In the past decade, the global financial landscape has undergone a profound transformation, driven largely by technological advancements. This wave of disruption, popularly termed “FintechMania,” has brought financial technology (fintech) into the spotlight as an industry that challenges the traditional financial services model. Countries across the world, from Kenya to China and India, have harnessed fintech to democratize access to financial services, foster economic growth, and streamline everyday transactions. In this context, Pakistan is rapidly emerging as a key player in this fintech revolution, presenting both opportunities and challenges that merit attention.
Pakistan’s fintech journey began in the early 2000s, with the launch of mobile-based financial services aimed at increasing financial inclusion. The country has one of the lowest banking penetration rates globally, with only about 21% of the adult population having access to formal financial services. However, a significant portion of Pakistan’s population, approximately 68%, owns mobile phones, which presents a unique opportunity for fintech to bring unbanked and underbanked individuals into the financial fold.
One of the pioneering fintech solutions in Pakistan was Easypaisa, launched by Telenor in partnership with Tameer Microfinance Bank in 2009. Easypaisa revolutionized how financial transactions were conducted, allowing users to send and receive money, pay utility bills, and access banking services without having a traditional bank account. Following closely behind was JazzCash, launched by Mobilink (now Jazz) in 2012, offering similar services. Together, these two mobile wallets account for the lion’s share of Pakistan’s branchless banking users. As of 2020, Easypaisa and JazzCash served approximately 70% of the country’s mobile wallet market.
However, while these services made significant strides in increasing financial inclusion, much of the potential remains untapped. Nearly half of Pakistan’s 58 million mobile wallet accounts are inactive. Challenges such as low digital literacy, limited trust in financial institutions, and infrastructural gaps have impeded the widespread adoption of fintech solutions, particularly in rural areas.
The advent of COVID-19 has further catalyzed fintech adoption in Pakistan. With lockdowns and social distancing measures in place, consumers were forced to turn to digital platforms for their financial needs. This trend has accelerated digital payment adoption and increased the demand for digital financial services.
The rise of fintech in Pakistan has led to a seismic shift in how traditional banks operate. For decades, the banking sector in Pakistan remained conservative and resistant to change. However, fintech companies have disrupted this sector by introducing innovative solutions that have challenged banks to rethink their service delivery models. These companies have introduced new digital products that cater to an increasingly tech-savvy customer base that values convenience, speed, and accessibility.
Traditional banks have responded to the fintech challenge by collaborating with fintech startups, investing in their own digital platforms, or launching mobile apps to retain their customer base. For instance, Bank Alfalah introduced its mobile banking app, Alfa, allowing customers to access their accounts, transfer funds, and make payments with a few taps on their smartphones. Furthermore, the State Bank of Pakistan has introduced initiatives such as the Digital Onboarding System that allows customers to open bank accounts remotely via smartphones, a crucial step in promoting digital banking and financial inclusion.
Despite these developments, traditional banks in Pakistan have lagged behind fintech in terms of innovation and customer reach. The heavy reliance on branch-based banking has proved inadequate in meeting the demands of today’s customers, particularly those in rural areas who have limited access to physical bank branches. As fintech companies continue to grow and innovate, traditional banks will need to further embrace digital transformation to remain competitive.
While Pakistan’s fintech industry is evolving, it remains in its nascent stages compared to other global fintech hubs. In countries like Kenya, China, and India, fintech has become deeply entrenched in daily life, contributing significantly to economic growth and financial inclusion.
In Kenya, for example, the mobile payment system M-Pesa has become synonymous with digital financial services. Launched in 2007, M-Pesa allows users to deposit, withdraw, transfer money, and pay for goods and services using their mobile phones. By 2021, M-Pesa had over 40 million active users, with a transaction volume that accounted for a substantial portion of Kenya’s GDP. M-Pesa’s success lies in its ability to cater to both rural and urban populations, offering a secure and accessible alternative to traditional banking.
In China, fintech has been driven by companies like Alibaba’s Ant Group and Tencent’s WeChat Pay, which have revolutionized digital payments, lending, and wealth management. China’s fintech sector is one of the largest in the world, with Ant Group’s Alipay boasting over 1 billion active users. The country’s regulatory framework has also played a key role in promoting fintech innovation while ensuring consumer protection. However, the rapid growth of fintech in China has raised concerns over financial stability, prompting regulators to tighten oversight.
Similarly, India has witnessed a fintech boom, particularly after the government’s push for digital payments through initiatives such as Unified Payments Interface (UPI). Launched in 2016, UPI has become a major force in India’s fintech ecosystem, facilitating seamless peer-to-peer and merchant payments. By 2023, UPI had processed over 74 billion transactions, demonstrating its widespread acceptance. India’s success in fintech adoption can be attributed to strong regulatory support, a focus on financial inclusion, and a rapidly growing smartphone user base.
When compared to these global fintech giants, Pakistan still has a long way to go. However, the country’s young and tech-savvy population, coupled with government support and increasing investments, make it ripe for fintech growth. The launch of the RAAST payment system by the State Bank of Pakistan in 2021 is a step in the right direction, as it aims to provide instant, low-cost digital payments to individuals and businesses alike.
The future of fintech in Pakistan holds great promise, but several challenges remain. Regulatory hurdles, low digital literacy, and a lack of trust in digital financial services have hindered the widespread adoption of fintech. However, efforts by the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) to create a more conducive regulatory environment for fintechs have been encouraging. The establishment of regulatory sandboxes and flexible policies for fintech companies have opened the door for innovation and investment in the sector.
Moreover, the global shift toward digital financial services, accelerated by the COVID-19 pandemic, has created a favorable environment for fintech growth. With a growing number of international investors eyeing the Pakistani fintech market, the influx of capital and expertise will be key in shaping the country’s fintech future.
Additionally, fintech has the potential to address the significant gender gap in financial inclusion in Pakistan. Women in the country are less likely to have access to formal financial services compared to men, and fintech could play a crucial role in bridging this gap. By leveraging mobile technology and digital platforms, fintech companies can offer women more control over their finances, thereby contributing to gender equality and economic empowerment.
FintechMania is more than just a passing trend in Pakistan it is a revolution that is reshaping the banking sector and unlocking new opportunities for financial inclusion, economic growth, and innovation. While Pakistan’s fintech industry is still in its early stages compared to countries like Kenya, China, and India, it holds immense potential. With continued support from regulators, increased investments, and the growing adoption of digital technology, fintech has the power to transform Pakistan’s financial landscape and bring millions of unbanked individuals into the formal financial system. The future of Pakistan’s fintech sector is bright, and its success will play a pivotal role in driving the country toward a more inclusive and prosperous future.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Global Dynamic or its editorial team.