Home Resilience Pakistan’s fintech sector: momentum building towards a ‘jump-start’

Pakistan’s fintech sector: momentum building towards a ‘jump-start’

Karachi, Pakistan: the future holds promise for Pakistan's fintech ecosystem, according to a study by Karandaaz | Credit: usama tayyab; Unsplash

Regulatory support for fintechs in Pakistan has ‘considerably’ improved in recent years with ‘increased interest’ from the State Bank of Pakistan (SBP) and the Securities & Exchange Commission of Pakistan (SECP), an analysis of the country’s fintech sector has found.

The ‘Fintech Ecosystem of Pakistan Landscape Study’ has been published by Karandaaz, a non-profit company that receives funding from the UK’s Foreign, Commonwealth and Development Office (FCDO) and US-headquartered philanthropic organisation the Bill & Melinda Gates Foundation.

It sets out how the country’s fintech sector remains ‘nascent’ but that ‘there seems to be a strong push towards jump-starting the ecosystem’.

Home to 100 million adults without an account at a financial institution from a total population exceeding 220 million, Pakistan has the world’s third largest unbanked population behind China and India according to the Global Findex database.

However, its fintech scene is seeing rapid growth. According to Invest2Innovate, a Pakistani accelerator firm, the first quarter of 2021 has been record-breaking for the country’s start-ups with $19.3m (£14m) raised so far.

But despite growing investment from beyond the country, Karandaaz’s study sets out how Pakistan’s fintech sector faces numerous challenges that hamper its growth.

Prevailing challenges to fintech

The cash-dominated nature of the country’s economy is among the challenges highlighted. Most salaries are paid with cash and cheques remain widely used to make government and commercial payments.

The study also points to a limited supply of talent, which is further limited by an ‘absence of training and a lack of an experimentation environment’. Furthermore, the authors outline a considerable trust deficit in the adoption and usage of digital technologies among the population. As of 2017, just 14.3 per cent of Pakistan’s adult population was considered financially literate.

There is also a mismatch between the services offered by start-ups and what citizens would most benefit from: specifically, financial inclusion. Out of the hundreds of start-ups founded over the past five years, only a handful are targeting financial services and only a small part of those is targeting the underserved population.

The financially included population is assumed to be concentrated in urban centres of Pakistan, where there is a higher density of mobile-phone and other telecoms use. Geographically remote areas have limited digital access and low mobile-phone ownership, which serve as impediments for financial inclusion.

Despite authorities’ support for fintech, the analysis also cites an ‘over-regulation’ of the market, determining that regulators have been taking a cautious approach towards innovation in financial services. The authors think this seems to be motivated by that fact that trust in the financial system and customer protection has proven to be more important than innovation for the underserved market.

‘Paving the way for disruption’

The future, however, holds promise with the study’s authors noting that some important trends have emerged during the pandemic. These include accelerated digital adoption and shifting consumer behaviours towards digital platforms – a trend witnessed worldwide.  

With new initiatives such as the establishment of private-sector fintech associations and an increased regulatory focus on the fintech sector, the study also contains optimism for Pakistan’s fintech ecosystem. Initiatives by the SBP, which is the country’s central bank, and the SECP are ‘paving the way for more fintechs to disrupt the ecosystem and provide innovative solutions’.

The report notes that the SBP has been increasingly active in enabling digital financial services, such as through waiving charges on Inter-Bank Funds Transfers (IBFT) and, more importantly, through the rollout of the instant payments system ‘RAAST’. The study concludes that RAAST, which is being deployed in phases and has been developed in collaboration with Karandaaz and the BMGF, specifically will most likely create a ‘considerable market opportunity’ for fintechs to capitalise on.

The SECP is credited for instituting an innovation office that has been successful in making key interventions to which fintechs have responded favourably. The SECP has also set up a regulatory sandbox to provide regulatory cover for business models that lie outside an explicit regulatory framework.

The 30-page report, undertaken by Karandaaz in partnership with UK-headquartered international development consultancy Oxford Policy Management, was published on 17 June.


‘Digitise payments to help women’s financial inclusion, report urges’ – our news story (9 March 2021) on a 10-point ‘action plan’ for governments and businesses to help economies and societies to recover from Covid-19

‘Pakistan launches instant payments system to aid digitalisation and disbursements’ – our news story (20 January 2021) on Pakistan launching an instant payments system as it looks to accelerate digitalisation and boost financial resilience

‘UNCDF financial inclusion initiative in Zambia welcomes latest start-ups – our news story (20 October 2020) on the United Nations Capital Development Fund (UNCDF) announcing the latest fintech start-ups to join an initiative aimed at boosting financial inclusion in Zambia