Fintech startup space blooming

The country’s entrepreneurial ecosystem is writing a new story of tech startups witnessing a funding boom. The meteoric rise in startup funding in Pakistan is a significant sign that the startup ecosystem is progressing and grabbing attention. Venture capital funding for startups in the country in 2021 alone has crossed $200 million, which is greater than the combined total of the last five years. Several local and international researches show that this sector has been growing at a staggering pace since the beginning of 2020 (For more read: Pakistan's startup funding rush).

An interesting and lucrative trend is emerging from the sudden growth in the startup ecosystem: Fintech, a subsector of tech space is one of the fastest-growing areas for venture capitalists these days, along with home-based businesses. According to i2i’s latest insights on the sector, fintech startups account for 14 percent of the total $212 million funding raised in 2021 till August 2021. Overall, till the time of the i2i analysis – August 2021, Pakistani fintech startups raised over $48 million across 26 deals since 2015, 63 percent of this amount was raised in 2021 alone. The research also goes on to show that fintech is the second most funded sector (in terms of total amount raised) and has the second highest average ticket size till date.

Insights from i2i’s “Demystifying Pakistan’s growing fintech sector” shows that within, fintech startup space, digital payments as a subsector is the most popular currently in terms of number of players, whereas the mobile- wallets as a subsector of fintech claims the highest amount in investment despite very few startups. Asset and wealth management subsector is seen heating up with 23 percent of the fintech investment raised by startups to date in Pakistan attributed to such solution companies.

The rise in tech and fintech startups and startup funding is only a recent phenomenon; however, mushrooming incubators and accelerators between 2015-18 ignited the growth phase when startups had little technology backing. Beyond that stage, the focus became technology infrastructure and innovation as the country became increasingly digitized. Moreover, COVID-19 turned out to be a good luck charm for the startup space as technology adoption, digital onboarding, and acceptance – all became ever more relevant and popular.

Apart from the opportunity presented by COVID-19, the regulatory environment and favourable government intervention were key drivers of the growth witnessed in fintech startup space. Besides the gradual growth seen in branchless banking over the last decade, much of the efforts have been recent. The insight shows that recent regulatory reforms and regime facilitated by various relevant regulators like SBP, PTA, NADRA, SECP have created an enabling environment. The EMI regulations, digitalization drive, first ecommerce policy framework, regulatory sandbox by SECP for startups, and the micro-payment gateway Raast have all been developments of the last two years - and serve as evidence of the key role regulatory environment can play in a sector’s development and growth.