Fintech is changing how financial activities are conducted around the globe. The use of technology to bring out innovative solutions for financial services has made life easier for both financial institutions and consumers.

Emerging players out of which many are start-ups have become the biggest disruptors in an industry where the shots were called by large tier financial institutions for much of modern day history. However, where earlier these new firms were viewed as a threat by traditional financial intermediaries such as banks; they now work in conjunction with banks in many cases to improve the latter’s existing processes and services.

Pakistan’s fintech space is still at a nascent stage and there is a lot of work to be done by policymakers and financial players alike. One of the most important factors is unarguably bringing more people into the fold of formal banking channels. Financial inclusion in Pakistan is quite low and the World Bank’s Global Findex 2017 puts the country’s unbanked population at over 100 million.

This figure can be viewed both as an advantage and disadvantage. It gives an indication of the untapped potential but also poses challenges in terms of making people transition to formal channels in a country where becoming part of the documented economy remains undesirable for many.

In its annual report for FY18, the State Bank of Pakistan (SBP) has covered fintech in its special section on digitisation of the economy. It is good to see that the central bank is working on a framework to bring about more flexibility in the regulatory environment. Currently, non-bank institutions including e-commerce merchants and marketplaces and digital lending platforms cannot take deposits.

However, according to Qasif Shahid head of popular domestic fintech start-up Finja, the new draft regulations for Electronic Money Institutions requires $2 million as paid up capital which is an onerous requirement for new firms and start-ups and will only benefit larger established players. He also believes the SBP should make a regulation requiring banks to work with fintechs.

The central bank also highlights the “instrumental role” of branchless banking in increasing financial inclusion. But even though the number of active branchless banking accounts increased to 21.7 million as of FY18, active accounts still remain 55 percent of the 39.2 million total accounts.

To encourage high quality growth in branchless banking there is a need to develop more use cases and investment/credit/savings products by providers so that there are more active users. Simply registering new mobile wallets alone will not translate into increasing the size of the fintech market in Pakistan. And this will more likely flow from start-ups and fintechs whose main drive is innovation rather than already established players including banks and telcos who look to play it safe.

The entry of Ant Financial in Pakistan is set to shake things up for the fintech and e-commerce sectors in Pakistan. Perhaps, a governance framework model like the one adopted by the Monetary Authority of Singapore (MAS) would be appropriate to streamline the promotion of fintech in the country. More on this in the coming days…