For many years now, Pakistan has been aiming for an ICT-powered digital economy. In the past couple of years, the ‘Digital Pakistan’ vision has moved from being a buzzword to making some progress towards realization.

But, the progress has been slow. Despite improved progress on the front of digital inclusion, inclusion on the financial front hasn’t been much satisfactory.

Some estimates say 77% of Pakistan’s population still remains unbanked. With an average financial inclusion ratio of 21% as compared to the average 33% ratio for lower-middle-income countries, Pakistan remains a slow-mover.

One of the several reasons a large part of our country’s population remains financially excluded is that bank branches are unable to cover every part of the country.

At a rate of 10 branches per 100,000 adults, Pakistan’s banking coverage is moving at a snail’s pace as compared to the average of 16.38 in Asia.

Only 23% of the adult population having access to formal financial services means that a large chunk of the population is deprived of all the privileges such as agricultural loans, machinery loans, car loans, mortgages, insurance, and so on.

As Pakistan’s broadband penetration surges 46% and its mobile penetration crosses a whopping 85%, the country has become a ripe location for cutting-edge fintech innovation.

With 64% of the average population under the age of 30, Pakistan’s financial technology landscape provides the perfect position for fintech services to boom in the region.

Easypaisa, one of the pioneers of branchless banking in Pakistan, has been a prominent fintech player in the local industry. To discuss the future of fintech in general and Easypaisa in particular in Pakistan, ProPakistani sat down with M. Mudassar Aqil, CEO of Easypaisa/Telenor Microfinance Bank.

He elaborated on how the company is thriving in an age where being digital has become a basic necessity for most people. Here is how the talk went:

Q: The regulator recently opened applications for digital banking licenses, with news surfacing of certain EMIs initiating operations. What is your take on Pakistan’s current fintech landscape and its potential?

A: Today, despite over 40 commercial and microfinance banks operating in the country for the past many years, 70 percent of Pakistanis remain unbanked.

The majority of households are low-income and require access to basic financial services like payments, savings, insurance, and investments.

The traditional brick-and-mortar banking model’s economies don’t allow it to serve the low-income mass market. It is because of this problem that the majority of Pakistanis remain unbanked to this date.

21st-century banking is powered by the 4th Industrial Revolution and built on digital railroads. Smartphones, mobile broadband, cloud storage, and Artificial Intelligence, are the big technology macros used by fintechs to make financial services accessible to every person in the world.

In Pakistan, with teledensity close to 88 percent and over 100 million smartphones and mobile broadband users, the stage is set for fintechs to flourish.

Furthermore, two other critical components, digitally verifiable biometric ID (CNIC) and a supportive regulatory environment that allows digital financial services to flourish, are also available in Pakistan.

Furthermore, Pakistan is the fifth largest population in the world with a median age of just 22 years, making us one of the youngest nations in the world.

In light of this background, I see that the boom in fintechs is only getting started. A report by McKinsey a few years back estimated Pakistan’s digital financial market potential to be almost $36 billion. This, I believe, has increased manifolds since then.

In my estimate, 100 million Pakistanis will be using digital payments through technology-powered solutions within the next 4 years.

Q: What are your views on digital currencies? Do you think the same be implemented in our economy?

A: Just to clarify, there are various types of digital currencies and equivalents being experimented with across the world.

Some are crypto-like bitcoins, some are stablecoins, and then there are Central Bank Digital Currencies (CBDCs) which are controlled by the central bank and pegged against the real currency.

I see big potential for CBDC in Pakistan, as it is as stable as regular currency, provides documentation of the economy, complete transparency, and allows a lot of space for tremendous innovation.

Furthermore, CBDC would force the banking sector to create real value for consumers as the distribution would become very simple and efficient.

The cost of physical cash management would vanish and brick and mortar distribution will not be needed. This can be a real boon for Pakistan’s economy and a great win for the consumer.

Q: What is your take on the upcoming Digital Retail Banking licenses being issued by the State Bank of Pakistan? Do you think this move will fast-track the growth of digital banking in Pakistan?

A: The introduction of Digital Retail Banking (DRB) licenses is a very positive and progressive step from the State Bank of Pakistan (SBP).

This will allow, for the first time, completely digital banks, which are also known as neo/challenger banks to completely rethink how financial services can be built and distributed using digital railroads.

I also hope that this would bring new entrants to the Pakistani market and allow existing players to benefit from this new-age banking license.

Q: As the pioneer of branchless banking in Pakistan, what new exciting products is Easypaisa launching in the coming future and how does it align with your business strategy?

A: Easypaisa aspires to be a financial services platform that provides convenient, affordable financial services to every Pakistani using the power of technology and collaboration.

What this means is that we are made to serve the financial services needs of a common Pakistani household and small business. Both of these segments are largely ignored by the banking sector today.

We aim to achieve this through the power of technology, utilizing the digital railroads already in place, and more importantly through a best-in-class customer journey that allows frictionless onboarding and hassle-free user experience.

We have many exciting products in the pipeline on payments, savings, and loans. Our focus on bringing new use cases to make everyday payment transactions hassle-free will remain.

A very exciting new development is our mini-app platform which allows a variety of third-party products and use cases to become part of Easypaisa and create new value for our users.

This feature is already live with groceries, gaming, a few other use cases with many more being in the pipeline.  Furthermore, we are also actively working on our Digital Lending products to make borrowing easier without documentation or collateral requirements by using the user payment data.

This will bring the lending proposition available to almost everyone who is active on the Easypaisa platform. You will be seeing some very exciting new products including BNPL in this regard.

In addition to this, we are also in the process of introducing one-click subscription savings and investment products. This will enable anyone with a bank account to conveniently save or invest funds without the hassle of documentation and physical trips to a bank.

SBP has taken some key steps to increase financial inclusion by using digital railroads. For example, now customers can avail higher limit accounts up to PKR 1 million using in-app biometric verification and open an Asaan Digital Account.

In addition to our digital platform Easypaisa, we are also revolutionizing how working capital financing is provided to small businesses. We have simplified the process of a traditional microfinance loan.

Now small business owners don’t need to visit a branch even once to obtain a loan.

Their loan application is collected digitally at their doorstep and loans are disbursed within 48 hours in their Easypaisa wallet which allows them to take out the loan proceeds as needed, manage the loan account from within the app and also repay the loan digitally.

This is the first paperless, cashless, and branchless small business loan process in Pakistan.

Q: According to published annual accounts, despite achieving growth on key business indicators, Telenor Microfinance Bank continues to have substantial accumulated losses. What is the reason behind this and how do you plan to turn things around?

A: It is important to understand that Telenor Microfinance Bank is the only bank in Pakistan that also operates as a fintech and runs one of the largest digital platforms in Pakistan – Easypaisa.

Over 75 percent of our loss is actually not a loss but an investment in building a very large and expensive tech platform that is able to serve millions of Pakistanis and also acquiring millions of new users every year.

Like any other digital platform, such as social networks, food ordering, ride-hailing, etc., digital payment platforms also have similar economics at play, i.e., you have to invest in building the infrastructure first, acquire new users and then monetize the transaction data through value-added products/use cases to achieve profitability.

Easypaisa has tripled in size since 2018 to more than 10 million monthly active users. We are the largest indigenous app of Pakistani origin and are also the largest biller in the country.

We processed 75 million utility billions last year. We also processed more than 10 percent of Pakistan’s telco industry’s airtime. Our platform’s annual throughput stood at PKR 3 trillion, which is close to 6 percent of Pakistan’s GDP.

We processed over 1 billion transactions last year and our system processes over 3500 transactions per second during peak times and envisage to double this in the coming year.

There is no other bank in the country that is processing this kind of throughput using their digital channels and all of this comes at a cost which is part of our strategy to position our digital platform to grow to 40 million users over the next 4 years.

Therefore, it is important that our financial statements are also understood in this context and any comparison with any other bank’s financials would not be a relevant comparison.

Having said that, we are backed by strategic shareholders who are committed to our strategy, we are fully compliant with all SBP regulations and capital adequacy requirements.

Over the last 3 years, we are proud to have attracted the largest FDI to the tune of USD 270 million to build this business and remain on solid financial standing also endorsed by independent rating agencies.

Q: There are also media reports about the acquisition of Telenor Microfinance Bank by another player, with major names showing interest. When is the transaction expected to be completed and what impact will it have on the Bank’s future?

A: A process to evaluate potential strategic partners committed to supporting TMB’s long-term growth strategy has been initiated by the Telenor Group in which it can decide to divest full or partial share of its 55% shareholding.

There is no confirmation that a transaction will result from this process, nor has any decision on the matter been made by our shareholders till now. In the event that any such transaction takes place, Telenor Group will make necessary disclosures post Board and regulatory approvals.

Q: What role do you think the government and regulators can play in bringing about a sustainable shift towards digital payments in the country?

A: The government and regulators can play a very conducive role in further accelerating the adoption of digital payments in Pakistan.

But first, let me acknowledge the progressive role played by SBP to create a very powerful set of regulations, some of which have been introduced recently such as digital onboarding, in-app biometric verification, EMI and DRB licensing, and Raast payment system.

With these key enablers in place, the stage is primarily set to innovate and create solutions to make Pakistan a fully financially inclusive nation. However, there are still a few things that can be improved.

For example, majority of Pakistan’s retailers still insist on transacting in cash only. There should be a law that mandates every retail outfit to accept digital payments in addition to cash. Moreover, tax breaks should also be offered to those who transact digitally instead of in cash.

Similarly, since Pakistan is still predominantly a cash economy and as the adoption of digital payments takes off, there is a dire need for people to convert their physical cash into e-cash by depositing it into a bank account or a mobile wallet.

We need a robust network of mobile agents available at every street corner to facilitate this transaction. However, today, any operator of mobile agent banking is not allowed to charge for this service whereas they have to bear a commission cost of roughly 0.6 percent for every cash-in transaction.

This expense is now prohibiting the sustainability of agent banking. So, if mobile agent operators can charge a modest fee to cover their costs, this service can easily become accessible to many more people in the country.

Lastly, women are disproportionately financially excluded in Pakistan, with only 12 percent being financially included. Similarly, the ownership of SIMs is also disproportionately lower for women, with Pakistani women being 38 percent less likely than men to own a mobile phone and therefore 94 percent less like to own a mobile money account.

Therefore, any bank account opening requirement that mandates the pairing of SIM ownership with mobile account opening, needs to be relaxed in order to allow women to open digital bank accounts easily.

I believe that with these few key changes we can leverage the available regulations and other critical enablers like Raast to exponentially grow financial inclusion in Pakistan and make it accessible and affordable for every Pakistani.