SUBMITTED Can be explained as FinTechs: “Small companies






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FinTech, abbreviation of Financial Technology, is the use of
technology to provide financial services. FinTech has experienced remarkable
growth in recent years worldwide. According to a report, FinTechs are
categorized as follows:

“Traditional FinTechs work with legacy financial
service providers as technology providers using traditional pricing models.

Emergent FinTechs are another type of FinTech that partner
with a bank through modern models of engagement or simply move financial

Financial services are important, not only
for a country’s economic and social development, but also for poverty
reduction. 85% population does not have access to formal financial services,
financial involvement is an important issue in Pakistan. The high cost of bank
infrastructure prevents the distribution of financial services out of a small
part of the population. However, there is a passionate ability to reach digital
financial services and overcome the scale of scale. FinTechs only do not
provide resources to digitally add digital as 92% of senior executives and 80%
agreeable to middle managers in 2016, but also play an important role in
emerging markets.

Can be explained as FinTechs: “Small
companies and initially start-up activities by refrigerating the value of
financial services through digital inventions.” Inevitable, FinTechs
expects cash exposure, digitally paying payments and contributing to the
economy of the economy. This study of commission by Carnage Pakistan prepares a
framework for environmental development and prepares a road map for investment
in Pakistan, in which financial vertical components or components (such as
payment, debt, Insurance, etc.

An in-depth analysis of the current state of the FinTech
ecosystem, financial services in Pakistan, potential investment areas and
recommendations for the growth of the FinTech ecosystem in Pakistan as well as
the reduction of risks associated with investments in FinTech startups range
from this study. A comprehensive document was therefore prepared, based on
primary market studies involving individual interviews with 57 senior
executives and 3,000 surveys of FinTech professionals, commercial and
microfinance banks, insurance companies, startups, incubators and mobile
financial service providers. and technology. and telecommunications companies.
The research has led to a better understanding of the challenges faced by
participants in the local FinTech ecosystem in harnessing the power of FinTech.

Secondary research focuses on global
precedence regarding the dynamics of interaction between components of mature
FinTech ecosystems, and a review of demography and financial services in
Pakistan. Applying our knowledge base and expertise to research helps us to
predict the growth model of a FinTech ecosystem in Pakistan, as well as an
investment framework for FinTech’s future-oriented industries.

Here is a brief overview of the study for
easy reference:

Global Trends on Regulatory and
Policy Support for FinTechs

Globally, two types of regulatory mindset
are observed with FinTech. The one that prevails in mature hubs allows
financial institutions to venture into spaces unless explicitly restricted by
regulators such as FCA-UK, MAS Singapore and ASIC Australia, while the other
authorizes activities in areas specifically approved by the regulator.

The regulatory approach promoting FinTechs
involves working to strike the right balance between control and
experimentation for FinTechs to innovate and evolve through the creation of
Innovation Schemes that identify potential areas of focus, layout funds for
support and dedicated FinTech wings within a regulatory body. observation,
consultation, regulation and authorization of FinTech companies and companies.

By using methods of interaction with
industry, regulators gather feedback on whether regulation impedes innovation
or nurtures it.

They adopt a Sandbox environment to test
products by limiting exposure and thereby reducing the risks associated with
exposure. It allows FinTechs to make their platform available to a limited
number of consumers and test their ideas within predefined parameters.

The focus is on promoting the use of
technology to simplify compliance, commonly known as RegTech.

FinTech is promoted by politics and
regulation. The UK government has announced tax efficiency gains for P2P
lenders and introduced requirements for traditional banks to refer small
businesses to alternative financing providers if they are unable to lend to

Current Regulatory Environment in Pakistan

31% of respondents in the Pakistan FinTech
survey believe that there is regulatory uncertainty regarding financial
technology products and services in Pakistan.

Vertical payment has the most advanced set
of regulations with the Payment Service Operator or Payment Service Provider
licenses, but the $ 200 million high capital requirement is a barrier to entry
for small FinTechs .

Financial inclusion is a key goal of the
State Bank of Pakistan, which has released the branchless banking regulation
for the launch of mobile wallet services and the Asaan Account regulation that
allows banks to open lower value accounts with a minimum of diligence.

Creating a FinTech Friendly
Regulatory Environment

The necessary infrastructure for DFS was
created in Pakistan due to progressive regulations such as remote banking and
verified SIM cards. The creation of FinTechs is the next natural step. To
create an ecosystem that is conducive to financial technology, regulators in
Pakistan can create a balance between FinTech monitoring and the flexibility to
innovate. This can be done by creating dedicated FinTech wings with mechanisms
such as FinTech consulting services and regulatory sandboxes to reduce the cost
and compliance time for FinTechs. At the same time, regulators must also
collaborate with industry participants, both licensees and FinTech, to create
favorable regulations for FinTech.

The widespread compliance scenario in
Pakistan and the emerging FinTech ecosystem suggests that FinTechs working at
the top of the existing financial institutions acting as platforms are more
likely to perform best at this stage.

Large and small commercial and microfinance
banks, insurers and PSO and PSP license holders can all serve as a platform for
FinTechs to reduce FinTech’s regulatory burden while providing them with a
mature compliance environment and reducing the burden of compliance. regulator

FinTech Opportunity and Financial Institutions

Banks face many obstacles in realizing FinTech’s
potential, including the lack of relevant human resources to take advantage of
technology opportunities, an organizational structure with product silos, and a
narrow focus on key performance indicators that limit business opportunities.
future opportunities.

o   On the FinTech side, the most commonly cited challenges include the
unfavorable attitude of incumbents to partnerships, a difficult regulatory
environment, the difficulty of changing consumer behavior and the lack of
funding at an early stage.

o   Financial institutions need to understand the collaboration potential of
FinTech and develop their ability to work with them. Overall, financial
institutions are beginning to understand the potential for collaboration with
FinTechs to meet customer demands in an increasingly digital and regulated
landscape. In exchange, FinTechs can provide financial institutions with
differentiated and value-added products.

o   For innovation to take place, the process must be abandoned by banks
that are limited by their organizational design of product silos and inherited
thinking. Banks need to tap into the inner circle of their customers and really
engage them by building products on the Social, Mobile, Analytics and Cloud
model – the SMAC stack. The same applies to other holders. Therefore, the
recommended course of action for financial institutions is to take the position
of platforms that collaborate with FinTechs by opening APIs and ensuring
regulatory compliance.

State of the FinTech
Ecosystem in Pakistan

A FinTech ecosystem consists of regulatory
bodies, financial institutions, a start-up environment, FinTech startups, and
supporting entities such as infrastructure and identity providers, government
funding, and policy support.

Mature hubs are characterized by
FinTech-friendly regulations and policies, dedicated incubators and
accelerators, and related activities beyond the major payments and lending
sectors. In addition, a high volume of venture capital operations throughout
the sector and active participation of the incumbents are mandatory.

Pakistan has a nascent finTech ecosystem
characterized by gaps in several areas of information that impede all
participants and hierarchies, an emerging start-up environment with little
FinTech, investments generated solely by local investors, and a lack of
platform platforms. collaboration for FinTechs, investors and incumbents.

At present, the most fundamental information gap
is a lack of understanding of FinTechs and the value they offer to emerging
markets. The first step is the creation of FinTech knowledge through workshops,
conferences, seminars and the creation and publication of educational content
for the dissemination of information to FinTech.

In order for FinTech to be born and prosper, the
FinTech ecosystem in Pakistan must evolve from a nascent state to a mature one.

Developing the FinTech Ecosystem
in Pakistan

In order to minimize risk in FinTech investments, the
emerging FinTech ecosystem must be developed to support FinTech throughout
their life cycle, ie launch, launch, commercialization and exit.

This support can be extended by creating a ‘FinTech
Connector’ that includes idea generation, selection and incubation setup, test
environment (sandbox) and investment.

These functions are complemented by FinTech’s education,
collaboration and consulting functions. The FinTech Ecosystem Growth Model must
be designed to take advantage of the growth of incubators, investors and
FinTech in Pakistan.

tables below show the FinTech firms/ startups operating currently in Pakistan:

As we can see that the number of firms/ startups mentioned
above are just a handful and give us an impression that the FinTech industry
and infrastructure in Pakistan is not fully developed and suited for growth of
FinTech companies in the country. However, another positive impression is
formed when we see a well-recognized success by the joint venture of Tameer
Bank and Telenor Pakistan for creating “Easy Paisa”, a globally recognized
payment service started and grown in Pakistan.

Overall, the lack of FinTech success in Pakistan is because
the country is primarily a cash-based economy. There is significant lack of
awareness of the importance of FinTech in Pakistan. 72% of organizations are
not aware of the FinTech(s) present who are looking to collaborate or
partner-up. In order for economy to transform into a cashless society and
increase financial inclusion, new technologies, government programs and
customer preferences are the main factors facilitating this change.

Gaps in Pakistan’s FinTech Market:

Globally, FinTech sector is seeing heavy influx of
investment every year while Pakistan is still lacking behind. Karandaaz
Pakistan, a company that is promoting financial inclusion through technology
enabled solutions, and FinSurgent, a FinTech start-up that focuses on
exploiting emerging technologies in existing business models, conducted a
survey to identify opportunities and the shortcomings of this eco-system in
Pakistan. Some of the gaps identified by the research are mentioned below:

Pakistan has financial inclusion ratio of 15%,
compared with an average of 33% for lower-middle-income countries

The banking sector accounts for 80% of financial
services but serves only 15% of the population

1,500 IT companies registered in Pakistan and
technology services exported to other countries close to about $ 1.6 billion in
total sales, but quality is lesser as compared to service providers from other

Pakistan has low access to ICTs due to lower
per-capita bandwidth and high entry barrier due to prices for fixed broadband

Pakistan ranks 138th among the 189 countries in
the ease of doing business and has an investment / GDP ratio of 15% compared to
a ratio of 32% of other emerging countries

12 players in Pakistan have branchless banking
licenses, none of which have inter-operability between their portfolios or
wallet products.

Pakistan ranks in the top ten markets for
remittances whose solutions are currently provided by the commercial banks.

The distribution infrastructure for the
Microfinance industry has a huge improvement potential and can be developed
through various profitable ventures.

In Pakistan, only 29% of women have smartphones,
compared to 77% of men.


Pakistan’s FinTech industry faces many obstacles, including
lack of support from a large organization, an unfavorable regulatory
environment, and so on. A list of challenges identified through an
investigation are:

The non-receptive attitudes of the big players.

Unfavorable and complicated regulations in
addition to deficient startup financing.

Lack of data security.

Difficulties with licensing and access to

Under-developed mechanism for protecting
intellectual property.

Lack of mentorship.

Lack of growth phase financing for expansion.

Hard to acquire customers

Getting good talent is hard

10.  Less
market development Opportunities

With the 5th youngest population in the world and a growing
use of the Internet and smartphones, the Pakistani market is showing the
potential of adapting to new financial technologies. Research Highlights
Pakistan’s Favorable Factors for FinTech Growth:

With Mobile penetration of 69%, Pakistan is fast becoming an
economy based on mobile phone technology the adoption of smartphones should
increase from 16.6% in 2016 to 51% by 2020

Pakistan had only 7.33 ATMs per 100,000 people in 2014.
However, it can move to the next generation of digital payment infrastructure
and bypass the physical payment infrastructure.

With 132 million biometrically verified SIM cards, the
issuance of portfolios is possible thanks to the click of a button. Insurance
companies want to reach customers and make sales via online channels as well as
collect premium payments in digital format

The e-tail of Pakistan is expected to reach 746 million
euros in 2019 1.9 billion by 2024 – a penetration of 2.3% Pakistan is
considered almost urban at 73% or urbanized; these areas are physically and
electronically connected and promise a high adoption rate of FinTech


The FinTech industry has huge growth potential in Pakistan.
The researchers recommend:

To Provide FinTech coaching required by the

Build FinTech Outreach Programs and
Collaboration Platforms, so synergies within the stake holders can be created.

Eliminate regulatory ambiguity so that freedom
of operation can lower the entry barriers.

Need a FinTech consortium which would create a
digitally activated infra-structure suitable to breed the FinTech initiatives.

Need Neutral FinTech Incubators so that new startups
can be launched in the market rather than those by the big and established
banks or other financial institutions.

Digital payment infrastructure, not cash-based
infrastructure which will lead the transition to the new era of financial
products and services

Interoperability of branchless banking will give
new impetus to moving money to digital platforms to boost the growth of

Pakistan, the sixth largest population in the world, offers
FinTech an excellent opportunity to grow and operate and contribute to the
country’s economic growth and GDP. It is the need of the time not only to
invest and support FinTech coming to the country, but also to create an
environment conducive to the growth of FinTechs in Pakistan.


The FinTech Ecosystem of Pakistan

FinTech in Pakistan: Challenges, Opportunities and Recommendations

The report “Seeding Innovation” by Karandaaz


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