Fintech is spreading its wings in Pakistan but challenges remain, coupled with enormous potential.

Banks and financial institutions are increasingly relying on fintech for better customer service delivery and speedy expansion of branchless banking.

The state-run National Bank of Pakistan renewed, late last year, its contract with Virtual World (of TRG) for three years to expand the bank’s online customer care services throughout the country.

Earlier, MCB Islamic Bank Limited (MIB), a wholly owned subsidiary of MCB Bank, and Inov8, a well-known fintech company, signed a deal that allowed MIB to use Inov8’s next generation FalconPay Ecosystem covering all mobile payments and e-commerce, retail payments, G2P and P2G payments, and instant Asaan Account and card issuance at customers’ doorstep.

In mid-April this year, TPS, a leading payment solutions company, signed an agreement with the Bank of Punjab to upgrade the bank’s existing switch and middleware technology to IRIS, an omni-channel payment platform. This will help BOP provide “the best-in-class and cutting-edge payment services to its customers,” officials claim.

And on April 26, The First MicroFinanceBank, set up in 2002, joined hands with TPS to upgrade its ATM middleware and CMS technology. “The agreement will see The First MicroFinanceBank issue and acquire EMV Compliant Debit Cards, meeting both the changing regulatory requirements and evolving business needs,” the bank announcement said.

Despite challenges, the rewards for fintech companies in a transforming economy like ours are so huge that initiatives will keep coming up and will find ways for survival

Industry sources say despite various limitations, existing fintech companies are doing well and fintech start-ups growing. Finja, a fintech startup last year even attracted $1m foreign investment as part of $1.5m bridge financing. Finja is regarded as one of the five emerging fintech companies. The other four are: Oneload, Payload, Batwa and Red Buffer.

Together with traditional fintech companies Monnet, Innov8, TPS, Autosoft and Abacus, they facilitate payments handling, microfinance distribution and meet the requirements of branchless banking. Red Buffer, an Islamabad-based fintech, alone works on big data and analytics.

Officials of fintech companies say banks are increasingly collaborating with them but non-bank financial institutions (NBFIs) are lagging behind. “We try to explain to them what mobile apps are to the smart phones, fintech is to all financial service providers. But the smaller ones among them still hesitate (in collaborating with us)”, a software engineer at Payload remarked.

However, fintech prospects in Pakistan are enormous, as the use of smart phones is growing rapidly and talented young men and women are being trained in the ICT discipline, industry sources say. A Hong Kong-based fintech Octo3 has very recently announced shifting its R&D facility to Pakistan and its executives have cited Pakistan’s strong and qualitative IT workforce as an encouraging factor.

“In a recent employability test in India, less than 5pc of their software engineering finalists were found able to be employed in computer programming. But if the same test is conducted in Pakistan, the result will be far better,” speculates an official of the Pakistan Software Houses Association. “The fintech industry here is facing many other challenges but dearth of talent is not an issue at all.”

According to a 2016 survey of Karandaaz, a fintech financing institutions, lack of ability ‘to support long product development process’ was cited as the fourth challenge to fintech growth. The first three were (1) consumer behaviour (2) lack of interest among large organisations to partner or collaborate with or invest in small fintech firms and (3) balancing regulatory compliance with a good solution (of the problems requiring fintech help).

Despite these and other challenges, listed in Karandaaz Survey, including threat to intellectual property, access to finance, complex regulations and regulatory uncertainty, the rewards of fintech in a transforming economy like ours are so huge that initiatives will keep coming up and will find ways for survival.

Take the example of NEST. Although not a fintech, but once this idea materialises, it has the potential to change the face of our housing finance altogether. NEST is an upcoming crowd-financial digital platform, a brainchild of LUMS alumnus Arazi.pk. “Instead of just helping people find properties online and transact deals, it will enable them to pool money in very small sums, in multiples of Rs100,000 and jointly purchase properties,” an official of Arazi.pk explained to this writer.

Executives of fintech companies say the government’s role in promoting fintech is not very encouraging. In addition to lack of supportive polices, the lethargic attitude shown by the government in switching over to e-government is number one impediment, they say.

Published in Dawn, The Business and Finance Weekly, May 1st, 2017