February 06 2023

Pakistan’s fintech industry continues its brisk growth

Written by Kapronasia

With the world’s third-largest unbanked population, Pakistan is one of the last major nascent markets for fintech. In the past few years, fintech investment has picked up in the country thanks to rising investor interest, supportive government policies and a need for effective digital financial services solutions. Though the deal pipeline started to taper off towards the end of 2022, the long-term outlook remains bright.

In the first three quarters of 2022, Pakistan had 24 fintech deals that raised US$82.4 million, a 14% fall from a year earlier. This was to be expected given the overall tech slump in 2022, global economic uncertainty, stubbornly high inflation and rising interest rates.

It was still a strong showing. The largest deal in 2022 was the US$17.6 million raised by Dbank in its seed round led by Kleiner Perkins, Sequoia Capital and Surge. Dbank aims to take on the country’s informal credit system known for exploiting borrowers with unpredictable, usually high interest rates.

Another key deal was the US$11 million raised by OneLoad, which targets micro-retailers, OneLoad operates through its 40,000 agents and did about US$100 million in transactions in 2021. The company wants to increase daily transaction to one million a day from the current level of up to 400,000.

Meanwhile, payments firm SadaPay raised $US10.7 million in a seed-extension round after the State Bank of Pakistan allowed it to offer financial services through its smartphone app. As a result of the central bank’s decision, SadaPay will be able to add millions of new users. SadaPay is projected to be the fastest-growing mobile wallet in the world in the five years to 2025, according to research by the London-based fintech Boku.

Digital banks, which have failed to gain traction in many of Asia’s developed economies, have a real opportunity in Pakistan, where half of the population of 220 million lacks a bank account. No wonder that the country’s financial regulators are wasting no time getting online lenders up and running. In January 2022, SBP introduced a licensing and regulatory framework for digital banks and said it would issue up to five digital bank licenses.

Last month, the SBP announced five winners. There are some interesting firms among the winners – to say the least. They include Easy Paisa DB, a joint venture of Telenor Pakistan and Alipay; Hugo Bank, consisting of the Getz Group, Atlas Consolidated Mining & Development (a Philippine company), and M&P Pakistan, the country’s largest distribution house;KT Bank, which is made up of Nigeria-based Kuda Technologies, Pakistan’s Fatima Fertilizer, and the Pakistani education company City School; Mashreq Bank, a subsidiary of the UAE-based lender; and Raqami, which is backed by the Kuwait Investment Authority.

The next steps for the winners of the digital banking licenses will be to incorporate a public limited company with the Securities and Exchange Commission of Pakistan, gain an in-principle approval from SBP to demonstrate operational readiness, and finally, undertake the pilot phase.

Upon completion of the pilot phase, pending approval from the SBP, they will be able to commercially launch their operations.