Fintech, a blend of “finance” and “technology,” encompasses apps, software, and platforms that enable individuals and businesses to digitally manage finances, gain insights, or conduct transactions. Broadly, Fintech serves four user categories: 1) B2B solutions for banks, 2) services for their business clients, 3) B2C platforms for small enterprises, and 4) consumer-focused applications. This article centres on consumer-oriented Fintech services such as digital banking and digital payments, exploring Fintech’s potential to address financial inclusion challenges in Pakistan. Fintech holds immense potential to make financial services accessible to underserved populations, particularly in areas lacking financial infrastructure, while also reducing costs for unbanked communities. Additionally, it offers significant time efficiency. This article examines the impact of fintech in Pakistan in driving financial inclusion, focusing on regional, class, and gender dynamics, and explores the challenges it currently faces.
About 77% of regions in Pakistan remain unbanked, and the number of bank branches per 100,000 adults is 10, lower than the average of 16.38 throughout Asia. Especially in rural areas, traditional banking services remain absent, and only 12.4% of the rural population have a formal bank account compared to 43.5% in the broader South Asian region. This is where fintech comes in. Branchless banking accounts are much more accessible than the traditional versions; all they require, for the most part, are a National Identity Card (CNIC), a mobile device, and an internet connection. This relative ease of access is reflected in the rapid growth of fintech usage in Pakistan: the number of branchless banking accounts has risen from 85 million in 2022 to 117 million by March 2024, indicating a growing acceptance of digital financial services led by prominent players like Jazzcash and Easypaisa.
Without a CNIC, women cannot open accounts on platforms like Easypaisa and JazzCash, which further makes it harder for women to integrate into the digital financial ecosystem.
However, despite the increasing number of fintech startups and services, only 15% of the population uses Fintech. One of the primary reasons behind this is the issue of financial inclusion in Pakistan. According to the World Bank, only 23% of the population has basic financial literacy, and only 46% of the population has access to the Internet. The mobile penetration rate has increased to 77%, but without internet and fintech knowledge, it remains a big challenge for the common man to navigate fintech services.
Regional Access
Regionally, fintech adoption in Pakistan shows stark disparities. Less developed provinces like KPK and Balochistan struggle with limited banking access and low financial literacy, hindering fintech adoption. In contrast, Punjab leads in branchless banking, followed by Sindh. Urban cities such as Karachi, Lahore, and Islamabad see higher fintech adoption rates due to better internet connectivity and a higher density of financial institutions.
When examining financial inclusion across regions, AJK and Gilgit-Baltistan (GB) stand out with promising statistics despite their remote northern location and predominantly rural populations. This raises an intriguing question: how do these regions surpass more developed areas like Punjab and Sindh in financial inclusion?
AJK outperforms other regions due to its high ratio of bank branches per customer, even in rural areas, surpassing the national average. Similarly, GB shows impressive results, attributed to a low proportion of urban populations, making banking services more accessible on a relative scale. In contrast, southern regions like Sindh and Balochistan fall behind due to a lower density of bank branches compared to their population sizes.
These patterns highlight the critical role of a strong physical banking footprint in driving financial inclusion. However, they also reveal a significant opportunity for fintech growth. AJK and GB’s populations already demonstrate financial literacy and engagement with traditional banking systems, bolstered by initiatives like GB’s 2023 financial literacy courses in schools. These efforts have equipped younger generations with a foundational understanding of finance. With improved internet services and targeted fintech initiatives, these regions hold untapped potential. By leveraging their existing financial engagement and literacy, fintech startups could play a transformative role in bridging access gaps and accelerating inclusion.
Impact on Economic Classes: Fintech and Microfinancing
Digital wallets and microfinance are reshaping class dynamics in Pakistan, driving financial inclusion and economic empowerment. While microfinance banks (MFBs) represent only 1.3% of the financial sector’s assets, their integration with digital platforms has accelerated growth, averaging 19.1% annually over five years. Leading banks and telecom providers, such as Habib Bank, Bank Alfalah, and Mobilink, have leveraged fintech to offer innovative loan services tailored to low-income groups. A Faisalabad district study of 200 respondents showed poverty reduction across all income groups after loans, with the steepest decline in the lowest income group (PKR 1,000-11,000).
A general trend of decrease in poverty was observed across all three variables. The findings from the study underscore the role of fintech and microfinance in bridging economic gaps and alleviating poverty. While previously low-income groups were excluded from availing loan opportunities due to inaccessibility to banking services, microfinancing has allowed for a new venue for extending such services to low-income groups. With the increasing digitization of the microfinancing space, access to loan services among low-income groups will continue to rise.
Gender Inclusivity
The financial inclusion of women in Pakistan remains a pressing issue, with a significant gender gap in access to formal financial services. According to the Global Findex2021 data, only 13% of women in Pakistan have a formal bank account. Fintech serves as a good opportunity to help women in this regard, but the rate of adoption of fintech services among women remains alarmingly low, as evident from the following graph.
The World Economic Forum’s Global Gender Gap Report 2023 ranked Pakistan 142 out of 146 countries. By leveraging fintech and actively including women, Pakistan can achieve substantial positive outcomes in reducing poverty, improving livelihoods, and enhancing women’s agency over their finances. Despite its potential, several barriers hinder women’s inclusion in fintech.
One of the major challenges to women’s inclusion in fintech is the lack of access to smartphones and internet. As ShmylaKhan, Director of Research and Policy at the Digital Rights Foundation, noted, “Mobile phones are seen as providing access to some sort of freedom for women, which a lot of families are opposed to.” In contrast, the GSMA Survey 2021 highlighted that for men, the primary barrier to smartphone usage is a lack of digital literacy and skills rather than familial disapproval. This disparity results in 74% of women lacking access to phones/smartphones compared to only 35% of men.
Low levels of digital literacy further compound the issue. Many women lack the skills needed to navigate digital fintech apps, limiting their ability to benefit from fintech services. Women with higher education levels have adopted fintech as compared to those with limited or no education. This gap highlights the strong correlation between education and the ability to use digital financial tools effectively.
Another significant barrier that hinders the inclusion of women in fintech is the lack of CNICs.
Without a CNIC, women cannot open accounts on platforms like Easypaisa and JazzCash, which further makes it harder for women to integrate into the digital financial ecosystem.
The Indian government introduced the Pradhan Mantri Jan DhanYojana (PMJDY) initiative, which uses Aadhaar-linked bank accounts to digitize social safety net payments, such as maternity allowances and pensions, facilitating seamless transactions to women and promoting digital banking. The Global Findex Database (2021) reports that the percentage of women with bank accounts increased from 43% in 2014 to 78% in 2021 after PMJDY. Similarly, bKash in Bangladesh has empowered women through an affordable, secure mobile money platform. With nearly one agent in every two rural villages, these agents play a crucial role in helping women open accounts, navigate fintech services, and enhance financial literacy. This has contributed to 2.2 million users and increased access to digital financial tools for women. Promoting such digital initiatives can foster a more equitable financial landscape in Pakistan, enabling greater female participation and reducing the gender gap in fintech.
Benchmarking initiatives against economies like India can be a wise step in the journey towards financial inclusion, which would align with the fact that the adoption of Fintech has had a net positive impact on the ability of Pakistanis to access financial services. Startups and corporations have contributed to this cause, but significant disparities remain on regional, class, and gender lines. The State Bank and SECP have existing frameworks that support experimentation in this field, and more unique initiatives from the private sector, supported by VCs and incubators like the National Incubation Center (NIC) at LUMS, can accelerate inclusivity and progress.
The writers are associates of the LUMS Consultancy Group (LCG), Pakistan’s largest student-run consultancy.