Fintech needs a hero

All causes, economic or political, need at least one champion to survive and thrive. Muhammad Ali Jinnah played that role in rallying support for a separate homeland for Indian Muslims, BR Ambedkar for the oppressed castes, Jawaharlal Nehru for the third world, Elon Musk for electric vehicles, and Kerry Packer for the commercialisation of cricket.

Notwithstanding the need for robust institutions, as academics would tell you, it typically takes individual mavericks to set the wheels in motion.

Unfortunately, Pakistan’s startup ecosystem is still in search of that champion. The one that inspires optimism and hope, and God knows we desperately need that.

We have had many false messiahs, or maybe they turned as such only because their failures came to light. Some would attribute it to the benefit of hindsight, though it may not be entirely true. Anyway, the point is that we might lose another one as news about Finja unravels.

The sector fared slightly worse than average, as its funding declined almost 80pc to $20m in FY23 and the number of deals dipped 44pc to just eight

According to Profit, Finja — one of the oldest and biggest poster boys of Pakistan’s fintech — may go bust if it doesn’t receive the “full payment” from the sale of its electronic money institution (EMI) license to OPay. Regardless of who is legally right, the dirty laundry is out in the public. To be fair, this is neither the first nor the last merger and acquisition to go sour.

However, it is yet another instance, from a small sample, of an ecosystem flagbearer close to going down under. Maybe that kid’s poem, “Paanch choohe ghar se nikle”, was about Pakistani startups.

For context, only eight local companies have raised funding north of $25 million after Zameen. Of these, one has liquidated, a couple have shut down core operations, and another two are awfully close to doing the same. The remaining three are fighting their own ghosts, including major layoffs.

The unceremonial exit of champions like Finja, down to fighting through sponsored press releases, doesn’t bode well for local startups. In 2023, venture funding to Pakistani companies plunged 77 per cent to $76m while the number of deals was down almost 42pc to 39, as the latest Tech and VC Landscape report by Data Darbar and Indus Valley Capital shows.

While ramifications from such big fallouts are typical across the board, fintech could possibly be the most vulnerable. In fact, the sector fared slightly worse than average, as its funding declined almost 80pc to $20.1m during fiscal year 2023, and the number of deals dipped 44pc to just eight.

Fintech — or at least the more aggressive models attempting to change the status quo — is perhaps more dependent on foreign capital than other sectors. Take e-commerce, where traditional retail players typically contribute a large share of order volumes. Or transport and logistics, where you can still find family businesses invested and actually have reasonable market shares.

However, things are slightly different in fintech, where banks continue to be well behind the curve in terms of technology or business innovation. Yes, transactions have digitised significantly, but the industry still has a combined 16.3m mobile users. That’s the accounts registered, by the way, not those actively using the apps.

Unfortunately, the end of December data is not yet available, but we can refer to the old figures (and some estimations) to set the context. By June 2023, there were a total of 177.8m accounts in Pakistan, of which 106.9m were branchless. Based on historical percentage, around 68.1m, or 96pc of the remaining, should be ‘individual’ accounts. The corresponding (reported) value for 2022 was 67.5m.

The entire industry opened less than 600,000 accounts in six months and registered 1.1m people for mobile phone banking. On the other hand, just two EMIs opened 825,710 e-wallets between December 2022 and June 2023. Don’t forget that banks have had an exceptional run for the last two years, with profitability at record highs while fintech has been crumbling left, right, and centre.

As things stand, only one of these cares about the customers, and it’s sure not the banks. Don’t take my word. Just go to your nearest branch for literally anything and feel the blood running through your veins boil.

Meanwhile, the fintech community should probably start scouting for another champion. Or perhaps, like Pakistan’s victory in the Champions Trophy, the sector may very well thrive on teamwork instead of one maverick’s brilliant performance.

Published in Dawn, The Business and Finance Weekly, April 1st, 2024