulatory environment. These challenges also largely undermine the growth of freelance and e-commerce industries in Pakistan.
To enhance the market value of its fintech industry, Pakistan needs to overcome these constraints. Firstly, Pakistan should establish a comprehensive regulatory framework on a priority basis. Pakistan can take lessons from the fintech compliance frameworks of countries like India and China which have exceptionally progressed in the fintech market globally. For example, India has a comprehensive set of fintech compliance regulations such as the Payment and Settlement Act, the Prevention of Money Laundering Act, and the Digital Personal Data Protection Act, etc.
Secondly, Pakistan must create space for financial inclusion of the unbanked or underbanked population through financial education and digital literacy. This can be done through awareness campaigns and the inclusion of fintech as a subject at the secondary educational level across the country.
Thirdly, the government has to play a role in creating public-private partnerships in the fintech industry, allowing more individuals and companies to contribute towards fintech growth and development. A thriving fintech market at a domestic level under a solid regulatory framework will not only attract greater investments but also build Pakistan’s credibility in the fintech market at the global level.
Overall, Pakistan is one of the leading developing economies which have integrated the fintech industry into their development landscape. At the domestic level, fintech has the potential to cater to the financial needs of more than 65% of the country’s population. For success at the global level, Pakistan still needs to do a lot in regulatory, educational, and public-private partnership domains. Catering to these challenges efficiently will allow the country to reduce the domestic-global gap, allow documentation of the undocumented economy, and increase foreign exchange.
The writer is a researcher at the Centre for Aerospace and Security Studies (CASS), Lahore, Pakistan. She can be reached at [email protected].