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We would like to recognize the contribution of the following people without

which this production would not have been possible:

 KRN Team
 Nabeel Malik (FinSurgents Advisory Board)
 Sandeep Dhar (FinSurgents Advisory Board)
 Muqeet Salam (FinSurgents Advisory Board)
 Yasir Ali (FinSurgents Advisory Board)
 Atiya Shah
 Mughees Tanvir Butt
 Sherazam Mazari (Sabre Group)
 Tahira Dosani (ACCION)
 William Cook ( Digital Payments Consultant)
 Aamir Atta (Pro-Pakistani)
 Obaid Saleem (GSMA Pakistan)
 Munib Myers (Ex-CEO Daraaz.pk) 3
 Purpose of the Study

• Provide a context of the Pakistani market in which the study is conducted 

• Predict the future of Digital Financial Services (DFS) in Pakistan
• Overview of the existing financial services landscape to spot opportunities for DFS
• Study FinTech hubs around the world to identify components of a developed FinTech
ecosystem 
• Provide overview of the salient aspects of regulatory environment in Pakistan
• Suggest the role of regulators in promoting FinTechs in Pakistan 
• Analyze the startup ecosystem and identify gaps to make recommendations for creating
necessary support for FinTechs 
• Outline the model for growth of a FinTech ecosystem in Pakistan and its components
• Identify FinTech verticals for investment by Karandaaz and the preferred characteristics
of a FinTech business 
• Devise a mechanism for Karandaaz for investing in FinTechs 
• Identify the risks and suggest mitigation strategies for the investments 

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 Methodology
Following four knowledge sources were referred to for this study:

1. Primary research data gathered from 57 interviews conducted with senior managers from
a range of industries relevant to the FinTech ecosystem – commercial and microfinance
banks, mobile financial service providers, insurance companies, incubators, accelerators,
FinTech technology services providers and consulting companies

2. Over 3000 surveys conducted from the above-mentioned industries

3. Insights gathered from in-depth research into global FinTech ecosystems and verticals, as
well as local market reality

4. Use of FinSurgents domain expertise and knowledge base

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6
 Introduction to FinTechs: Context & Background

We are entering an age where the sociological, financial and

technological changes over the last decade have led to the creation of
Emergent FinTechs.

Emergent FinTechs will not only unleash innovations resulting in a series

of large-scale behavioral changes but also re-invent the relationship
individuals have with their money. It seems that this change will be the
most pronounced in emerging markets.

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 Introduction to FinTechs: Insights
• Digitizing the financial services value chain in the Emerging Markets will enable
FinTechs to displace cash, digitize payments and document the economy

• Startups are expected to morph into FinTech hubs once they realize that
incumbents are open for collaboration

• Digital credit revolutionizes conventional lending and emerges as one of the most
compelling use cases for digital payments

• Large-scale behavioral transformation occurs when large segments of societal

needs are unmet

• Banks are not capable of disruptive innovation; they only make incremental
innovation

• What mobile apps are to smartphones, FinTechs will be to financial services 8

providers
 Market Context: A Peek Into Pakistan

Only 29% of women in Pakistan have smartphones, as compared to 77% of men

Insight: We expect FinTechs to empower women by architecting products and
propositions uniquely suited to their needs

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 Market Context: A Peek Into Pakistan
Pakistan’s
financial
services sector
and
communication
and identity
infrastructure
provide the
necessary
enablers and
drivers for
digitization and
further growth.

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 What are FinTechs?

Small companies and startups redefining the financial services value

chain through digitization

Traditional FinTechs collaborate with incumbent financial service

providers as their technology providers through traditional pricing
models

Emergent FinTechs are a new category of FinTechs that partner with

bank through new engagement models or simply displace financial
institutions

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 Market Research

Source: FinSurgents
Primary Research 12
 Global FinTech Trends
Global FinTech investment is
soaring

Payments and lending have the

highest number of FinTech
Unicorns

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 Future of Digital Financial Services in Pakistan
Pakistan is largely a cash-based
economy

Paper-based transactions in Pakistan

2010 PKR 80.68 million
2015 PKR 127 trillion

Adoption of DFS will be encouraged

by the FinTechs and other service
layers to achieve an inclusive
economy.

Collaboration between
incumbents and FinTechs is the
New Winning Strategy and the
Way Forward!

Source: FinSurgents research and analysis 14

15
 Market Readiness, Opportunities & Gaps

With the world’s 5th largest young population and an increasing

internet and smartphone penetration, Pakistani consumers are now
ready to adopt and consume digital services. The new use cases are
expected to be created by the FinTechs leveraging the incumbent
platforms. These FinTechs will engage not only the existing
customers but also invite the unbanked to utilize these services.

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 Market Readiness, Opportunities & Gaps Insights
• Digital payment infrastructure and not cash distribution infrastructure, will lead the transition
to the new age of financial products and services

• Branchless banking interoperability will provide further impetus to move from cash to digital

• M-wallets trump plastics (credit and debit cards) as the digital payment method which can
truly enhance customer experience and give a further boost to growing m-commerce

• As we transition to the first level of behavior change of digital payments, the new wave will be
digital credit

• Increased connectivity of devices has made it possible to make insurance more personalized

• Microfinance banks can now create virtual sales teams for the distribution of products. Sales
persons can become trained via an online digital presence

• Pakistanis are increasingly adopting smartphones which are a source of information, 17

communication, education and entertainment
 Market Readiness

5th largest young population offers new age financing opportunity

Gen Y adopts new technologies early, and financial products built over Social, Mobile,
Analytics and Cloud (SMAC) are fast and effortless to use

Low financial inclusion ratio indicates a wider canvas for DFS

Pakistan has a financial inclusion ratio of 15%, compared to an average of 33% for lowe
middle-income countries

Low contribution of financial services towards GDP with a narrow focus on top of the
proverbial pyramid only
The banking sector represents 80% of the financial services but serves only 15% of the
population

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 Market Readiness
Talent in IT sector is growing, but quality is lacking
1500 registered IT companies in Pakistan and technology services exported to other
countries equate to $1.6 billion of total sales

Improving ICT accessibility through 3G/4G

Pakistan has low ICT access due to low per capita bandwidth and high entry level
prices for fixed broadband plans

Consumer movement towards mobile and social platforms

Pakistan has 32 million active internet users and 16.2 million of these users access
social networking via a mobile device

Ease of doing business and Investment to GDP ratio are low. Improvement in financial
markets needed.
Pakistan ranks at 138 among 189 countries in the ease of doing business and has an
Investment to GDP ratio of 15% compared to a 32% ratio of other emerging countries
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 Digital Financial Services Insights

Opportunity to leapfrog to next generation payments for the world’s third largest cash-based
economy
Pakistan only had 7.33 ATMs per 100,000 people in 2014. However, it can leap to the next
generation of digital payments infrastructure and bypass the physical payments infrastructure

Real use cases for m-wallets can accelerate m-wallet uptake and enhance online banking
engagement
With 132 million biometrically verified SIMs, issuing wallets is possible through the click of a
button

Providing an impetus to the digitization of currency through branchless banking

interoperability
12 players in Pakistan have branchless banking licenses of which none has interoperability
among their wallets

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 Digital Financial Services Insights
Digital lending services can provide the missing link to formal lending
‘Digital credit’ will take place at three levels of lending- individual, small merchant and supply chain

Supply chain digitization can provide SME financing

SMEs account for 98% of all enterprises in the country and their workforce comprises of the
largest share of the rural and urban population

Insurance has a chance to become relevant and affordable

The insurance sector contributes to only 1% of the GDP. Pay-As-You-Go insurance can change
this.

Microfinance banks can be redeemed from the limitation of physical reach through physical
channels
Microfinance banks lack an extensive distribution system which can be overcome wallet based
payments and a virtual sales team

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 Digital Financial Services Insights

Digitizing international remittances, an opportunity for FinTech led value addition

Pakistan is one of the top 10 markets for remittances, but currently, these can only be collected
from bank branches

Formalizing savings by introducing need based products

36% adults save in Pakistan and only 4% save with a formal financial institution

Opportunity to disintermediate insurance and wealth management through digitization

Insurance companies want to reach customers and make sales via online channels as well as
collect premium payments digitally

Online commerce is creating demand for enabling digitized payments

Pakistan’s e-tail is expected to grow to EUR 746 million by 2019 EUR 1.9 billion by 2024 - a
2.3% penetration

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 Re-Defining the Lens

The urban and urbanizing: Potential for FinTech adoption

Pakistan is considered to be almost 73% urban or urbanizing; these areas are connected
physically and electronically and promise a high rate of FinTech adoption

Mobile technology facilitating digital adoption

With a mobile penetration of 69%, Pakistan is quickly becoming an economy reliant on mobile
phone technology

Online commerce growth will lead to a rise in digital payments

Pakistan’s e-tail has a projected growth of up to USD 600 million by 2017 and is forecast to reach
2.3% of the market by 2024

Smartphones are capturing an increasing share of the market, aided by the growth of mobile
internet services
Smartphone adoption is expected to rise from 16.6% in 2016 to 51% by 2020
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Re-Defining the Lens

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26
 Ecosystems: Railroads and Infrastructure Insights

This chapter looks at the global trends along with local market findings
in a comparative context to arrive at the recommendations for
developing a FinTech conducive environment in Pakistan.

The four key elements include:

Regulatory Measures,
Financial Institutions,
Startup Environment,
and FinTechs themselves.

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Components of a FinTech Ecosystem

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FinTech Ecosystems: Mature Hubs and Emerging/Nascent
Environments
A Mature Hub is differentiated by:
• Higher level of startup and investment activity
• Large volume of bets (number of deals) in almost every vertical
• Late stage funding deals for established verticals.

Emerging or Nascent FinTech environments:

• Do not have enough concentration of FinTech activity in one city to qualify it
as a hub.
• Activity is thinly spread across multiple cities.
• Key elements are either absent or underdeveloped.

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A Comparison of the Mature and Emerging/Nascent FinTech Ecosystems

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31
 Global trends aiding FinTechs
• Balancing innovation and regulation: Promoting
Regulations: FinTech collaboration and increasing customer
confidence
Balancing
innovation • Industry input: An inclusive approach to determining
obstacles to innovation
with
oversight • The two types of mindsets: Progressive and
Restrictive

Progressive regulator • Regulatory Sandbox: Flexible experimentation while

examples: FCA-UK, MAS minimizing risks
Singapore, ASIC
Australia.
• Flexible policies: Promoting FinTech businesses

• RegTech: Using technology to reduce the cost,

complexity and time in regulatory reporting

• International cooperation: Diminishing geographical

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boundaries in the digital world
Key Regulatory Initiatives in Developed and Emerging Countries

Developed countries are

focused towards facilitating
innovation and consumer
protection + risk reduction
while emerging market
countries are focused on
financial inclusion

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 Pakistan’s Current Regulatory Environment

• PSO’s and PSP’s to act as platforms for

FinTechs
• Focus of the State Bank of Pakistan on
financial inclusion
• Regulations facilitate financial institutions
but restrict small companies
• Payment regulations are the most evolved

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A closer look into the Regulatory Initiatives in Pakistan

Source:
FinSurgents
research and
analysis

35
 Recommendations

• Banks acting as platforms take the

regulatory burden while FinTechs
innovate
• Clear directives for the two types of
FinTech models
• Creating a dedicated FinTech
Regulatory wing

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 Insights
• De-hinging banking innovation from legacy
Financial structures
Institutions • FinTechs have shifted partnership dynamics from
(FIs) licensing to profit sharing
• Banks and FinTechs have an independent
relationship
• Small banks - FinTech Partnerships to lead the
process of reducing transaction charges
• Eliminating connection between incumbent
acceptance and small companies’ survival
• Creating winning examples
• ‘FinTech collaboration is inevitable’ for large
players, but small players have a different
perception
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 Market Research Findings on FIs

• Large players are keen on owning FinTech incubators, but internal challenges
can hinder execution
• Views on FinTech collaboration challenges vary with FinTech readiness
• Banks face talent shortage to capitalize on FinTech related opportunities and
consider FinTechs as a talent source
• Insurance companies see themselves as technology driven, but they have a
limited outlook on FinTech collaboration areas
• FinTech companies are more open to cross-industry collaborations
• Telecoms are more inclined towards FinTech collaboration

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 Recommendations

• FinTech coaching for all players

• Building FinTech awareness programs
and collaboration platforms
• Eliminating the regulatory ambiguity
• Need for a FinTech consortium

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 Overview of
Investments in Pakistan

Startup Startup funding is mostly local and

at an early stage, but there appear
Environment to be early signs of international VC
funding coming to Pakistan

Source: FinSurgents Secondary Research 41

 Findings
1. The startup ecosystem in Pakistan is currently emergent, but it is gaining pace
2. Accelerators and incubators are scattered across four cities – Karachi, Lahore, Islamabad, and
Peshawar
3. According to startups and banks, there is a lack of collaboration platforms in Pakistan where
FinTechs and incumbents can come together
4. Startup incubators see very few entrepreneurs interested in financial services products
because of the perceived regulatory uncertainty around this space and recommend the same
to incubated startups
5. Startup activity is thriving in the software and services sector of Pakistan

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 Recommendations
• Need for neutral FinTech incubators
• Betting on the right FinTech leader profile
• So far FinTechs are geographically concentrated in the cities of
Karachi and Lahore

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 Finding
Unreceptive attitudes of large players, complicated regulations
and deficient early stage funding cited as the top challenges
FinTechs faced by FinTechs

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Areas believed to be impacted the most by FinTechs

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 Emerging Market Innovation Stack

The Emerging Markets Innovation Stack

FinTechs enable the creation of payment rails within
emerging markets by enabling retail and online payment
acquisition and the aggregation of available payment
options, they create the foundational layers of yet
another ecosystem – the startups.

Emerging market FinTechs must be less

capital intensive and serve multiple
segments
A lower CAPEX allows FinTechs to break-even faster;
the non-linear growth of FinTechs enabled through
technology, makes them an attractive investment.

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 Thank You!
Qasif Shahid Lubna Razaq
+(92) 300 200 9669 +(92) 337 047 3874
qasif@finsurgents.com lubna@finsurgents.com

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