Ali Mubashar Kazmi has over 25 years of professional experience, with nearly two decades of banking sector experience. He started his career at Bank of America (BofA) in Pakistan, trained at BofA San Francisco Academy, moved to ABN AMRO worked as Corporate Director and subsequently Royal Bank of Scotland (RBS), where he was Country Head, Commercial, Pakistan and part of Asia Retail Management Team. After spending over 15 years with foreign banks, his last five years of banking were with MCB. At MCB, he worked as Senior Executive Vice President (SEVP) with majority of tenor as Group Head Consumer / Retail Banking. With his recent non-executive engagements at Knightsbridge Capital and AA Pulp and Pureè, he now also extensively understands the requirements of entrepreneurs in multiple sectors.

Below are edited excerpts from BR Research recent conversation with the President, OPay Pakistan, on the plans of this Fintech player in particular and the digital payment ecosystem in general:

BR Research: Please tell us a little bit about your professional background and your motivation behind launching or joining this Fintech Company.

Ali Mubashar Kazmi: I am a financial sector professional with over two decades of experience in corporate banking, retail banking and consumer banking. I started my career with the Bank of America and then moved to ABN and RBS, followed by Pakistan’s leading retail bank MCB. During my banking career in Pakistan, I realized that the number of unbanked population, about 100 million currently, was too large despite the proliferation of banks in the country. Banks were more interested in investing in treasury bills and lending to government and quasi-government entities and IPPs, with the remaining credit going mainly to large corporates where credit risk is minimal. What’s left after that for a consumer or an SME or a farming enterprise was very limited.

That gap still exists. This realization took me on a journey from corporate investment banking to retail and consumer banking to now this Fintech setup. OPay is committed to bridging this financial services gap for unbanked and under-banked individuals in Pakistan. With this banking sector experience in retail and consumer banking and OPay’s technology platform, we have the muscle to make a difference in this landscape.

BRR: How will you describe the core service offered by OPay? How does it differentiate from other services being offered in the market?

AMK: There is enough room for everybody in Pakistan to play their role in bridging this gap. There are already a number of players, and there will be more players in the future. What stands OPay apart is its financial strength, its experience in similar markets and its on-ground experience. This Fintech has already proven its business model in overseas market, it has the products and the knowhow of operating in Pakistan, and it is funded by some of the top investors in the world. OPay has already built a presence in Pakistan – there are a few hundred people already employed, and there are multiple products that are being launched and pursued.

Specifically, the services that OPay can offer are in the range of payments, such as issuance of cards, POS machines, wallets, acquiring, e-commerce gateways, branchless banking services, etc. There is also significant experience of doing small-ticket lending, which exactly what the country needs. What also differentiates OPay is that it has a strong technology team that runs its own payment processing systems, unlike other Fintechs that mostly rely on third-party payment processing systems.

BRR: That’s a wide range of product portfolio. What is OPay going to focus on while growing its operations in Pakistan?

AMK: All the products that I mentioned are, in one way or the other, a solution for the unbanked challenge I highlighted earlier. It is just a matter of time that most of these products will be aggressively pursued by OPay in Pakistan. We have already started with POS machines; and we are in the process of evaluating both the credit and the debit card sides of the market. In these two segments, our focus is on the unbanked and under-banked parts of the population. If other financial institutions are looking to target Rs1 million credit cards, maybe OPay will target an Rs 30,000 credit card.

We want to empower the people at the bottom of the pyramid because they have excellent credit. The only problem is that they don’t have the access to capital. More than 50 percent of Pakistan’s adult population is borrowing, but they are mostly borrowing from informal sources. And informal sources have their own challenges, in terms of interest rates, processes and access. If you bring the bottom of the pyramid into the formal financial fold, not only will they have better and faster access to capital, the number of customers is also going to grow a lot with professional platforms that provide loans and other financial services with the click of a button.

BRR: What is your core target market, as the unbanked market is not a monolith?

AMK: The opportunity is immense, no matter which segment you look at. There are multiple examples, but let me talk about two segments in particular here: merchants and agriculture.

On the merchant side, after two years, we now have almost 10,000 POS machines lying out there in the country with various retailers. With a POS machine, I get two customers: the merchant and the actual customer who is paying for the purchase. From the merchant, I get daily sales transaction data, which helps me to make decisions about extending, let’s say, an Rs1 million loan staggered over six months if the sales data shows me that the merchant has the capacity to pay back. This kind of merchant lending has been missing in Pakistan, mainly because there has been limited visibility on sales data due to low number of POS machines. Data availability can enable such lending. Meanwhile, I can also lend to the merchant’s customers through this platform, as I have access to the data that can establish the customer’s capacity to repay the loan.

On the agriculture side, Pakistani farmers have very limited capacity to store or process produce such as fruits. This leads to lots of wastage, sometimes as high as 40 percent of the produce. If you can process just the wasted mango fruit into mango pulp, you can readily export it and earn half a billion dollars by annum, just by one fruit. For that, you need to start at the farm level. If you connect these small mango farmers through these digital apps against the collateral (which is the pulp, in this case) with the required capital to process the mango, the farming economy can change. It will change because value in the agriculture supply-chain will start transferring to the farmers from middlemen and other layers.

BRR: How does OPay’s experience operating in other markets, such as Nigeria, inform its business strategy in Pakistan?

AMK: What is most common about the Nigerian and Pakistani economies is that both are predominantly cash-based. OPay was able to digitize cash payments in Nigeria through a network of POS agents. So that is one experience OPay has brought to Pakistan. Other than that, there is opportunity in making small-ticket fee transactions, earning mark-up income on small-scale lending, etc. The key is that cash digitization that took place in the Nigerian economy was mainly through these POS machines via POS agents.

BRR: But the POS footprint in Pakistan continues to remain significantly lower on per capita basis than regional and peer economies. How do you view this problem?

AMK: I will put a number to this problem: out of almost Rs8 trillion worth of transactions happening annually in retail stores in Pakistan, just half a trillion comes through POS machines. Now, that’s a pure transactional opportunity that exists in Pakistan, just on the POS side. If we can digitize this opportunity, the impact on documentation, taxation, and returns will be huge. Why is it not happening? One answer is that there is parallel cash economy that runs in every business in Pakistan, it’s like a norm of doing business. There is a need to change that.

Recent regulatory changes – such as the SBP’s measure to reduce interchange cost of debit card from 1.2 percent to 0.5 percent – have helped to reduce the cost of transactions over debit card. Perhaps the same thing needs to be reviewed on the credit card side as well. Maybe some rebates for POS merchants and sales tax relief for customers can incentivize the POS uptake. The cost of doing digital transactions should be minimal for an individual. If we achieve that, there is a good chance that we can digitize the cash economy the way we want to. We already have several digital payment options, but there is some way to go to reduce the cost of digital transactions.

BRR: In recent years, we have seen several regulatory reforms for digital payments. How do you view the regulatory landscape?

AMK: We have a very strong and understanding regulator in the State Bank of Pakistan. Now there is realization that the solution to improve banking penetration is through digitization. SBP has taken many proactive steps in that regard.

BRR: What types of investments have been made so far in OPay?

AMK: OPay is now probably a payment giant internationally. It is funded by dream global investors, such as SoftBank, IDC, Sequoia, etc. The valuation of OPay is currently over $2 billion. This is a serious player that is now operating in Pakistan.