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Gearing up FinTech for wider financial inclusion

Published in Jul-Aug 2017
How financial technology startups (FinTechs) are transforming the financial services industry globally.

Financial technology start-ups (FinTechs) are transforming the financial services industry globally and more and more banks are embracing this platform in order to devise more innovative solutions. The trend is now catching on in Pakistan.

This year two organisations, Habib Bank Limited (HBL) and Karandaaz Pakistan held their FinTech challenges with two separate objectives. HBL launched their ‘Innovation Challenge’ in May to find potential start-ups to bring in new and efficient financial solutions and ideas to their financial system, and Karandaaz Pakistan (a not-for-profit organisation) ran its second round of Financial Disruptive Challenge (FDC), in partnership with the IBA AMAN Centre for Entrepreneurial Development to promote financial inclusion in Pakistan.

Giving details about the HBL Innovation Challenge, Abrar A. Mir, Innovation and Financial Inclusion Officer, HBL, says the bank realises the importance of engaging with the entrepreneurial ecosystem to develop new solutions, and in order to reach out to the start-up community and source new solutions, it ran the Innovation Challenge. “If the ideas are interesting, we will induct the teams and ask them to develop those ideas at HBL.” In this way, he adds, the bank will not only benefit from innovative solutions, but will also solve one of the biggest challenges for any start-up: finding their first customer.


Three winners of the HBL Innovation Challenge were LFD Default Prediction Algorithm; a team of young scientists who work on big data solutions, Faceoff; a team of four software engineers with expertise in artificial intelligence and Wukla/Paksign; an online portal founded by three lawyers who provide digital legal services.


The challenge was based on five themes for which the bank sought solutions. These included customer authentication, data protection, automation, artificial intelligence and regulatory reporting. It was open to anyone (teams or individuals) who could bring in ideas and help the bank achieve the aim of “becoming the bank of the future” – which, according to Mir, will have streamlined operations, improved service and customised product offerings for each customer’s unique needs.

“With the help of FinTechs and our existing data, we want to develop solutions to predict when customers need a car or a house loan, when their children are going to college or if they need financial help,” says Mir.

Applications were submitted via the HBL Innovation Challenge website. Mir says the response was encouraging as they received more than 60 proposals (including a few from entities outside Pakistan). After selection and grading by the panel of members from the HBL management, nine teams were shortlisted for the final held on May 23 this year. Three winners were announced. The first was LFD Default Prediction Algorithm; a team of young scientists who work on big data solutions. They developed algorithms for HBL to determine credit worthiness of existing and prospective customers. The solution will help HBL classify borrowers and gauge an individual’s willingness or ability to repay a credit or a loan. The second winner was Faceoff; a team of four software engineers with expertise in artificial intelligence. Faceoff brought solutions specialising in facial recognition to verify customers, reduce fraud and provide more secure services. The third was Wukla/Paksign; an online portal founded by three lawyers who provide digital legal services. The team developed solutions to sign legal documents digitally. These solutions help verify financial transactions made online.

All three winners, rather than receiving a cash reward, will take HBL on as a client and deploy their solutions. The remaining six finalists received cash awards worth Rs 200,000 each – “as a token of appreciation.” According to Mir, HBL plans to make this challenge an annual event and hopes to see more interesting solutions in future rounds.

Karandaaz Pakistan concluded their second Fintech Disruptive Challenge on May 20 this year.

The organisation grants up to $100,000 to the winner and up to $20,000 for the three runners-up. They do this with the help of the Bill and Melinda Gates Foundation, which aims to promote financial inclusion in Pakistan by supporting start-ups and introducing solutions in areas of payments, insurance, savings and investment.


FDC’s winner for 2017 was Credit Fix; a firm that has an app which assesses the credit worthiness of a customer through behaviour profiling and informal financial data, such as their household income, expenditure flows and savings. The app is linked with a mobile wallet where customers can file for a loan and conduct other transactions (eliminating the need of physically going to the bank).


Zohaib Jawed, Analyst, Digital Financial Services, Karandaaz, remarks that to increase financial inclusion, FinTechs are playing a critical role by bringing in ideas to support digital financial services players such as banks and telcos. “At Karandaaz, we not only fund FinTechs, we also connect them with the right partners if needed.”

FDC’s winner for 2017 was Credit Fix; a firm that has an app which assesses the credit worthiness of a customer through behaviour profiling and informal financial data, such as their household income, expenditure flows and savings. The app is linked with a mobile wallet where customers can file for a loan and conduct other transactions (eliminating the need of physically going to the bank). Credit Fix will create a solution that will provide easy and quick access to credit to under-served customers. According to Jawed, this will be a mobile-only product which will be distributed digitally and will promote the use of mobile-based digital financial products.

The runners-up included MyCash, Samavi, Trader Services, Simple.pk, Smartchoice.pk, MeraPaisa and Tez Financial Services. Karandaaz will be running another (third) round of their FDC next year.

Both HBL and Karandaaz, although they have different agendas for their challenges, believe collaboration with FinTechs can bring innovation and mobility to the financial industry and improve user experience. However, in order to thrive, FinTechs do have their own set of challenges that need to be addressed.


The government is targeting universal financial access for at least 50% of adults by 2020 via its National Financial Inclusion Strategy. However, this can only be realised by expanding the scope of FinTechs so that they can come up with more efficient and seamless branchless banking solutions.


While banks are highly-regulated organisations, FinTechs lack operational and regulatory experience. Moreover, in terms of partnerships, banks have expressed concerns about the safety of the customer information they make available to FinTech providers. In addition, Jawed says, there isn’t much awareness about the number of FinTechs operating in Pakistan and banks are not fully aware about how they can help develop or disrupt business models.

“The culture of innovation in banks is at a dearth because banks traditionally resist innovation because of their conservative risk appetite.”

Mir somewhat contradicts that. According to him, finding good, workable and commercially-viable ideas is a challenge, both locally and globally. He says most of these entrepreneurs “unfortunately have little exposure and understanding of the financial industry, its workings and challenges. Hence, a lot of the ideas floated are mostly commonly-tested ones, recreated with a slight twist.” This is the reason he says, the bank did not run an open-ended challenge with cash reward as the main incentive because they wanted the start-ups to understand the key issues and areas of focus prevalent in the financial industry, so that they can work towards solutions that address those challenges.

Nevertheless, Mir acknowledges the fact that the banking industry has so far not been very proactive in reaching out and educating the start-up community about banking requirements and that there is a need for more collaboration between the two. “The good thing is that the thought process has started; after this challenge, I am sure more banks will engage with the start-up community more proactively.”

Although FinTechs maybe at a nascent stage in Pakistan, there is immense potential for their growth given the high percentage of the unbanked population and relatively weak consumer banking due to geographically limited services.

According to World Bank estimates, Pakistan’s current financial inclusion ratio is 15% compared to an average of 33% for lower-middle income countries and until 2016, about 100 million adults in Pakistan did not have access to formal financial services. To remedy this, the government is targeting universal financial access for at least 50% of adults by 2020 via its National Financial Inclusion Strategy. However, this can only be realised by expanding the scope of FinTechs so that they can come up with more efficient and seamless branchless banking solutions. On the back of Pakistan’s relatively high mobile phone penetration, FinTechs can reach out to under-served areas in an efficient and cost-effective manner. Moreover, through these recently introduced challenges, FinTechs can enhance linkages with financial institutions and obtain the much-needed funding they require for their own growth and innovation.