Must see for investors: analysis of the payments industry in Pakistan

Payments industry analysis in Pakistan: an investor's guide

I. Market overview

1. Economic and demographic base

   • With a population of 225 million (the fifth largest in the world) and a median age of 23, the digital potential is huge.
   • GDP growth of 3-4% (2023) and high inflation but mobile penetration of over 80% provides ground for the payments industry.

2. policy-driven

   • National Financial Inclusion Strategy (NFIS) Goal: Increase adult bank account holdings from 21% to 50% by 2025.
   • The Central Bank (SBP) promotes the Electronic Money Institutions Regulation and issues digital banking licences (e.g. NayaPay, KT Bank).

II. Core tracks and opportunities

1. Mobile Wallet & Correspondent Banking

   • JazzCash (over 40 million subscribers), EasyPaisa (owned by Telenor) dominate the market, but rural coverage is less than 351 TP3T.
   • Investment Opportunities: Expansion of agent network, integration of cross-border remittances (8% of GDP in diaspora remittances).

2. Instant Payment System (Raast)

   • SBP launched national level infrastructure with 200% annual increase in processing (2023 data). Can cut into B2B payroll, government subsidy scenarios.

3. BNPL and e-commerce integration

   • E-commerce scale $6bn (2025 forecast), but credit card penetration is only 2%. companies such as QisstPay get funding to lay out buy now, pay later.

4. Cross-border Payment Pain Points

   • There is a large foreign trade gap and inefficient foreign exchange settlement for SMEs. blockchain solutions such as Ripple are testing the waters.

III. Risk warning

• High compliance costs: Strict anti-money laundering regulations, foreign investment requires local partners. Case in point: Alipay entered through a partnership with Alfalah Bank.
• Exchange rate fluctuations: Rupee depreciation during the year 20% (2023), hedging strategy required.

IV. Successful case references

1. SadaPay : Digital wallet + prepaid card model, acquiring 500,000 users in 10 months, focusing on zero fees.

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Pakistan's payments industry is on the eve of an explosion and is recommended for attention:

• Local head wallet companies in Series A and beyond;
• Raast eco-service provider;
• A cross-border payment solution provider with trade ties to China.

Source: SBP Annual Report, Karandaaz Pakistan, McKinsey GSMA

Payments Industry Analysis in Pakistan (cont'd): Segmentation and Investment Strategies

V. In-depth analysis of market segments

1. The Blue Ocean of Rural Finance

   • Status quo: only 30% rural people have basic financial accounts, but mobile phone penetration is 65%.
   • Model Innovation:
     • Correspondent Banking + Biometrics: UBL Omni and others serve ID-less users through fingerprint authentication.
     • Agricultural Payment Scenarios: Embedded in seed procurement, harvest sales chain (e.g. Telenor Bank working with fertiliser manufacturers).

2. Islamic Finance Compliance Payments

   • Pakistan's 95% population is Muslim and interest is prohibited (Riba). Need to comply with Sharia's solution:
     • Profit-sharing (Mudaraba) electronic account;
     • Commodity Exchange Structures (Murabaha) as an alternative to traditional lending.

3. Government G2P Payment Reform

   • SBP distributes benefits through Raast (e.g. Benazir Income Support Programme), covering 8 million households in 2023. Private companies can bid for distribution channels or technology providers.

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1. Comparison of foreign investment entry paths

2. List of key partners
   • skill: Local KYC providers (e.g. Tasdid certified), USSD channel operators;
   • formulation:: Consultancy organisation Karandaaz Pakistan (WB funded);

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1. Exit mechanism design
   - IPO possibility low, M&A exit prioritised - potential buyers include local banks (HBL, MCB), Middle East consortiums.
2. Geopolitical Hedging Recommendations
   The China-Pakistan Economic Corridor (CPEC) project prioritises Balochistan/Sindh, which can reduce policy risk by tying up CPEC-related trade payment requirements.

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"The first Pakistani payments unicorn with a valuation of over $1bn will emerge in the next three years." -Asian Development Bank Fintech Report 2024

Investor Action Checklist:
✓ Focus on verifying that the enterprise has access to the Raast system during due diligence;
✓ Test the target's ability to trade offline in a blackout environment;