Today, with a broadband penetration of over 46% and a mobile penetration of more than 85%, Easypaisa and JazzCash provide digital financial services to approximately 20 million monthly users. They have played a pivotal role in opening Pakistan’s fintech space.
The success of Pakistan’s fintech sector can be attributed to the fact that traditional financial institutions had strict and lengthy documentation requirements for account opening, loan applications, and other financial services. Fintech companies, however, can operate as non-bank licensed entities and cater to individuals without the required documentation or access to basic financial services. As a result, more than 40 operational fintechs in Pakistan, with the majority operating in the payment sector, serve approximately 30 to 40 million people who use fintech apps for regular payments. However, despite these figures and the efforts of the government and regulators, Pakistan’s financial inclusion rate remains at 21%, which is still lower than the average of 33% for lower-middle-income countries.
To support the government’s goal of enabling 65 million digital accounts by 2023, the State Bank of Pakistan (SBP) has introduced new regulations for the sector. Fintechs fall into two main categories: payment service operators/payment service providers (PSOs/PSPs) and electronic money institutions (EMIs). The SBP introduced the PSO/PSP category in 2014, allowing non-bank financial institutions to operate in the payments space with lower capital requirements. The game-changer came in 2019 with the implementation of the EMI license. EMIs are licensed to operate open-loop wallets, online money transfers, and e-lending, making them instrumental in promoting digital payments and fostering financial inclusion.
The SBP has also established the SBP Digital Financial Services (DFS) department to assist fintechs in understanding regulations and choosing the appropriate licensing category. However, some fintechs feel that the time between the first and last stages of acquiring a license is too long, and regulatory frameworks are not adequately customized for Pakistan’s specific needs.
Additionally, once licensed, fintech companies face the same expectations as established banks, including tax and compliance requirements. Fintechs stress the need for faster and more cost-effective Know Your Customer (KYC) compliance processes, advocating for a centralized data repository to simplify customer data verification.
While regulatory support is crucial, fintechs need to focus more on addressing the financial inclusion challenge. New products catering to underserved segments are lacking, and user experience is often neglected, hindering individuals with limited financial knowledge and low-tech savviness from fully benefiting.
The emphasis on payments should extend to services such as lending, saving, and insurance. A report highlights the need for formalized savings products and more accessible loan options. Raising financial literacy and awareness is essential to overcome the preference for cash and build trust in financial technologies.
In conclusion, Pakistan’s fintech sector has made significant strides, but there is still much to be done to enhance financial inclusion and develop innovative financial solutions. Regulatory frameworks need to be more customized, KYC processes simplified, and financial literacy raised. Fintechs should focus on addressing the needs of unbanked and underbanked populations, while governments and financial institutions should invest in awareness and upskilling efforts. Ultimately, these collective efforts can drive financial inclusion and empower individuals and small businesses.
