Super Apps Rising: Mobile Drives Digital Payments Uptick in Pakistan

In Pakistan and other countries, the advancement of technology has resulted in greater use of digital banking and payments to improve financial inclusion. Amir Wain, CEO of i2c Inc., told PYMNTS CEO Karen Webster in an interview that the pandemic and the creation of mobile infrastructure have set the stage to bring underbanked people living in emerging economies to the forefront of the digital realm.

One of these initiatives can be seen through i2c’s partnership with TAG, a financial technology company and Pakistan’s first digital-native financial super app, that provides instant payments capability to the country’s unbanked adult population, which at present includes 100 million individuals. Wain noted that generally speaking, “some sort of a major event takes place, that triggers a new norm.”

Even before the coronavirus sent us all indoors and online, mobile devices and mobile networks were becoming widely available in emerging markets. The pandemic has simply sped up the process. A widespread embrace of mobile handsets, said Wain, “made it possible for new players in that ecosystem to build and deliver services on top of the mobile telecom infrastructure. It’s been good for the telecom providers, too, because the infrastructure gets used for a variety of purposes.”

In commerce and in the pivot away from cash, many challenges associated with acceptance still remain. As eCommerce has become widely used in countries such as Pakistan, buying and selling goods by digital means (moving away from the cash-on-delivery model) has generated a reasonable acceptance level.

“You have these ‘local Amazons’ that are cropping up,” he told Webster, “and if you integrate with them, then you have merchants in meaningful numbers driving digital currency activity. Once you have some activity going, you have to think about, how to continue to expand the acceptance network.”

Mobile has a very big role to play in increasing acceptance as it provides an alternative to point of sale (POS) terminals and land lines that are easy to deploy and maintain.

Other alternatives such as peer-to-peer (P2P) and QR codes are gaining favor, especially for smaller retailers.

Regulators have started getting on board with letting non-bank financial institutions (NBFIs) offer financial products in emerging economies, broadening the financial services ecosystem, said Wain. The greenfield opportunities are attracting a significant number of entrepreneurs and capital to countries like Pakistan.

All of these factors create “a perfect combination for digital payments to take off in these markets,” Wain added.

Issuance Matters, Too

Issuing plays a critical role too – as Webster stated, users need to secure credentials in place to transact.

“This is where you will find weaknesses and hence will see a lot of improvement over the next few years,” predicted Wain. “People who do not have experience with the issuing business underestimate its complexities. To them, transferring $10 from one account to another appears fairly simple. But there is a lot more to having a secure and stable issuer processing system. System integrity, handling of leading-edge cases and compliance are some of the areas often overlooked. And let’s not forget there are plenty of fraudsters who are looking for system weaknesses that they can exploit,” explained Wain.

Bad actors may be lured by the relatively immature infrastructure. In some cases, apps are too slow, or user interfaces are poor. In the end, though, evolution is inevitable – and we are evolving towards super apps. Specifically referring to Pakistan, there is no dominant super app yet – but the conditions now exist for such an offering to take root.

To quantify, the population of 220 million represents a significant market and there are 100 million mobile users (with approximately 70 million plus smartphones in the market).

Some of the features tied to the super app that are expected to be introduced in the first quarter, P2P proves to be especially useful for people sending money to rural areas as it will help bring them toward using more services as time goes on. That functionality helps fill a vacuum left by larger, traditional financial institutions (FIs), said Wain, which tend to slow in responding to consumers’ needs, and where it’s proven difficult to serve individuals’ “small ticket needs” through expensive branches.

The traditional banking model is appealing to higher economic strata. But younger, more digitally savvy consumers in Pakistan, said Wain, place more value on the user experience and the convenience of mobile banking.

Looking ahead, as apps evolve, Wain predicts that credit must be an integral part in consumer-facing offerings and experiences. But initially, the credit extended will have to be “small-ticket credit,” as in Pakistan, there is not an underlying credit bureau. While some regulations were introduced some time ago, they will have to be enhanced with clearer paths to collection and recovery in order for FIs and other providers to feel more comfortable with extending larger loans. Microlending, with the help of artificial intelligence (AI) for risk scoring and other advanced technologies, can help cement that comfort level, he said.

For now, he said, firms like TAG, powered by i2c, and other providers are “in a race for customer acquisition and making sure that all the other pieces are working before adding those hooks. It will happen.”