Key Challenges Faced by FinTechs in Pakistan

21 May, 2021 | Articles

By maham fatima

FinTech once considered a pure banking sector jargon is now a familiar terminology within the technology sector. “Fintech” stands for delivering user-friendly, automated, and effective financial services with the use of modern and innovative technologies (1). The increasing interest of the investors in FinTech is an evident sign of digital financial revolution around the world. The World Bank has estimated Pakistan’s digital finance potential at $36 Billion resulting in 7% increase in the GDP and creating around 4 Million Jobs (2). Despite of many paved avenues for FinTechs as result of digital revolution there are several bottlenecks for these organizations. Some of the key challenges include unreceptive attitudes and behaviour of the larger players, strict regulations and deficient early stages funding which are considered as the biggest challenges faced by the Fintechs in Pakistan, as indicated in Figure No.1.

Changing Consumer

Low level of Collaboration between large scaled and small firms


Data Security



Challenges in
tapping customers

right Talent

Lack of

Figure 1. Adapted from Seeding Innovation: A framework for Rooting FinTechs in Pakistan (3)

In a recent article it was identified that regulatory challenges are commonly faced by FinTech industry in the country. A study commissioned by Karandaaz Pakistan (3), established that research participants from over 3000 surveys and 57 interviews had a very mix opinion regarding the current regulatory environment of the country. Although, 65% respondents did have a positive notion, a significant percentage showed their concern as reported in Figure 2.

Figure 2. Adapted from Seeding Innovation: A framework for Rooting FinTechs in Pakistan (3)

But in order to understand the regulatory challenges, we first need to look at the regulatory initiatives taken uptill now in Pakistan that can support or hinder the growth of FinTechs. A snapshot in represented in the table below:




Branchless Banking



Detailed Framework

Mandatory Banking License

Defined Product Offerings and Identified Role of each Player

Banks need to hold physical servers inside their premises, lacking cloud-based server services

Strong Anti-Money Laundering Regulations, KYC requirements and risk guidelines

High on boarding friction


Allows new entrants to enter the market and offer digital services

The high capital requirement set up at PKR 200 Million, acting as a barrier for FinTechs and small-scale firms

New market entrants bring innovative business models as opposed to the traditional ones

Restricts holding customer funds to banks, store value services not permitted to PSPs.

AASAN Account

With help of NADRA biometric verification, a fully digital account opening

Significant overlap with branchless banking KYC requirements (specially for level 1 account)

More customer friendly KYC requirements

Customers still need to have a mandatory one time visit to bank branch for digital account opening

EMI Regulations

Reducing the dependence of FinTech Players on banking institution for e-money distribution

FinTechs often need to be highly dependent on banks mainly for the settlements

Opening avenues for new FinTech players with innovative business models to solve ghetto problems

The FinTechs needs to keep up with the ongoing capital requirement of PKR 200 Million acting as a barrier for innovative but small-scale entrants

Table 1. Snapshot of the regulations impacting FinTechs in the country. Adapted from Karandaaz and Dawn News (3, 4)

Summing up the regulatory environment it is evident that despite placement of these regulations, FinTechs in Pakistan face the capital requirement or the funding blockades. There are several reasons why Fintechs face funding challenges. One of them is that our country is still a developing economy with presence of risk averse culture resulting in less interest of funding sources such as crowd funding and venture capital (5, 6). Furthermore, the high capital regulatory requirement to operate as EMI in Pakistan as compared to developed economies barred new entrants who already struggle to access funds. Lastly, capital requirements are largely fulfilled by international donor agencies or by winning start-up competitions either at national or international level limiting the entry of new FinTech players due to less availability of financing options (5).  

On the demand side, FinTechs widely face the issues related to data security and protection of personal information of customers which hinder the process of their growth and grabbing the market opportunities (7). Although, FinTechs can play their role in including the financial excluded population of the country (refer to figure 3 below for an overview), cyber and data security threats lie as a top barrier for FinTechs. Cyber-criminals can manipulate card numbers, pins, and emails of the users quite easily that can impact satisfaction as well as sensitive information along with the money of the customers (8). Therefore, a significant investment of time and money is required to protect Fintech solutions from both internal and external threats so that they can overcome networking vulnerabilities and weaknesses.

Figure 3. Adapted from G20 Financial Inclusion Indicators (9)

As mentioned above, the lower access to formal financing in Pakistan can be considered as a potential opportunity for the FinTechs to tap but it is also considered as a blockage for targeting the customers. For instance, according to a study by GSMA 4 out of 5 adults in Pakistan are financially excluded (10). Additionally, indicators by Karandaaz suggest that digital financial inclusion stands at 13% of the adult population but the concept understanding of mobile money is still significantly low depicting a decreasing trend as compared to previous years (12). Previous research data also depicts that 9% of the adult population do hold mobile money accounts (12), but the percentage of females who have mobile money account is 3 times less than men in the country (11). The underlying reason for a lower formal accounts and mobile money accounts can be attributed to lower literacy rate (8) that results in less ability of people to comprehend and use financial technology. With the absence of basic numeric literacy people in the country are also far behind in terms of digital literacy (10) that curtails expansion of mobile money account users. This whole complicated scenario results in entry barrier for FinTechs as they cannot target the untapped market which is estimated to underserve more than 100 Million adults and more than 3 Million small scale businesses (13) currently.

It is also important to mention that FinTechs specially those operating at large scale tend to focus only on tech-savvy and literate audience missing out on the largest chunk which is severely underserved. FinTechs need to understand that a financial solution needs to be in simplest form for the audience to feel comfortable about it that would result in mobilization of technological use. Moreover, because FinTechs in the country have to deal with the vulnerable and financially excluded population of the society they need to introduce products that are simple, easy to use and allows customers to anticipate financial changes and shocks. If, the FinTechs offerings have these inherited properties that offers maximum benefits in the simplest format only then they can attract customers at the base of the pyramid (14).

Talking more about the product and product designs, interestingly another challenge for Fintechs and traditional financial institutions arise from the technology and digital solutions directly (15). Lack of innovative product design that also offers in build data security feature acts as a barrier to the new market entrants and is a threat to existing financial technology players. Moreover, the existing market players despite providing efficient services lack customer trust. For instance, digital and branchless banking services offered by leading telco banks offer customer convenience, doorstep, and easy to access services (16) still results in low satisfaction of the customers due to lack of timeliness and errors in the payment processes. One key reason for lower customer satisfaction can be attributed to the fact that customers’ behaviour and expectations have evolved now. The loyalty level of traditional customers has vanished, and the attitude of the consumers has become democratic where they prefer to opt for the digital product offering them the highest benefit (17). Therefore, this situation is considered as a severe warning to the financial institutions that they can lose businesses’ productivity if they do not implement the latest technologies that are now the need of today’s customer.  

Lastly, it is important to highlight that talent (strategic work force) which is essential for successful operations of FinTechs unfortunately lacks in Pakistan (6). Although, some sources do identify that there isn’t any lack in quantity of talent but the quality of talent that misaligns with the objectives of FinTechs (3). For this, an ongoing support from universities is necessary to prepare the future market workforce with the right skills that speak for its quality.

In conclusion, FinTech industry in Pakistan can be still considered in its embryonic stages facing several bottlenecks and challenges which demand considerable attention. In order to cope up with the mentioned challenges there is a need to address them via advocating them at national level, creating awareness at national and international forum, research investigations and brining all the FinTech players at one platform for sustainability of the FinTech ecosystem. Only by co-creation process it is possible that all stakeholders formulate a collaboration that creates joint value for each player benefitting them individually as well as the system as whole.


(1)  Fintechfutures. (2020). Digitalisation landscape in Pakistan – a tech view – FinTech Futures. FinTech Futures. Retrieved 11 April 2021, from

(2) Saeedi, T. (2019). World Bank sees Pakistan’s digital finance potential at $36 billion. Retrieved 11 April 2021, from

(3) Karandaaz. (2017). Retrieved 17 April 2021, from

(4)  Khan, M., 2021. Digital banks: still a distant dream. [online] DAWN.COM. Available at: <> [Accessed 21 April 2021].

(5) State Bank of Pakistan, 2018. Digitization of Services in Pakistan. [online] Available at: <> [Accessed 21 April 2021].

(6) Research, B., 2018. ‘Digital startups lack access to capital’. [online] Business recorder. Available at: <> [Accessed 21 April 2021].

(7) Techjuice. (2020). FinTech in Pakistan: Challenges, Opportunities and Recommendations. TechJuice. Retrieved 11 April 2021, from

(8)  Butt, S., & Khan, Z. A. (2019). Fintech in Pakistan: a qualitative study of bank’s strategic planning for an investment in fin-tech company and its challenges. Independent Journal of Management & Production, 10(6), 2092-2101.

(9)  World Bank, 2017. G20 Financial Inclusion Indicators | Pakistan | The World Bank.      [online] Available at: <> [Accessed 21 April 2021].

(10) Okeleke, K. (2019). The power of mobile to accelerate digital transformation in Pakistan. Retrieved 19 May 2021, from

(11) Kantar. (2017). Pakistan · Financial Inclusion Insights from Kantar. Retrieved 19 May 2021, from

(12) Karandaaz. Financial Access & Behaviour of Individuals. Retrieved 20 May 2021, from

(13) Tellimer Research. The ultimate guide to Pakistan fintech | Tellimer. Retrieved 20 May 2021, from

(14) Digital Policy Team. (2019). Financial technology priorities for Pakistan – Digital Pakistan. Retrieved 20 May 2021, from

(15)  Rafay, A. (2019). Preface: FinTech as a Disruptive Technology for Financial Institutions. Rafay, A.(2019). FinTech as a Disruptive Technology for Financial Institutions. PA: IGI Publishing, USA.[ISBN13: 9781522578055.

(16)  Dailytimes. (2018). Fintech in Banking: opportunity in challenge – Daily Times. Daily Times. Retrieved 17 April 2021, from

(17)  Ali, H., & Abdullah, R. (2020). Fintech and Financial Inclusion in Pakistan: An Exploratory Study. In Enhancing Financial Inclusion through Islamic Finance, Volume I (pp. 159-192). Palgrave Macmillan, Cham.

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