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Pakistan is an emerging market for fintech, with increasing facilitation for digital payments, widespread internet and smartphone penetration, consumer preferences for social media and booming online commerce. Also, the State Bank of Pakistan provides sound regulations, which act as a platform for fintech growth. While regulations are necessary, they might also become a threat for an industry still in its infancy. This paper aims to provide a qualitative assessment of economic, demographic and technological factors that are conducive for the penetration and growth of fintech in Pakistan. A second, but no less important, objective of this paper is to look at the regulatory framework governing fintech and its contribution in making the segment an active or dormant player in the financial services industry.
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The Lahore Journal of Economics
23 : 2 (Winter 2018): pp. 151182
Is Pakistan Ready to Embrace Fintech Innovation?
Syed Kumail Abbas Rizvi*, Bushra Naqvi** and Fatima
Pakistan is an emerging market for fintech, with increasing facilitation for
digital payments, widespread internet and smartphone penetration, consumer
preferences for social media and booming online commerce. Also, the State Bank of
Pakistan provides sound regulations, which act as a platform for fintech growth.
While regulations are necessary, they might also become a threat for an industry
still in its infancy. This paper aims to provide a qualitative assessment of economic,
demographic and technological factors that are conducive for the penetration and
growth of fintech in Pakistan. A second, but no less important, objective of this paper
is to look at the regulatory framework governing fintech and its contribution in
making the segment an active or dormant player in the financial services industry.
Keywords: Fintech, disruption, innovation, financial services, emerging
market, Pakistan.
JEL classification: G20, K20, O16.
1 Introduction
Fintech is a segment of industries consisting of technology-focused
companies with innovative products and services, traditionally provided
by the financial services industry. These companies work in the areas of
stocks trading, peer-to-peer lending, cryptocurrencies, transfer payments
and equity crowdfunding, among others. Globally, fintech innovation has
aided financial advancement, resulting in new business models, processes,
applications, products, or services, changing the face of global payments
with a substantial effect on financial institutions and the efficiency of
financial services. According to some estimates, by the end of 2017, the size
of the global fintech market had already reached 3.6 trillion USD and is
expected to reach as high as 8.3 trillion USD by 2022. Fintech influence on
* Professor of Finance, Lahore School of Economics, Pakistan
** Assistant Professor, SDSB, Lahore University of Management Sciences, Pakistan
*** Research Associate, Centre for Research in Economics and Business (CREB), Lahore School of
Economics, Pakistan
152 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
financial services is growing, as 82% of incumbents expect to increase
fintech partnerships in the next three to five years, and the annual ROI on
fintech related projects is expected to be around 20% (Rickert et al. 2017).
The fintech market is continuously evolving and expanding with
an increasing diversity of funding sources, scope of business and
geographic spread. These innovations are intense in nature; hence they
hold a considerable potential to alter and restructure existing financial
services. Most fintechs combine financial services with additional activities
associated with e-commerce, sharing-economy businesses and big data
analytics to provide new added-value (Nakaso 2016). Apart from the
technology-led platform for the users of financial services, fintech
innovations also provide a wide array of choices for users, ranging from
efficient and secure payments to better accessibility of financial services,
resulting in improved financial inclusion and an ideal experience in terms
of cost and efficiency.
For consumers, fintechs offer personalized and interactive services
by allowing them to conduct transactions over their mobile device,
boosting customer experience. Among the notable services that allow
consumers to make online payments are PayPal that supports purchases
made through eBay, and Amazon pay for purchases made through In China, Alipay works with Taobao, the Chinese equivalent of
eBay. Among other recent advancements in developed and BRIC markets,
companies like Venmo, Google Wallet, WeChat, Facebook Messenger and
Snapchat have set up Person-to-Person (P2P) internet-based solutions that
enable people to send money to each other using a mobile device. This
seems to be more convenient than physically transferring cash or making
online bank transfers (Mccaffrey & Schiff, 2017).
Fintechs also complement the conventional role of financial
institutions by assisting incumbents in providing products and services
efficiently and increasing the spread of the industry. Fintechs, by
developing easier and innovative financial products and solutions at lower
costs have enabled the provision of these to the poorer segment of society,
who heretofore have been financially excluded (KPMG, UK, 2017). For
businesses, some fintechs operate to detect fraud (e.g., Ravelin), manage
risks and deal with compliance issues (e.g., Covi Analytics).
Among its other significant impacts on the traditional banking
sector (payment systems, lending and financial advice) and capital
markets, fintechs have provided improved access to services, a reduction
Is Pakistan Ready to Embrace Fintech Innovation?
in prices, costs of intermediation and information asymmetries, and have
improved efficiency (Gregorio, 2017). In terms of transaction payments,
banks still dominate the market, but payments made through non-bank
sources such as Apple, Google, PayPal and other mobile payment options
are gaining popularity, disrupting traditional modes of payment. Digital
currencies, such as Bitcoin or Ethereum, use advanced encryption methods
to control the generation of currency units through blockchain technology.
This technology comprises a digital database for the verification of
transactions, with a system of decentralized blocks of records. This allows
peer-to-peer transfer of value to take place without the need for an
intermediary to confirm the transaction, as computers validate every
transaction. Blockchain technology has the potential to be disruptive, as it
paves the way for various cost-saving innovations and permits a currency
without the support of a government or intermediary - the function
traditionally performed by banks.
The upsurge of pioneering fintech solutions is posing an ever-
growing risk to the existing players in the traditional banking business
models. Many fear losing business to innovators, beginning with
payments, fund transfer and personal finance sectors. This disruptive shift
in technology and business model innovations has also raised regulatory
concerns globally, as strong regulations exist for mainstream financial
institutions only and may not be adequate to deal with the complexities of
fintechs (disruptors). Therefore, most fintech companies face regulatory
uncertainty in terms of the laws with which they will need to comply, or
possible over-regulation as an intimidation to their growth.
Fintech has reshaped the financial sector on a global scale, and its
transformative potential is also seen in developing economies. Pakistan,
being the world’s sixth most populated country, is a cash-based economy
with 85 percent of its population being financially excluded. The high
banking infrastructure costs act as a barrier to the diffusion of financial
services beyond a small fraction of the population. At present, only a few
fintechs operate in the country, and those are primarily in the developed
cities of Lahore, Karachi and Islamabad. This sluggish growth and the
shortage of fintechs in Pakistan is a consequence of investment in this
sector only at the local level, and therefore inadequate. The fintech
ecosystem in the country is hobbled by threats to data security and
intellectual property, trouble attracting the right talent and customer base,
and uncertainty in future regulation, which discourages entrepreneurs
from venturing into the fintech environment (Shahid et al. 2016).
154 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
However, Pakistan possesses the potential to be an attractive
market for fintech growth, owing to the increasing youth population,
disruptive internet and smartphone penetration, consumer preference for
mobile phones and social media, booming online commerce facilitating
digital payments and an overall financial system having absorption
capacity for innovation. The regulatory framework for financial services is
fairly strong in Pakistan, with laws such as Payment System Operators
(PSOs), Payment Service Providers (PSPs) and Branchless Banking
regulations issued by the State Bank of Pakistan (SBP). All of these could
act as platforms for carefully controlled and regulated fintech-led growth.
Nonetheless, stringent regulations should not be viewed only as a support,
as it might also become a threat for the emerging fintech industry, which
is still in its infancy stage.
This paper primarily provides a qualitative assessment of
economic, demographic and technological factors that could be conducive
for the penetration and growth of fintech in Pakistan. The secondary, but
equally important, contribution of this paper is the analysis of the
regulatory framework governing fintech in Pakistan and the contribution
of these regulations in making the segment an active or dormant player in
the financial services industry.
The paper is organized as follows: section 2 provides an overview of
the global fintech industry and its various categorizations, drivers, impacts,
opportunities and challenges for growth; section 3 presents the current state
of the fintech industry in Pakistan; section 4 provides a qualitative
assessment of the opportunities and challenges faced by fintechs in Pakistan;
section 5 discusses the regulators and regulations governing fintech in
Pakistan and stresses the need to create a balance between rectifying
inaccuracies of fintechs with the flexibility to revolutionize in order to
develop a favorable environment for fintechs in Pakistan; and section 6
concludes with forward-looking policy recommendations, for the industry
players and regulators based on the learning of global best practices that
several countries have adopted to deal with this digital revolution.
2 Understanding Fintech
Fintech is a global advancement of financial services driven by
technology and shifts in customer expectations. Fintech firms employ
technology to deliver the best financial solutions to clients with an aim to
digitize the financial segment, resulting in cost reductions and new ways
of working to gain transparency in the market (Gregorio, 2017).
Is Pakistan Ready to Embrace Fintech Innovation?
Primarily operating in areas of banking, insurance and asset
management (KPMG UK 2017), fintechs have been classified into various
domains. Gregorio (2017) identifies five broad areas where fintech firms
are operational. These include 1) finance and investment (venture capital
and crowdfunding), 2) internal finance operations and risk management,
3) payments and infrastructure (electronic payments and Over-the-
Counter derivate trading), 4) data monetization and security, and 5)
customer interface.
Figure 1: Business Domains where Fintechs are Active
Source: Adapted from PWC Global Fintech Report, 2017.
Fintechs spread into many domains of financial services, ranging from
products to markets to services. Figure 1 shows that payments, fund
transfers, and personal finance are the most active sectors in which fintechs
operate. In other domains, such as insurance and wealth management,
consumers are less active.
Fintechs, based on the stages of their life cycle, can be classified into
start-ups, unicorns and GAFAs. These can be defined as follows:
a) A Start-up is a firm whose aim is to initiate a business activity
associated with technology, the internet or innovation. Such young
firms have an inventive business plan and are growing in the market.
Their human organization develops products and services in diverse
68% 60% 56%
46% 38% 38%
Activities, Industry believe Consumers are already conducting
with FinTech Companies
156 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
ways by applying innovation, with the aim of decreasing costs. The
focus of their design and commercialization is customer oriented and
the internet platform is used to move it forward (Prashantham & Yip,
2017). These firms provide services using social networks and conduct
activities previously managed by banks (Romānova & Kudinska, 2016).
b) Unicorns are companies having a theoretical value of more than US$1
million. Their market value is largely based on the percentage of
speculation linked with their expectation of profitability and future
growth. The business model focuses on acquiring a large customer
base. It is expected that in the future they will have to be regulated to
control their actions.
c) GAFAs (Google, Amazon, Facebook and Apple) are the revolutionary
firms of the stage “.com” and are presently working as digital
monopolies, well known as GAFAnomics (MEDICI Team, 2016).
2.1. Drivers of Fintech Growth
Fintech growth has been driven by a number of factors, including
technological evolutions, innovation spirals, changing consumer demands
and fluctuations in the macroeconomic and financial background.
Technology is the center of the changing payments setting, with
better solutions and capabilities swaying consumer behavior and
expectations also driving considerable industry transformation (Broom,
2015). The technological and payment system developments, such as
cloud-based solutions and application programming interfaces (APIs), are
being adopted by businesses, especially startups, to build and adapt their
operations more efficiently. New cloud and API technology has aided the
start-up sector to disrupt recognized players and quicken change.
The prevalence of mobile devices has driven the move towards
adopting mobile financial services, such as mobile banking and payments.
Smartphone technology itself has given a boost to fintech innovations such
as mobile payment technologies, online brokerage and banking products
that are needed to match the progressively mobile lifestyle that
smartphones have facilitated.
The growth in e-commerce, mainly due to demand by consumers, has
facilitated further transformation in digital payment experiences, with a shift
towards a post-cash economy. Those tech-savvy consumers engaged in online
Is Pakistan Ready to Embrace Fintech Innovation?
shopping and banking value ease-of-use, convenience and speed, which has
pushed businesses to incorporate financial technology into their setup.
Also contributing to fintech growth are millennials, known as
Generation Y, who value innovation and are more likely to use new
financial services and products. Along with innovation, their social media
openness and adaptability towards the latest automated gadgets makes
them keen to demand fintech products that fit their busy way of life and
mindset. The demand for personalized and easy-to-use products and
services by consumers is an opportunity for fintechs to respond by
developing products well-suited to their needs (Lei, 2014).
Further, in this era, digital or cashless payments are seen as an
alternative to cash and plastic money since they are more convenient and
secure in the daily lives of individuals in terms of their consumption
(Japan-METI, 2017). Digital technology has begun to dominate so that the
physical act of paying is rarely seen. Instead, the automation of payment
has converted money from a physical form of exchange into another form
of data (OECD, 2002); thus acting as a key driver of fintech growth.
Globalization and other changes in market trends have also
contributed to the rapid development of this sector. The world has become
globalized as developing markets have the capacity to surpass their more
advanced equivalents, and the transferal of new information is both rapid
and worldwide. Currently, penetration of innovations is possible at a much
faster rate than ever before. The remarkable growth of smartphone and
mobile usage is now placing digital services in the hands of consumers
who earlier could not be reached, providing a richer, more valuable
experience around the globe.
From an unorthodox perspective, it can be claimed that the global
financial crisis in the United States in 2008, which later spread to Europe and
Asia, has also played a revolutionary role in increasing the prominence of
fintech. During the financial crisis, banks were not willing to borrow money.
This dysfunctionality of the credit market had negative effects on the
economy in terms of consumption and investment. The increased number of
layoffs and uncertainty about the future caused consumption to plummet,
further negatively affecting employment. These factors signaled firms to cut
their prices and costs in order to keep up sales. As a consequence, fintech
companies came into play as one of their objectives was to reduce costs and
reach out to many customers over the internet (Gregorio, 2017).
158 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
Since the onset of the Global Financial Crisis, the banking industry
has witnessed changes in growth, digitization and the regulatory
environment. The increasing pressure of competition is fierce. The
regulators who were once opposed to non-bank entrants have now become
open to the idea of allowing them, acting as threats to banks. The cutthroat
competition between banks creates a need for collaboration with fintechs
to provide new products in order to meet the growing demand of
consumers and digitizing processes.
2.2. The Impact of Fintech in the World
Fintechs have had expected impacts on the banking industry and
financial markets. The substantial digitalization of processes has reduced
transaction costs and increased convenience for end users. Specifically,
widespread internet access and mobile phone penetration have distributed
the advantages in reduction of the cost of transactions, due to novel
communications technologies, to billions of people. Now, fintechs offer
products and services to customers that are much more in line with their
demands compared to products offered by traditional intermediaries. By
reducing the role of intermediaries and improving working efficiencies,
fintech firms are better able to offer products and services at diminished
costs, increasing returns for consumers (KPMG, UK, 2017). This reduction
in transaction costs eventually puts pressure on the conventional financial
intermediaries who are competing to develop products that meet the ever-
growing needs of consumers (Bergara & Ponce, 2017). A possible
consequence of this changing market structure could be the vertical
integration of the financial intermediaries and fintech firms. Additionally,
falling transaction costs have had implications for financial inclusion of the
underserved population and business sector, especially in developing
economies (KPMG, UK, 2017). According to Manyika, Lund, Singer, White
& Berry, 2016, 45 percent of adults lack access to a financial account at a
bank or other financial institution. By providing the underserved
population with low cost innovative solutions and small businesses with
funding resources and access, fintechs improve financial inclusion.
Fintechs also increase the accessibility of information on financial services,
such as online/mobile banking services and investment advice
(Alexander, 2017). Moreover, business practices improve with digital
payments, allowing them to maintain an electronic record of sales and
expenses, monitor cash flows that enhances their understanding of
business operations, eventually boosting profitability and productivity
(Manyika et al., 2016). The development of branchless banking (BB) has
reduced the cost of conducting transactions and of setting up bank
Is Pakistan Ready to Embrace Fintech Innovation?
branches, which contributes to economic growth through networks of
output growth, employment creation, productivity, lessened transaction
costs, improved functioning markets and financial inclusion, eventually
resulting in poverty alleviation (Triki & Faye, 2013).
In conclusion, fintechs have had pronounced effects on economies,
ranging from reductions in transaction costs and information asymmetry
to improvements in financial inclusion, efficiency and competition, and a
wider access to financial services.
3.1. Opportunities and Challenges Faced by Fintechs Globally
The fintech revolution is considered by many to be among the most
important global innovations in the financial industry and has been
growing rapidly in previous years. Global investment in fintechs have
experienced a 67 percent annual increase from the first quarter of 2015 to
2016, reaching $5.3 billion, with Europe and Asia-Pacific experiencing the
highest increases (Lee & Shin, 2018).
Fintechs require an encouraging business environment in order to
develop. Closely integrated technology hubs and the availability of skilled
staff, such as IT developers, banking analysts and management staff, are
important elements for the development of a healthy fintech environment.
The state of physical infrastructure (road networks), utilities (power,
telecommunication, internet) and distance to existing business hubs are also
imperative. Government support in the form of implementing regulations
to facilitate ease of doing business, setting licensing requirements and
providing financial support for the construction of the fintech hubs, creation
of seed funds, grants, or subsidies provide opportunities for fintech
development (Diemers, Lamaa, Salamat & Steffens, 2015).
The U.S. is a successful market for fintech growth as it is a leading
international financial hub, has strong support structures, healthy financers
(Barclays, Bank of America, and Wells Fargo), incubators and accelerators,
tax credits for research and development, possesses a large financial
technology workforce and attracts large investments (Diemers et al., 2015).
The Middle East has also witnessed rapid fintech growth, with success
primarily due to strong regulatory support, government-driven funding
programs (e.g., Hamdan Innovation Incubator, SeedStartup, In5), venture
capitalists, and local financial services providing early-stage funding for
startups. For China, the growth in its middle-class, together with a
progressive educational system and its dynamic participation in global
160 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
supply chains, has led to a strong tech ecosystem comprising large local tech
firms, robust engineering and business skillsets, and active private equity
and venture capital investors. India has also experienced advances in
infrastructure, specifically the ability to connect a digital identity to bank
accounts enabling financial institutions to expand outreach to millions of
new customers. These improvements are paving the way for augmented
delivery of financial services from both traditional and nontraditional
providers. Further, demonetization of currency notes in 2016 has enhanced
the shift from paper to electronic payments and driven the technology-based
transformation of financial services in the country (IFC, 2017).
Advances in financial technology improve access to services for the
financially underserved community or small businesses by improving the
speed, cost and ease of use of such services. Fintech businesses offering
financial services have an opportunity to improve their product to gain
market share and decrease per-customer operating costs (Mnuchin &
Phillips, 2018).
Consumer expectations from financial service providers are a major
driver of the fintech revolution. Consumers want financial institutions to
rapidly respond to their growing needs and have an increased demand for
personalized services. Fintechs, in areas of e-commerce and online
banking, have an opportunity to capitalize on these consumer needs
(Rickert et al., 2017). Digitization increases competition among traditional
firms and opens doors for new firms with distinctive business models,
such as peer-to-peer lending, digital-only banks and crowdfunding
platforms. Though these fintech firms start at a smaller scale, their
expertise in technology helps them to disrupt the status quo. Increased
digitization in the payment process has also led to significant cost
reductions for firms using existing payment processes, for example,
substituting paper checks with electronic payments and minimizing
inefficiencies in cross-border payments.
Despite growing impressively, fintechs face a number of complex
challenges: regulatory concerns, technology integration, and data privacy
and security (Lee & Shin, 2018). Unlike conventional banks and financial
institutions, fintechs face regulatory uncertainty, i.e., they are unaware or
unsure of the regulations and procedures with which they will need to
comply. These could be regulatory challenges for anti-money laundering,
capital requirements, data security, and privacy. Each of these could cause
registration delays or raise the possibility of being hit with heavy fines.
Is Pakistan Ready to Embrace Fintech Innovation?
Since fintechs are built with new technologies, it is a challenge to
integrate the fintech applications with the present systems. For the internal
development of fintech startups, it is necessary to collaborate or establish
joint ventures with banks through incubator programs and corporate
ventures. Without a comprehensive integration design, existing banking
processes may become unsuitable for use with new technologies, which
financial institutions may then not be able to use.
Information security and privacy breach is another major challenge
fintechs have encountered worldwide. In online payment applications,
such as Google Wallet and MasterCard Pay Pass, critical information
stored on mobile devices can become lost or stolen. To counter this, fintech
companies must develop, strengthen and maintain suitable measures to
protect sensitive consumer data from illegal access. To accomplish this and
build consumer trust, they should work closely with regulatory bodies and
consumer protection agencies.
PwC, in their Global Fintech Report 2017, have also identified
challenges faced by fintech companies and incumbents globally as shown
in the Figure 2 below.
Figure 2: Challenges faced by Fintechs and Incumbents Globally
Source: Adapted from PWC Global Fintech Report, 2017.
Figure 2 shows differences in management and culture (55 percent),
regulatory uncertainty (48 percent) and business models (40 percent) are
Required financial investment
Differences in operational processes
Differences in knolwdge/skills
IT compatibilty
Differences in business models
Differences in management and culture
Regulatory Uncertainty
IT security
Incumbents FinTech
162 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
identified as major challenges for fintechs. Information technology security
(58 percent) is the biggest challenge for most incumbents, followed by
differences in management and culture (54 percent), and regulatory
uncertainty (40 percent).
3 Fintech in Pakistan
Pakistan, the world’s sixth most populated country, is a cash-based
economy. The problem of low access to finance has long plagued the
Pakistani economy (World Bank, 2017). Ninety-three percent of the adult
population remains unbanked (Rizvi, Naqvi & Tanveer, 2017). Pakistan
occupies a low rank in financial inclusion when compared to regional and
global standards (Nenova & Ahmad, 2009). High intermediation costs with
high interest rate spreads, financial illiteracy, high collateral requirements,
and prohibitive lending rates have put finance out of the reach of small and
medium enterprises. Such high financial exclusion not only makes
individuals and businesses vulnerable to income shocks, but also increases
their operating costs and dampens future investments. Technology can be
harnessed to enlarge geographical outreach, as well as overcome low
literacy levels. Through the new technological solutions of branchless
banking and mobile banking, physical access to finance can be improved.
Partnerships between banks and informal providers could make their
services more geographically reachable, less intricate, and more easily
understandable for consumers. Pakistani consumers general perception
regarding the (in)significance of formal finance in their daily lives, difficult
banking procedures, low outreach, and unsuitable products provides an
opportunity for fintechs to design personalized products (World Bank,
2017). Microfinance Institutions (MFIs) in Pakistan are faced with the need
for greater funding in order to grow and integrate with financial markets,
though they possess immense potential to expand outreach. The use of
technology and partnerships with fintech startups will allow them to
expand outreach. Current weaknesses of the financial sector could serve as
an opportunity for digital financial services to offer solutions to the
problem of outreach.
3.1. Type of Fintechs in Pakistan
The fintech industry already exists in Pakistan. Originally,
Automatic Teller Machines (ATMs), debit and credit cards were the main
products developed by these firms for commercial banks. The introduction
of these services was driven by globalization and the rapid technological
advancement that was taking place around the globe. Presently, a new
Is Pakistan Ready to Embrace Fintech Innovation?
class of fintech has emerged in Pakistan that has revolutionized technology
and enabled solutions for delivering financial products and services. The
products and applications developed by these fintechs aim to revolutionize
payment systems, improve financial inclusion, and increase the overall
productivity of the economy. The reduced transaction costs for fintech
firms allow them to develop products specific to consumer needs, creating
competition for the incumbent financial service providers in the country,
who, in order to compete, will need to collaborate with fintech firms. This
collaboration can be mutually beneficial for both parties, since fintechs
have an entrepreneurial approach and incumbent banks possess a large
customer base and a repository of customer data. Banks provide the
regulatory cover to firms, which focus on innovation and the development
of products to be used by the bank’s customer base. A successful example
of this is the FINCA Microfinance Bank-Finja partnership. Finja, a fintech
startup, is developing a mobile wallet application, while FINCA provides
a regulatory cover by maintaining a branchless banking license.
Table 1 provides an overview of the fintechs that currently operate
in Pakistan, classified into traditional and emergent fintechs.
As a distinction, traditional fintechs work together with incumbent
financial service providers as their technology providers through
traditional pricing models. Emergent fintechs, also known as disruptors,
collaborate with a bank or financial service firm by means of new
engagement models where they provide new technology solutions to
facilitate existing needs.
164 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
Table 1: Fintechs Currently Present in Pakistan
Traditional Fintechs
Emergent Fintechs
Services Offered
Mobile Wallet
Zero Cost Payment
Systems and Cloud
Based Payroll
Online Mobile Top-
Payment Solutions
Customized Cloud
and Mobile
Social Investment
Note: Adapted from (Shahid et al., 2016) and improved by the authors.
Abacus Consulting, founded initially as a management consulting firm,
has now grown into one of the leading business solutions providers in
Pakistan. Their primary focus is on developing finance-related
business solutions for business and organizations.
AutoSoft Dynamics is a software development venture that develops
financial applications used by domestic and international banks.
Inov8 is a digital payment company that is growing rapidly in the
region. In collaboration with Easypaisa, it links its massive distribution
setup to all commercial banks that have implemented Inov8’s
technology. Another application under the name, Fonepay, has also
been launched which allows the use of smartphones for making
KarloCompare is a web and mobile application that allows users to
compare and buy easily a range of financial products such as
personal/auto loans, credit card and travel insurance, with a few clicks.
Monet is an e-payment provider that focuses on digitizing payments in
cash-based economies. It was established with the idea and directive to
offer electronic payment processing and flexible services in the
Branchless and Alternate Banking Channels sphere. Currently, Monet
has its own infrastructure and systems operated at Monet Data
Is Pakistan Ready to Embrace Fintech Innovation?
Centre(s) to aid banks, financial institutions, and merchants in
furnishing their payment transaction processing requirements.
TPS provides cards and payment solutions enabling banks, payment
processors, telecoms and other institutions in digitizing payments.
They also offer business and technical expertise in pre-paid cards, card
management, delivery channel management, and internet and mobile
BATWA is a small startup and provides a mobile wallet to its users for
payment purposes.
FINJA, founded by banking and tech industry experts, is a fintech
startup serving as a zero cost payment platform and a unified loan and
e-commerce marketplace. The SimSim app solution is the first payment
solution in Pakistan for free and frictionless payments made
instantaneously. This application will be interconnected with the users’
current account, allowing them to make payments at a variety of
partner retail businesses through their smartphones.
OneLoad is an online platform that allows users to purchase top up
credits for their mobile accounts with all mobile companies simply
through its efficient mobile application and web portal.
Payload is incubated at Plan9, and has developed an easy-to-use
technology that permits businesses to receive bitcoin payments while
dealing with payments in Pakistani Rupees.
Red Buffer focusses on developing data science services, machine
learning/natural language processing (ML/NLP), and cloud and
mobile applications.
Stocksfm is a financial communications platform for the financial and
investing public. Stocksfm generated the $TICKER tag to allow users
to organize and establish "streams" of information around stocks and
markets across the web and social media. These streams provide new
forms of insight, ideas and information that are used by investors,
analysts, media and others as they research stocks and manage their
investments across the internet and social media websites. This
provides understanding and ideas to investors, media analysts, and
others for use in researching and managing their financial investments
(Tamoor, 2017).
166 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
4 Fintech Growth in Pakistan: Challenges vs Potentials
This section provides a qualitative assessment of economic,
demographic and technological factors that could serve either as threats or
opportunities for the penetration and growth of fintech in Pakistan.
At present, only a few fintechs operate in Pakistan and those are
primarily in the developed cities of Lahore, Islamabad and Karachi. The
sluggish growth and shortage of fintechs in Pakistan is a consequence of
primarily local, and therefore inadequate, investment in the segment. The
current fintech ecosystem in Pakistan could be characterized by holes in
various information areas, hindering all ecosystem members and
hierarchies. Limited fintech investment raised solely from local investors,
a dearth of partnership platforms for fintech incumbents and investors,
poor quality of the IT sector (Figure 5), an unwelcoming attitude by
incumbent organizations towards partnerships with fintech firms, and
difficulties in modifying the behavior of customers are among the key
challenges fintech firms have faced (Shahid et al., 2016). The Fintech
ecosystem is also subject to several hindrances comprising threats to data
security and intellectual property, trouble attracting the right talent and
customer base, and an uncertain regulatory environment discouraging
entrepreneurs from venturing into the fintech environment. The economic,
demographic and technological environment in Pakistan also presents a
number of challenges to fintech growth as shown in Figures 3, 4 & 5 below.
Is Pakistan Ready to Embrace Fintech Innovation?
Figure 3: Economic Challenges and Opportunities in Pakistan
Source: World Bank, State Bank of Pakistan, Karandaz, UNESCO, Pakistan
Telecommunication Authority.
Figure 3 presents the economic challenges and opportunities for
fintechs in Pakistan. The current state of financial inclusion in the country
is disappointing as Pakistan is ranked 16th of 26 nations according to The
State of Financial and Digital Inclusion Project Report 2017. Figure 3 also
shows a financial inclusion ratio of 15 percent, well below the average rate
(33 percent) among middle income countries. However, according to the
Fintech Survey 2016, in evolving markets where financial inclusion
numbers are low, fintechs play a considerable role as they offer a means to
digitization. This weakness of the economy can serve as an opportunity for
fintechs to grow (Shahid et al., 2016). The provision of financial services is
dominated by banks in Pakistan, which could present a challenge for
fintech startups to enter the market. But since only a fraction (15 percent)
of the population is currently being served by the banking sector, this is an
open door for fintechs to exploit and target the remaining population with
digital payment solutions, eventually improving financial inclusion and
the share of financial services in the country’s GDP. The improvements in
infrastructure expected with the completion of China Pak Economic
rank in ease of doing
business among 190 other
Contribution of financial
and insurance services to
total GDP, as compared to
5.18% for india and 6.8% for
of the financial services are
offered by the banking
sector, but they serve only
15% of the total population
as shown by Financial
Pakistan's Financial
Inclusion Ratio is low as
compared to a 33% average
ratio for middle income
million debit cards are
expected to come online
through local payment
position globally for its
logistic performance
including infrastructure
which is expected to grow
especially after the
completion of the China-
Pakistan Economic
Corridor (CPEC)
168 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
Corridor (CPEC) are also expected to reap substantial benefits for future
fintech growth.
Figure 4: Technological Challenges and Opportunities in Pakistan
Source: World Bank, State Bank of Pakistan, Karandaz, UNESCO, Pakistan
Telecommunication Authority.
Technological opportunities and challenges for fintech growth are
shown in Figure 4. The still low (16.6 percent), but growing smartphone
penetration, internet and social media usage, improving mobile ownership
numbers and adult literacy rate of 59 percent presents an opportunity to
digitize financial services and provide them through mobile phones. The
diffusion and adoption of mobile technology in the Pakistani market
mobile teledensity is 69 percent - has been growing over the years. To
further supplement this, the number of mobile internet and mobile internet
subscribers is expected to increase from 9 million in 2014 to an estimated
59 million in 2019, making Pakistan the country with the fastest growing
mobile internet access rates. In the Global Fintech Survey, mobile data
analytics, cyber-security, public cloud infrastructure, biometrics and
identity management were considered the most relevant technologies for
financial institutions investment by in in order to embrace the disruptive
of internet users are
social media users
of all mobile
subscribers have
prepaid connections,
using USSD
of the adult owners
engage in at least one
advance mobile
92% of land had
cellular network
coverage, facilitating
information flow to
disconnected areas
penetraton in Q2
2016; expected to rise
to 51% by 2020
Is Pakistan Ready to Embrace Fintech Innovation?
nature of fintechs; it could be safe to say that technological factors in
Pakistan are also moving in the right direction.
Figure 5: Demographic Challenges and Opportunities in Pakistan
Source: World Bank, State Bank of Pakistan, Karandaz, UNESCO, Pakistan
Telecommunication Authority.
Moreover, current demographics serve as a challenge and
opportunity for Fintechs in Pakistan, as presented in Figure 5. Pakistan has
the fifth largest youth population, a potential market for the new cohort of
financial products and services available over the nexus of Social Media,
Mobile, Analytics and Cloud (SMAC). These products are not only
appealing, smooth, fast and easy-to-use, but they also match the lifestyle
of millennials, who are literate and widely engaged in online e-commerce,
demanding fintech products. Secondly, the shift in consumers’ preference
towards mobile phone usage and social media platforms and away from
desktop computers has given rise to digital payments. The verification of
132 million biometrically certified SIMs has paved the way for digital
wallets, allowing payments to be made through mobile phones. Many
players, including non-bank “banks” and non-profit organizations, are
currently working on financial technology to make their applications an
actuality in Pakistan. Among non-bank players, one of the biggest
IT graduates enter
market every year but
quality of IT sector is
of the online e-
commerce orders come
from 18 to 34 age
of the adult owners
engage in at least one
advance mobile
Millennial litteracy
rate; 16% higher than
the adult literacy rate
in Pakistan which is
132 million
biometrically verified
170 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
examples is that of Easypaisa, by Telenor Pakistan, a prominent mobile
phone service operator. Easypaisa provides financial services such as
opening a bank account, withdrawal and deposit of money, funds transfer
and bill payments, through more than 70,000 agents in the country.
Karandaaz Pakistan, a non-profit organization, is also assisting Fintech
startups by providing them grants to advance and encourage financial
technology solutions in Pakistan. Access to financial services, payments, e-
commerce and interoperability are their main areas of focus.
Together, the assessment of economic, technological and
demographic factors reveals that the current fintech ecosystem in Pakistan
could be characterized by various challenges hindering all ecosystem
members and hierarchies. However, Pakistan still possesses the potential
to be an attractive market for fintech companies to grow due to the
increasing youth population, disruptive internet and smartphone
penetration, consumer preference for mobile phones and social media,
booming online commerce facilitating digital payments, and an overall
financial system having absorption capacity for innovation.
While fintech innovations are fascinating and can have major positive
impacts on any economy like Pakistan’s, their darker side should not be
ignored. Most fintechs offer financial products which have the ability to
generate direct or indirect cash flows. The incentives attached with cash
flow generation of fintech products have a strong influence on the product
design and usage. Such influences, if compromised, can be used to alter the
design or usage of fintech products. This has happened in the past, when
derivative instruments that were originally designed for hedging risk
became purely speculative instruments due to their inherent leveraged
structure. Fintech products are no exception and are prone to such threats,
originating both from the innovators and users. One such example is of
Bitcoin, which was initially portrayed as a secure alternative digital
currency based on blockchain technology. However, as it increased in
popularity, its highly secure and complex structure became a vehicle for
illegal fund transfers and money laundering. Enormous demand generated
by individuals or organizations interested in conducting such covert
transactions drove up its price. This price hike, coupled with its online
trading, forced ordinary investors to view it as an alternative financial
asset. Ironically, no asset with such price volatility as that of Bitcoin can be
used as a medium of exchange (i.e., currency), which was the original
mandate behind its creation (Chiu, 2016). Nonetheless, regulators are
aware of some of these concerns and their approach to fintech regulation
can address these concerns.
Is Pakistan Ready to Embrace Fintech Innovation?
5 Regulators and Regulations
5.1. Inside the Minds of Regulators
Examining the conduct of financial regulators around the globe, we
find that approximately three decades ago, their policies and actions were
rather supportive for the entities and products being developed within the
financial system. In the 1980s, a number of regulators around the globe
either significantly reduced the regulatory constraints that supported
competition or at least refrained from adding more.
However, a major shift in the regulatory paradigm occurred in the
aftermath of the Global Financial Crisis of 2008, which many people view
as a direct consequence of the lax regulatory environment prevalent during
the years preceding the crisis. Under this new regulatory paradigm, most
financial regulators now hold extremely conservative views towards
innovative financial products and are preemptive in formulating policies
so to avoid another financial meltdown. Of course, not all regulators hold
these same views and there exist the so called ‘active regulators working
closely with fintech companies. The ideology of these regulators is to
understand and address the key challenges of fintech firms as a priority.
This active approach of regulators could surely foster the growth of fintech,
but it also raises concerns about conflicts of interest if the users’ protection
is immolated to protect fintech companies.
Let us restate here, that irrespective of the view taken by the
regulators, one cannot disagree with the fact that the regulatory framework
of a country has valuable effects on the overall economy and it is important,
therefore, for governments to create the appropriate balance between
supporting fintechs and protecting the public interest. The problem is that
the fintech sector has been developing rapidly and institutions have found
it difficult to craft regulation, pertinent to this segment. The rapid growth
makes it difficult to design laws for firms of various sizes. Technology,
primarily the internet, has boosted the development of new players in the
market, for instance, venture capital firms, crowdfunding firms, and
virtual currencies such as Bitcoin. Though benefits from such innovations
accrue in the form of the creation of new assets and reduced firm costs, it
does raise risk and security concerns. Therefore, there is a need for
regulators to understand the technology’s applicability in order to
understand what exactly to regulate (Kalmykova & Ryabova, 2016).
172 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
5.2. Fintech Regulations in Pakistan
The situation in Pakistan is relatively better than the conservative
and pre-emptive view of most regulators around the globe. In fact, the
State Bank of Pakistan (SBP) has proven itself to be very progressive in the
area of digital finance. The attempts SBP has taken to promote branchless
banking and mobile banking (e.g., mobile wallets and over-the-counter
transactions) have been documented in detail. One study traces the history
and models of mobile banking in Pakistan to assess how the segment
evolved and transformed conventional banking structures in the country
(Rizvi et al. 2017). Owing to the collective efforts of a number of
stakeholders, including the government, regulatory bodies, development
agencies, financial institutions, telecom operators and technology
companies, developments in the mobile banking sector have been growing.
The State Bank of Pakistan’s support for the branchless sector was
demonstrated with the issuance of branchless banking regulations and the
drafting of a regulatory framework policy in 2008. Under these regulations,
many branchless banking models were encouraged to set up. Since 2008,
SBP and other government bodies have continued to promote technology
in banking, which has created the necessary foundation on which to build
a strong digital financial architecture - including fintech - in the country.
Additionally, the National Financial Inclusion Strategy (NFIS), developed
by SBP in 2015, with the support of the World Bank, provides clearly
defined targets and incentives to strengthen the effort towards the
utilization and promotion of fintech in the country.
The most important and direct step taken by SBP to promote and
facilitate fintechs was the drafting and enacting of laws pertaining to
Payment System Operators (PSOs) and Payment Service Providers (PSPs)
in 2014
. These regulations are applicable to the players interested in
becoming licensed operators in Pakistan for payment systems. Interested
players can be granted licenses under PSOs and PSPs for the development
of an electronic platform with the capability to clear, process route and
switch electronic transactions. The entities licensed as a PSO or PSP can
also make agreements with banks, financial institutions, merchants, other
PSOs and PSPs, or any other company for the provision of services they
Rules for PSOs and PSPs:
Is Pakistan Ready to Embrace Fintech Innovation?
intend to provide under the license. So far, only two institutions have been
granted the status of PSO/PSP, namely, One Link
and NIFT
In May 2016, the SBP introduced Regulations for Mobile Banking
. Under these regulations, fintechs are expected to achieve
long-awaited Transactional Interoperability that would allow users to
transfer funds between mobile accounts from one service provider to
another. Account-to-Account Interoperability (A2A Interoperability), the
other type of interoperability, has been enjoyed by customers and fintech
service providers since 2014.
The most significant feature of the 2016 regulations is the clear
guidelines regarding Third Party Service Providers (TPSPs), a new player
made mandatory by SBP to execute transactional interoperability. The
models requiring involvement of TPSPs can also be referred to as a switch
arrangement as opposed to a bilateral arrangement. The differences
between the two is explained in Figure 6, below.
Figure 6: Bilateral vs Switch Arrangement
Source: (GSMA 2015).
Under the bilateral arrangement, each Mobile Money Service
Provider (MMSP) must establish one-to-one links with all other players
(i.e., other MMSPs or banks). Under the switch arrangement, a third party
entity, a TPSP in the case of Pakistan, takes the responsibility of creating a
hub with which all MMSPs and banks must establish a link.
Regulations for Mobile Banking Interoperability 2016:
MMSP C Banks
Bilateral Arrangement
Switch Arrangement
174 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
The Regulations for Mobile Banking Interoperability (2016) enabled
the Pakistan Telecommunication Authority (PTA) to make a decision to
issue the first Third Party Service Provider (TPSP) license in April 2017,
which upon realization will set the foundations to achieve full
interoperability across the telecom networks and entities providing mobile
wallets or BB accounts. On the basis of the information available through
PTA, we have compiled some important features of TPSP licensing in the
following table.
Table 2: Salient Features of Third Party Service Provider (TPSP)
License in Pakistan
License Period
10 Years
Due Diligence by
PTA-SBP Joint Regulatory Committee
License Issuing Authority
Initial License Fee (ILF)
Rs. 1,000,000/- (Pak Rupees one million)
Non Refundable Processing
Rs. 50,000/-
Performance Bond
Rs. 10 Million in the shape of Bank Guarantees
Paid-up Capital Requirement
Rs. 200 Million (Set by SBP) with the following caveats;
i) 10% as security deposit at the Central Bank
a. 5% of security deposit in a non-remunerative current
account with the SBP Banking Service Corporation.
b. 5% of security deposit in the form of Government
securities to be kept under lien at the same department.
Scope of Work
TPSP license authorizes the licensee to establish,
maintain and operate for the provision of Financial and
Application Service Provider and permits the
Channeling, Routing and Switching Transactions for
branchless/mobile banking only under Service Level
Agreement(s) between Financial Institution (bank),
cellular mobile operator(s) and TPSP(s)
Technical Requirement
Capability of switching and routing all interbank Wallet
to Wallet and Wallet to Bank account transfers from BB
Issuer to BB Acquirer through an authorized PSO which
will be responsible for clearing and providing day-end
reports for reconciliation.
TPSP License shall be granted nationwide for the whole
of Pakistan excluding Azad Jammu & Kashmir and
Gilgit Baltistan.
License Holder
“None” as of March 2018 at the time of writing this
paper. However two applications have been received by
PTA and decision to award license is expected by Mid-
Rather than waiting for other commercial players to act first, SBP
has proactively developed a mobile application for Asaan Mobile Account
(AMA) to facilitate mobile banking interoperability. The app is expected to
Is Pakistan Ready to Embrace Fintech Innovation?
achieve universal operability by providing a single platform to all bank
account holders on different mobile phone networks to conduct financial
transactions. According to SBP officials, the app will be simple and
available to the users of feature phones as well as users of fully-capable
smart phones. An account can be easily opened after verification from
NADRA, which is expected to cost the user PRs. 10. With these features,
AMA may prove to be an important and innovative fintech product, and
can also help to achieve the target of 50 million mobile wallet users set in
NFIS 2015. National Financial Inclusion Council (NFIC) approved the
AMA scheme in September 2017.
5.3. Future Challenges for State Bank of Pakistan as a Fintech Regulator
Despite the progressive attitude of SBP as a fintech regulator, there
are pending issues that require immediate regulatory deliberation. The first
issue to address is: Who should actually be the regulator for fintechs in
Pakistan? As explained earlier, fintech is on the frontier where finance meets
technology, creating questions regarding its main regulator. Should fintechs
be treated as financial institutions and be governed by SBP (the current
situation, owing to the bank-led model of fintechs prevailing in Pakistan)?
Or should the players be treated as mobile technology providers? This is an
essential element of fintechs. If they should be treated as a mobile
technology, would they consequently be placed under the purview of
Pakistan Telecom Authority (PTA)? Is there a need for a new regulator
specifically for fintech, considering its unique and evolutionary structure?
Presently, every form of fintech is heavily dependent on digitally-
stored data, which is not only susceptible to privacy concerns, but is also
exposed to theft and cyber-attacks. In Pakistan, where a large number of
intermediaries (e.g., financial institutions, telcos, PSPs, PSOs, TPSPs,
NADRA etc.), are mandatory in order to set up viable fintechs, the task of
determining exact liability in the case of data breach is itself nontrivial, and
the measures that must be taken to ensure data security are a top
regulatory priority.
Fintech products or services, being either heavily reliant on mobile
technology or based on complex coding technologies (e.g., blockchain,
Directed Acyclic Graph (DAG), Tangle, or IOTA), open the doors for
unlimited possibilities, but can also create opportunities for fraudsters
aiming to extract money from consumers and Fintech companies. The
world saw a glimpse of this danger when the popularity of Bitcoin helped
176 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
a number of fake cryptocurrency providers to sell hoax products to
customers and investors.
Another important concern is the potential use of fintech in money
laundering and breach of capital controls. The archaic, bureaucratic structure
of regulations in Pakistan has proven itself ineffective in dealing with such
issues. Incidents like the recent inclusion of Pakistan in the grey list of the
Financial Action Task Force (FATF) are enough to expose the weaknesses of
regulators in this domain. Now the question is how regulators would deal
with the fintech transactions which are far more secured, protected,
encrypted, and faster paced compared to conventional financial transactions.
This is an area which requires further thought and discussion.
It is also important for regulators in Pakistan to allow healthy
competition. Around the globe, fintechs are primarily driven by startups,
and Pakistan is no exception. However, it has been observed that the
innovative technology developed by these startups is subsequently
acquired by existing industry players of variable sizes. The recent
partnership between Finja and FINCA Microfinance Bank, which allowed
the fintech to receive regulatory approval for its innovative product, a
mobile wallet called SimSim, is one such example where a small startup
needs to seek the patronage of larger industry players to advance to a
higher level.
The SBP has made efforts to promote and outline regulations for
the fintech sector as it has a role to play in improving financial inclusion,
which is viewed as a key driver of economic growth. However, the
proliferation of fintechs is accompanied by threats of cybercrime, money
laundering, terror financing, and privacy breach of customer data. SBP and
other regulatory bodies have outlined guidelines to protect against the
perceived risks associated with fintechs, as public security cannot be
5.4. Regulator as Competitor
Finally, despite its good deeds and inherent role of guardian, there
are incentives for a regulator to become a competitor a potential threat
for much of the fintech sector. The threat arises from the possibility of a
Central Bank-Issued Digital Currency (CBDC) or Central Bank-issued
Crypto Currency (CBCC). The idea of CBDC creation is feared due to the
increasing use of electronic payment systems all over the world and the
resulting influx of alternative digital currencies such as Bitcoin. However,
Is Pakistan Ready to Embrace Fintech Innovation?
there are several reasons why a central bank would not be incentivized to
pursue the creation of CBDCs or CBCCs. First, being a regulator, no central
bank can actually offer what is considered the primary attraction of digital
currencies - anonymity. Digital currencies maintain their popularity so
long as they provide anonymity for financial transactions and any action
taken by central banks to offer something similar could become a topic of
public debate or even lead to litigation. The idea of CBDC creation is far
from reality. Another important reason to not pursue this is that any central
bank-issued currency, whether physical or digital, is meant for payment
purposes and its value should remain stable and on par with the other
forms of currencies in the country. If that is the case, then the CBDC would
be no different from the already existing currency in bank accounts that
exist in digital form. Additionally, although central banks could pitch
CBDC as an alternative payment system for retail transactions, the
question remains as to what do CBDCs offer that is superior to existing
payment systems like Alibaba, Tencent, Facebook, WeChat, and, in
Pakistan’s case, Finja or Masterpay.
Proponents of CBDC provide a range of possibilities and objectives
a central bank can achieve with its issuance, such as a wider spectrum of
monetary policy options, direct provision of risk-free assets, general public
and consequent safety of financial systems by the reduced systemic
importance of commercial banks, and more control over money creation
(Dyson & Hodgson, 2016). At the same time, even these proponents are
concerned that if a central bank were to issue CBDC and begin to realize
these objectives, it could potentially fuel bank runs all over the world (Bech
& Garratt, 2017).
6. Conclusion and Policy Recommendations
Fintech growth has been phenomenal worldwide, driven mainly by
changing consumer preferences and behaviors, and technological
innovations and regulations. Being at the confluence of different
technologies, fintechs offer well-personalized and interactive services to
consumers by allowing them to conduct transactions over their phone,
boosting customer experience. On a broader level, fintechs have the
capacity to promote financial inclusion by enabling the provision of new
products and services to groups who were previously deprived of access
to traditional financial services.
Pakistan, being a developing economy with high banking
infrastructure costs acting as a barrier to diffusion of financial services, has
178 Syed Kumail Abbas Rizvi, Bushra Naqvi and Fatima Tanveer
a large percentage of the population which remains underbanked. Poor
financial inclusion, along with growing mobile phone and internet
penetration, changing consumer needs in favor of digitization and online
commerce, biometric verification of mobile SIMs and a supportive
regulatory environment serve as opportunities for fintechs to step in and
provide financial products at low costs. At present, a few traditional and
emergent fintechs operate in Pakistan, primarily in areas of banking and
insurance. The regulatory framework for financial services is fairly strong
and supportive in Pakistan, with laws such as Payment System Operators
(PSOs), Payment Service Providers (PSPs) and Branchless banking
regulations by the State Bank of Pakistan acting as platforms for Fintech-
led growth.
However, fintechs in Pakistan are also faced with a number of
challenges such as regulatory uncertainty, limited investment raised solely
from local investors, a dearth of partnership platforms for fintech
incumbents and investors, an unwelcoming attitude of incumbent
organizations towards partnerships with fintech firms, and threats to data
privacy and security.
The SBP has made efforts to promote and outline regulations for
the fintech sector as it has a role to play in improving financial inclusion,
which is viewed as a key driver of economic growth. However, the
proliferation of fintechs is accompanied by threats of cybercrime, money
laundering, terror financing, and privacy breach of customer data for
which SBP and other regulatory bodies have outlined guidelines, so as to
be cautious toward these perceived risks, as public security cannot be
It is important to understand that aside from being providers of
mobile payment systems and other financial services, fintech companies
create an ecosystem that fosters the collection of a vast amount of data and
builds trusted relationships with clients. Financial institutions and banks
in Pakistan have realized the importance of these ecosystems and are
attempting to innovate within their companies through partnerships with
fintech companies. These partnerships will benefit both parties. Incumbent
banks will be able to outsource part of their R&D and bring solutions to
market quickly, while fintech firms will have access to the large and
existing customer base of banks. This is further emphasized by fintech
segments that are starting to transition from purely B2C to B2B. We believe
that, going forward, adopting effective growth strategies and integrating
with fintechs will be essential for innovation. The government should also
Is Pakistan Ready to Embrace Fintech Innovation?
support the growing fintech sector by formulating regional development
plans where they would identify regions on the basis of current capabilities
and infrastructure as potential hubs and would offer incentives (such as
funding) to boost their growth.
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... Still, there has been low technology awareness among the masses for these digital innovations. It is still at an infant stage among citizens, causing the main hindrance in its adaptability (Rizvi et al., 2018). ...
... In other words, it depicts the beliefs of the people that adopting new technology will make their lives easy. It is the critical determinant of the TAM, and this construct has two direct formative relations with technology awareness and behavioral intention (Rizvi et al., 2018). Previously, many researchers used perceived ease of use to evaluate the behavioral intention of the users (Mutahar et al., 2018). ...
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Cryptocurrency has revolutionized the economic system of the world. It provides a new and innovative means of exchange that has speedily invaded the financial market trends and changed the traditional cash world. However, consumers have low acceptability for blockchain-based cryptocurrency due to increasing online scams and the absence of a regulatory framework. There is also a misconception about its usage on many platforms, which has created a clear gap in the literature to address this issue. Therefore, the current study intends to investigate the effect of technology awareness on the behavioral intention of crypto users through perceived factors (usefulness, ease of use, risk). It also empirically examines the moderating role of government support on these indirect paths. The underlying framework is investigated by surveying 333 respondents from the Z generation. Results revealed that perceived factors (usefulness, ease of use, risk) mediate the relationship between technology awareness and behavioral intention. Furthermore, government support strengthens the indirect relationship of technology awareness on behavioral intention through technology acceptance determinants, such that the effect of technology awareness on behavioral intention through perceived factors (usefulness, ease of use, risk) is more assertive when government support is high. The findings will provide a new dimension to different financial bodies implementing monetary policy and highlight the need to adopt innovative digital technologies in Pakistan.
... The disruptive nature of fintech has led to a transformation in business model innovations that has brought regulatory concerns worldwide, as stringent rules existing for incumbent financial institutions are not enough to deal with fintech complexities (Kumail Abbas Rizvi et al. 2018). Several other published papers explaining this concern are (Adriana and Dhewantoa 2018; Arner et al. 2017;Bruckner 2018;Das and Ali 2020;Golubić 2019;Gomber et al. 2018;Lin 2019;Yoon and Jun 2019). ...
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Digital transformation underscored by the fourth industrial revolution has led to the emergence of sophisticated technology-enabled financial services known as fintech, that has swiftly altered traditional financial services space. Global adoption of fintech is rapidly increasing due to its disruptive nature and is largely embraced by participants who are underserved by traditional financial service providers. Global investments in fintech are growing rapidly year by year owing to increased interconnectivity with the digital revolution. Fintech is expansive, engulfing a plethora of innovative applications in various services including payments, financing, asset management, insurance, etc. There exists a gap in the literature and visualization research on impact and future pathway of fintech innovations in payments and financial services and role of financial regulations. This study aims to enrich the understanding of fintech innovations in payments and financing and investigate the correlation and significance of regulatory framework in maintaining a fair ecosystem. With this objective, an extant systematic review was performed using research articles published in peer-reviewed journals for the period 2014–2022 when there has been a burgeoning of interest in ‘fintech’ globally. The findings of this study contribute to the theoretical constructs of fintech innovations in the financial services industry and show that such innovations play a crucial role in shaping the nature of future of business. The results of this study have implications for researchers who could deploy this research as a reference point to get a holistic insight and a detailed mapping of innovations in fintech.
... Fintech is referred to as financial services with technology's involvement to facilitate the customers according to their expectations. Fintech businesses use technology for the best financial services aiming the financial segment digitization, to reduce the cost and transparent working in the market (Gregorio, 2017;Rizvi et al., 2018). ...
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Financial technology and digitization are an essential part of the financial sector in the recent age, especially for Islamic Financial Institutions (IFIs), who offer a variety of products and services to the different sectors/segments of society. Demand for food is rising, but agricultural productivity is reducing worldwide. The reason behind this contraction is the decreasing trend of investment in agriculture due to the shortage of credit and financing facilities. IFIs promised to provide financing, and Fintech is considered as an opportunity to manage this problem. The study aims to explore challenges for the small farmers regarding agricultural financing through IFIs in the presence of conventional financing sources to find out a solution with the help of Fintech integration. This study was undertaken to collect data through focus group and in-depth interviews. Population of the study is small farmers of agriculture sector in the Gujranwala region. A sample of 70 people were chosen based on purposive sampling to create focus groups (seven focus groups) and in-depth interviews of the selected respondents. The sample size of the study was decided based on the territorial classification of the selected area of the Gujranwala region to approach the maximum number of target audiences for this study. Moreover, unstructured in-depth interviews were carried out to collect data from small farmers. Individual farmer is the unit of analysis for this study. Interviews were transcribed and coded to develop the themes to conclude the results. Findings of the study indicate that conventional banks don't provide loans to vulnerable small farmers due to risk burden and high interest; collateral requirements; bribery, and lengthy procedure for financing that discourage the small farmers to approach these banks. However, IFIs especially Islamic banks provide interest-free but offer very limited financing products/services to small farmers. Moreover, these financing facilities are not accessible to small farmers. Therefore, the use of financial technology with value chain financing emerged as a viable alternative that can tackle the financing issues by integrating small farmers and other stakeholders with IFIs. This study has several implications for IFIs, policy makers, and other stakeholders.
... The competition between traditional firms has increased due to digitization while it also creates new opportunities for firms with distinct business models like crowd funding platforms, peer-to-peer lending, and digital-only banks (Rizvi, Naqvi, & Tanveer, 2018). Kumar, Mishra, and Saha (2019) highlighted those digital financial services are currently popular in urban areas while the demand also exists from rural areas, non-earning techsavvy youth and migrants, and the financial services providers should also focus on these groups. ...
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This study examines how the financial services accessed and delivered through digitalization in Pakistan. Digital infrastructure refers to Internet, mobile phones, ATMs, tablets, chips, biometric devices and any other existing digital communication system. Currently, financial markets have become more reliant on digitalization as digital integrated financial markets are playing an important role in the development of financial sector, increase market competitions, performance of intermediaries and the efficiency in their daily operations. Based on secondary data and stakeholders' interviews, the study provides an overview of digital financial inclusion, explores the possible opportunities and key challenges to digital financial services in Pakistan. Over time, Pakistan has made efforts to develop and integrate several digital financial services systems. It identifies that lack of coping mechanisms for systemic risks, weak infrastructure, underdeveloped technology ecosystem, low income and financial literacy rate, inadequate banking facilities and low level of formal institutions. It concludes that a greater understanding of digital financial services in economies, promotion of investors' confidence and long-term interests, greater competition and trade in IT and ICT products and corporate governance can help to promote digital financial services. Digital technology is not enough to increase the financial inclusion, well developed payments system, consumer protection safeguards, good physical infrastructure and appropriate regulations are required to foster the digital financial services.
... The financial technology sector has also experienced tremendous growth, and the amount of investment and the rates of return have been enormous as well . In this regard, numerous factors such as the demographics, social system, economic situation, awareness, education, income level, speed, convenience, and cost of financial service have led to the widespread use of relevant financial technologies [ (Claessens et al., 2018), (Rizvi et al., 2018), (Rizvi et al., 2017), (Schindler, 2017), (Tan et al., 2019)]. ...
In the recent years, the concerns raised by environmentalists, over the excessive usage of electricity, particularly in the mining of cryptocurrencies, have caught the attention of the community at large. In this regard, regulators and stakeholders have been reevaluating the costs and benefits of technological development in general, as well as in Fintech, specifically targeting their efforts towards the restoration of the environment. Considering that technology has long been perceived as dual edged sword for the environment, this would be the appropriate time to assess its true role in the environmental improvement, or rather, even deterioration. Therefore, this study attempts to address the question of whether the Fintech development is helping economies towards a smooth transition towards a lower level of carbon and greenhouse gasses emissions. Our results in this aspect are highly encouraging, and confirm that Fintech development can in fact help to reduce the greenhouse gas emissions, after the inclusion of appropriate control variables. Moreover, these results are robust even after the incorporation of the potential endogeneity of Fintech development, by the usage of 2SLS and GMM estimations.
At the beginning of 2020, a new disease (Covid-19) has emerged and expanded swiftly all around the world. Currently, we are still living in unprecedented times in which we should have social distance from one another and mostly work from home to diminish the spreading speed of the Covid-19. While we are experiencing these limitations, businesses and organizations are expected to work without having any disruptions. At this point, entering new technologies into our lives was inevitable and in fact, these new technologies have helped us to eliminate the challenges caused by the precautions with fewer flaws. Even though Fintech applications have numerous advantages, nothing comes without its drawbacks. The empirical analysis in this chapter aims to evaluate selection of best Fintech-based investments in the Turkish banking sector with an application of a hybrid DANP-fuzzy TOPSIS technique. Empirical findings of the analysis indicate that Strategy 2 has the best rank among the alternatives, followed by Strategy 1 and Strategy 3, whilst Strategy 4 has the weakest importance among the strategy preferences. Our findings suggest that policy makers/bank managers should focus more to direct Fintech investments firstly to lending services followed by payment systems.
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The purpose of this study is to investigate the comparative impact of conventional and Islamic bonds over returns. It provides useful insights to investors to diversify investment by lowering the risk to the optimum level. This study examines the impact of the conventional and Islamic portfolios on returns through simple OLS regression, suggesting that Sukuk returns are positive and significant. Simultaneously, conventional bonds show a negative trend, but in the long run, the returns are significant. It indicates that the market is volatile due to macroeconomic factors that can reduce risks through portfolio diversification. Thus, this research suggests that investment can be secured by taking a rational portfolio decision that confirms robustness. Therefore, it is a good opportunity for the investors to get high margins over the investment tenure.
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Almost half the world’s adult population lacks access to a formal bank account and other financial services. Pakistan is no exception and it is also among those countries at the lower end of the spectrum of financial inclusion. However, steps are being taken by government regulators and the private sector to improve access to financial services such as credit, savings, remittances and insurance. The introduction of mobile banking is a notable step in this context. Mobile banking, which comprises mobile wallets and over-the-counter transactions, is rapidly growing around the world and has the potential to reduce barriers to financial inclusion and thus transform economies. The benefits of this platform are even more pronounced for economies with a weak financial architecture and where formal banking entails considerable costs in terms of time and distance. This paper traces the history of mobile banking in Pakistan, studies various models of mobile banking and assesses its current state using the available data to understand how this segment has evolved and transformed conventional banking structures in the country. It also touches on the ecosystem that needs to be built in Pakistan to utilize the full potential of mobile technology.
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Fast development of technologies has led to emergence of the new market – FinTech – which is very attractive for investors today. By now this market has a great number of different concepts: P2P-crediting, E-wallets, Bitcoins, mPOS-acquiring, T-commerce, mobile banks, etc. Many of these tools have already heavily entered our ordinary life. People can obtain any credits through special services on the Internet from other users without participation of banks, pay by credit card using mobile devices, and get information about expenses and incomes according to the card anywhere in the world. Users do not need to go to banks anymore and to spend their time for credit arrangements, currency exchange, to look for ATMs to remove cash. Purchases on the Internet can be paid not only in rubles, but also in new digital currency. These tools make life easier, however, they pose a serious threat for banks. Now, bank institutions should create more convenient and utility services for the clients to keep clients. Therefore, bank and credit systems start to change actively.
Fintech brings about a new paradigm in which information technology is driving innovation in the financial industry. Fintech is touted as a game changing, disruptive innovation capable of shaking up traditional financial markets. This article introduces a historical view of fintech and discusses the ecosystem of the fintech sector. We then discuss various fintech business models and investment types. This article illustrates the use of real options for fintech investment decisions. Finally, technical and managerial challenges for both fintech startups and traditional financial institutions are discussed.
Startups in developing economies are addressing local problems through creative technologies and solutions. For large global companies, the prospect of working with such startups is appealing — and complicated. THE LEADING QUESTION: How can Western multinationals best work with startups in emerging markets? FINDINGS - Emerging markets such as China and India are characterized by increasing interest in entrepreneurship. - Western multinationals can help compensate for voids in the entrepreneurial ecosystem. - Working with local groups can help overcome the limitations of outsider status.
A recent Financial Times survey indicates that the financial services sector (in mainstream terms) is concerned about the disruptive potential of several digital-based technologies as applied to financial services, such as blockchain, big data and robo-advisers. Not to mention that we have already of late witnessed the emergence of high frequency algorithmic trading, novel consumer payment devices, online crowdfunding and peer-to-peer lending. Financial technology seems to be ushering in an order for upheaval, and is defined by Price Waterhouse Coopers as a dynamic segment at the intersection of the financial services and technology sectors where technology-focused start-ups and new market entrants innovate the products and services currently provided by the traditional financial services industry’. Nevertheless, financial technology is not a new concept and should be understood in broader terms. From the development of stock exchanges to facilitate corporate fund-raising to the development of wholesale money markets where short-term financial institution borrowing is backed by collateral (rehypothecation or repo markets, regarded as a type of shadow banking), financial technology is financial innovation intertwined with legal technology to change the way finance is conducted, oftentimes as a form of disruptive innovation. "Disruptive innovation" in Bower and Christensen's framework, refers to the creation of new markets and value networks that eventually disrupt existing markets and value networks, displacing established market leaders and alliances. Financial technology is a history of many culminating moments of disruption, while the current wave of 'fintech' specifically focuses on the embedment of digital technology into financial technology, different aspects of which have, to larger or smaller extents, also required innovation in legal technology. By contextualising 'fintech' against the broader historical backdrop in financial technology generally, this article intends to offer high-level perspectives in order to frame the understanding of the disruptive potential of fintech, and the implications for financial regulation. Using the framework of disruptive innovation in a widely understood sense, the article focuses on potential revolutions of products, intermediaries or markets and the regulatory implications of such. The article will not examine in detail particular areas of fintech, but will draw from a range of examples and their key features. The disruptive potential of fintech will be discussed to highlight market themes, changes in legal technology and regulatory implications, in respect of (a) financial product development, (b) financial intermediation interfaces and/or (c) financial markets and value networks. In this way, we can critically appreciate to what extent and in what respects fintech is disruptive, and whether its disruption is relevant to financial regulatory objectives. This overview article, which provides a framework for analysing the disruptive potential of fintech and regulatory implications, is envisaged to be an anchor for more specific pieces that examine particular areas of fintech in detail. The purpose of this article is not to delve into excessive detail regarding each area of fintech highlighted. We believe that such a high level perspective is necessary so as to introduce a more coherent blueprint for regulatory thinking and design, avoiding silo-based and narrowly reactive approaches to increasingly complex financial innovation that weaves in both digital and legal innovations.
Abstract Global economy, growing importance of innovations as well as wide use of technologies have changed the banking business worldwide. Financial technologies (FinTech) have become an integral part of banking, and nowadays banks have started to compete beyond financial services facing increasing competition from nonfinancial institutions providing, for example, payment services. Start-up service providers, search engines, and social networks have expanded their services “interfering” in the fields traditionally covered by banks. The rapid rise of FinTech has changed the business landscape in banking asking for more innovative solutions. These recent tendencies require the banks to increase investment in FinTech, rethink service distribution channels, especially the business-to-consumers models, increase further standardization of back-office functions, etc. Some members of the financial services industry see the boom in FinTech as a threat to traditional banking industry. Others believe that FinTech has become a challenge that can be turned into an opportunity as it provides more flexibility, better functionality in some areas, and aggregation of services. The aim of the paper is to analyze the recent trends in banking, identifying opportunities and risks of FinTech for banks. A timely integration of FinTech into business allows banks to get an advantage in growing competition. This paper provides an extensive analysis of recent trends in FinTech and banking, examining experience of leading European and US banks, as well as surveys conducted among members of the financial services industry in different countries. The authors have studied the development of the financial innovation and technology market, assessed the existing practices applied in the field of FinTech, identified the main risks related to development of FinTech and financial innovations the banks are exposed to on the micro- and macrolevel. The paper provides recommendations for regulators and banks to ensure reduction of risks associated with development of FinTech. Analysis of FinTech market has shown growing competition, including from nonfinancial institutions. The paper provides practical recommendations to commercial banks for strengthening the position in financial innovations and controlling the risks associated with introduction of financial innovations. Keywords: Banking innovations, FinTech, risks Keywords: G21, M15 Publisher: Emerald Group Publishing Limited Citation: Inna Romānova, Marina Kudinska , (2016), Banking and Fintech: A Challenge or Opportunity?, in Simon Grima , Frank Bezzina , Inna Romānova, Ramona Rupeika-Apoga (ed.) Contemporary Issues in Finance: Current Challenges from Across Europe (Contemporary Studies in Economic and Financial Analysis, Volume 98) Emerald Group Publishing Limited, pp.21 The full-text of the paper is also available:
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