The Rise of Fintech in Pakistan: The Next Digital Banking Revolution?

According to Irfan Iqbal Sheikh, head of the Federation of Pakistan Chambers of Commerce and Industry, the fintech sector in Pakistan consists of approximately 269 startups, many of which have demonstrated remarkable sustainability and success. The fintech keeps thriving, providing limitless possibilities for partnering with local experts to create groundbreaking enterprises. Regulatory backing has notably advanced, as the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) are instrumental in promoting digital financial services.

Digital Banking Transformation

The SBP anticipates the digital finance services market in Pakistan will exceed $36 billion by 2024, providing a 7% increase to GDP and creating approximately 4 million new jobs. The emergence of digital banking is fundamentally changing how people in Pakistan handle their finances. Success stories like JazzCash and Easypaisa showcase the country's increasing financial inclusivity, allowing users to perform transactions, settle bills, and manage their funds effortlessly.

Although fintech has seen substantial growth, Pakistan continues to be primarily a cash-based economy. However, behaviors are evolving swiftly. More than 83% of the population possesses a mobile phone, and 42% utilize 3G/4G services, highlighting a growing preference for digital solutions. Government projects such as Raast, PayPal, and the Roshan Digital Account further reinforce the shift toward digital banking.

Emergence of Fintech Innovations

A standout trend in Pakistan's fintech landscape is the increasing popularity of the Buy Now, Pay Later (BNPL) approach. SBP data indicates a 67% rise in BNPL transactions over the last year, with platforms like Daraz's 'DigiPay' at the forefront. This trend boosts consumer buying power while promoting wise financial practices.

Moreover, fintech platforms are transforming global transactions. Digital payment platforms like Payoneer and Wise (previously TransferWise) have made international payments easier, leading to a 47% rise in IT exports, as reported by the Pakistan Software Export Board.

Digital Banking Challenges and Opportunities

Although fintech adoption is growing, Pakistan’s traditional banks have been slow to embrace full-scale digital transformation. Many commercial banks still rely on physical branches to attract deposits, making it unlikely that branch networks will disappear anytime soon. However, fintech firms, with their innovative solutions and customer-focused models, are reshaping banking habits.

To further accelerate digital banking, Pakistan needs:

• Greater digital payment adoption at retail points to reduce cash dependency.

• Stronger partnerships between commercial banks and fintech firms for a collaborative ecosystem.

• Government-led initiatives to standardize and promote digital financial transactions.

Role of Electronic Money Institutions (EMIs)

In 2019, SBP introduced Electronic Money Institutions (EMIs) to promote digital payments, enhance financial inclusion, and bring innovative payment options. EMIs offer safe and affordable digital payment tools like wallets, prepaid cards, and contactless payment methods. These entities are vital in digitizing transactions and involving more individuals in the financial system.

Moreover, the SBP’s Licensing and Regulatory Framework for Digital Banks, introduced in 2022, highlights its dedication to promoting digital banking. The framework established two categories of digital banking licenses: Digital Retail Banks (DRBs) and Digital Full Banks (DFBs). These licenses enhance financial inclusion, particularly for underrepresented groups like SMEs, low-income individuals, and rural communities.

Future of Fintech in Pakistan

Financial inclusion remains a key enabler of economic development, directly impacting GDP growth. Research suggests that digital financial inclusion alone could increase Pakistan’s GDP by $36 billion by 2025. Fintech firms are leading the charge in accelerating financial accessibility by leveraging digital innovation to provide seamless banking experiences.

The rapid rise in mobile banking transactions (102% increase) and internet banking (42% increase) indicates a shifting consumer preference towards digital financial services. Smartphone adoption in Pakistan has doubled in the past two years, reaching 81 million users, and is projected to hit 70% of mobile connections by 2025.