How FinTech Will Change The Way You Bank?
FinTech is the new buzzword in Pakistan nowadays. Whether you realize it or not, FinTech is a large part of your financial activities. Whether you are using your mobile banking app or transferring money through JazzCash or easy EasyPaisa, this technology has revolutionized traditional financial services.
Even though the FinTech landscape is still nascent in Pakistan, as the country has received less attention from FinTech investors as compared to other Asian markets, the world’s third-largest unbanked population is seeing a rise in FinTech startups, especially after COVID-19. Startups like NayaPay, SadaPay, Finja, and Tez are pushing the economy towards this ecosystem.
What is Fintech?
A portmanteau of financial technology, the term refers to any solution that digitizes your financial services.
It is the segment of the industry that relates to the application of technological solutions, mainly focused on improving financial services. It refers to any mobile application or tool that becomes your digital or mobile wallet. By eliminating the human factor from the equation, the algorithms can streamline financially complex tasks like taking a loan and investing your money.
Today, consumers and business owners expect a seamless digital experience when it comes to handling their funds and payments. That is why FinTech startups have a massive client pool consisting of larger companies and established firms, as this technological solution expedites the process of financial services that normally take your traditional banks days or weeks.
It also helps these startups transform their B2C model into a B2-B model and gives them access to a much larger customer pool.
FinTech Ecosystem in Pakistan
Asia alone has seen the emergence of 6,268 FinTech startups in November alone. The adoption rate of FinTech mostly depends on internet usage. And for a country with 87.95% teledensity, Pakistan is ideally positioned to witness this digital transformation. Despite this massive opportunity for FinTech, the market is largely untapped.
As the country has fallen short of implementing measures to move from a cash-based economy, SBP has realized that FinTech can help the country achieve tangible results in financial inclusion. There are plenty of FinTech mobilizing to help customers to bypass the traditional bank process when opening bank accounts and making financial transactions.
In 2021, SBP green-lighted various FinTech startups, with Finja becoming the first FinTech to receive EMI license. As they seek to capture the millions of unbanked citizens, NayaPay and SadaPay raised $13 million and $10.7 million in 2022.
Subsequently, in Jan, SBP announced a licensing and regulatory framework for digital banks, a measure to attract players with a strong value proposition and technical expertise.
The FinTech Ecosystem in Pakistan
How Pakistan can Benefit from FinTech
Contactless payments supersede the point-of-sale (POS) terminals that can often result in failed transactions. The rudimentary technology gets in a way of small merchants earning livelihoods and losing their potential customers. The widespread digital advancements are revolutionizing the way merchants are doing business. These digital wallets also give flexible options to customers to make payments using their preferred methods.
The adoption rate of FinTech mostly depends on internet usage. With a high proportion of mobile usage, the residents can have easy access to financial services without having a face-to-face meeting with their bank representatives.
In Pakistan, the FinTech landscape comprises making cashless payments. With proper evolution, FinTech can also give access to SMEs to formal credit lines. Even though SMEs play a vital role in Pakistan’s economy, they are less likely to obtain a loan from the bank. When applying for loans, the companies should be able to check all the boxes regarding credit score, liquidity, and tax returns. As SMEs are unable to prove their creditworthiness, they face rejections from the bank. SMEs are heavily dependent on bank financing, and especially in the aftermath of global crises, the resilient policies of banks have created a credit gap for these SMEs. These enterprises depend on informal credit lines like their friends, relatives, and other semi-formal processes to launch and run their companies. Partly because established usually prefer to deploy loans to large corporations. The informal credit lines also stem from the complicated, manual and time-consuming process of loan deployment. Moreover, the lack of trust in the financial institutions, citizens still prefer informal finance.
As FinTech industries, leveraging data analytics and AI, continues to grow in Pakistan, it will disrupt the money lending processes to small business and enterprises. The AI helps the FinTech to make quick data-driven decisions that allow these SMEs to obtain affordable loans and financing.
FinTech is the disrupting force that is bringing the tech-focused alternative to Pakistan that not only gives its users financial tools to manage their finances but also empowers the entrepreneurs and the startups to scale their businesses. By challenging the monopoly of large banks, FinTech is permanently transforming the financial sector. It is a vital and welcoming step in Pakistan.