November 02 2021

Pakistan's fintech funding is surging

What is the largest potential fintech market in Asia and perhaps the world that flies under the radar? Many observers would be surprised to learn that the answer is Pakistan. With a population of 221 million, Pakistan is the fifth most populous country in the world. The majority of the population – 70% – is unbanked, including 100 million adults.

With its large unbanked population, relatively weak incumbents and growing smartphone penetration (68% of the population owns a handset, and there 58 million mobile wallet accounts, though about half are inactive, according to Karandaaz Pakistan), Pakistan is in many ways primed for digital transformation in the financial services sector. However, historically, the South Asian nation has relied on cash for transactions. Fintech talent is also somewhat limited, and there is not yet a large VC network in the country to provide funding. These factors have limited the growth of its fintech ecosystem.  

Yet like in many Asian countries, the pandemic accelerated digital transformation in Pakistan. Big ticket investments are becoming increasingly common. In 2020, for instance, Pakistan fintech investments reached a record US$48 million, according to Invest2Innovate. 

Pakistan is on track to beat that record this year. Fintechs in the country raised US$19.3 million in the first quarter alone. Some key deals include KTrade, which enables investors to buy and sell equities on the Pakistan Stock Exchange, raising US$4.5 million, the US$2.1 million in seed funding raised by Abhi, which provides people with a tool to get their salaries in advance of payday, and Tag, a one-year-old startup that offers banking and financial services to users in Pakistan, raising over US$12 million and bringing its total raised to date to US$17.5 million 

The Tag deal is now the largest-ever seed financing round in Pakistan. Investors in the round include Liberty City Ventures, Canaan Partners, Addition, Mantis and Banana Capital. It is the first time many of these firms have invested in a startup in Pakistan. According to TechCrunch, the funding round values Tag at US$100 million, making it the South Asian country’s most valuable fintech startup. 

Looking at how Tag presents itself, we can see why it has attracted the attention of heavyweight international investors. “We are trying to become both Revolut and Paytm in Pakistan,” Tag founder and chief executive Talal Gondal told TechCrunch in September. Talk about swinging for the fences. 

Tag partners with both the private and public sector to offer their employees banking services, such as receiving their salaries on the Tag account and partners with Visa on both virtual and physical cards. It also others users to pay each other or their utility bills online. The company plans to expand to offer a much wider set of services to users in Pakistan, Gondal said.