Pakistan has experienced a rapid surge in the financial technology (fintech) industry allowing the sector to enjoy exponential growth. This growth has allowed more opportunities for financial inclusion in Pakistan. Traditional banking is being replaced by mobile wallets and the operations of bank branches have largely been taken over by smartphones. The State Bank of Pakistan (SBP) reports suggest that there has been a massive rise in the number of branchless baking accounts; from 85 million in 2022 to 117 million by March 2024. Mobile Wallet applications like Easypaisa, Jazz Cash and Sadapay have been key players in contributing to this change.

Despite this ongoing digital revolution, there are significantly low digital and financial literacy rates in Pakistan. A report by S&P Global describes how compared to an average of 35 percent in Sri Lanka, only 26 percent of Pakistani adults are considered financially literate. Similarly, the Global Findex Database illustrates how Pakistan is one of the seven economies where “more than half of the world’s unbanked adults live.” Account ownership in India grew from 35 percent to 78 percent between 2011 and 2021, in Pakistan it rose only from 10 percent to 21 percent. The report also indicated how only 13 percent of Pakistani women have a bank account, the rate 50 percent lesser than for men. This disparity is further illustrated by showing how only 40 percent of women have mobile phones in Pakistan, compared to 90 percent of men.

The fintech surge combined with low financial literacy rates pose several challenges for Pakistan. The first challenge that people encounter is their vulnerability to frauds and phishing scams. Due to their inability to comprehend financial services properly, people fall for fraudulent schemes, putting at risk their finances. Secondly, incomplete understanding of tools leads to underutilisation of the available resources. The fear of frauds combined with incomplete knowledge results in individuals not utilising the financial tools to their maximum capacity and thus are unable to improve their financial standing. This further results in mismanagement of finances, high levels of debt, and dissaving, resulting in further difficulties for people and their families. This creates a risk of widening and worsening existing economic disparities. Thus, it is imperative to address these challenges so the fintech industry benefits everyone.

However, despite these challenges, the fintech industry also brings numerous benefits to Pakistan. It enables people in rural areas, where traditional banking is scarce, to join and learn from the fintech community as well. Use of the mobile wallet applications and other fintech services allows ease of transactions and keeping a record of these an ease for all. On a larger scale, fintech services also allow a source of documentation and accountability of transactions and payments. Similarly, if e-payments become more common, from street vendors to established organisations, transactions and velocity of money is likely to rise in the economy. However, these benefits cannot be fully enjoyed until the problems of illiteracy are catered for.

Rather than creating more applications and fintech platforms, the solution lies in creating a financially literate population. A hierarchal approach may be suitable for achieving the objective of creating a financially literate population. Government of Pakistan’s National Financial Literacy Program for Youth (NFLP-Y) can be considered a good start to increase financial literacy. However, the programme may not be effective until it is taught to individuals at a young age; creating a need for the programme to be integrated into the school curricula. This will enable young individuals to understand the importance of financial management early on. Similarly, mobile wallet applications and other fintech platforms should also aim to educate individuals as a part of their corporate social responsibility (CSR). This entails creating programs for marginalised groups and educating them. The Benazir Income Support Programme (BISP) has created a “Benazir Social Protection Account” to empower women by providing them “greater access to banking services and promoting financial inclusion.” Similarly, the Banking on Equality Policy is another government initiative aiming to reduce the financial gender gap in Pakistan. Microfinance organisations like Akhuwat can also be seen as a model where they combine their microfinance with education – teaching people the mechanisms of microfinance and doing business.

It is essential to ensure consumer protection without hindering innovation – a factor crucial to build trust. By combining these government initiatives, CSR Programmes and media engagement, a financial literate population may be created. Conclusively, while the Pakistani fintech industry has made significant strides, financial illiteracy is still a hurdle. Bridging this gap is essential to ensure that the advantages of fintech are enjoyed by all, fostering a more inclusive and resilient economy.

 SARA QASIM

— Sara Qasim is a researcher at the Centre for Aerospace and Security Studies (CASS), Lahore. She can be reached at info@casslhr.com.