There’s no doubt Pakistan’s banking is moth-eaten where the same set of uncles push on the same set of worn-out products in a new package while patting themselves on the back during their launch ceremonies. Lucky for the media, they pay decent money to get those useless press releases out as well. Everyone except for the customer gets something, who by now has pretty much accepted that it’s futile to have any hope from these organisations for a half-decent experience.

This is why so many jumped to Electronic Money Institutions despite their limited offerings. More people are hoping for the upcoming digital banks to disrupt the status quo. But all that obsession with pretty wallets and frontend apps masks the underlying shift taking place behind the scenes.

Over the last few years, the market for banking technology providers has substantially improved and gotten somewhat competitive. First, post Covid-19, most financial institutions were forced to find room for higher budgets in their coffers. According to numbers aggregated by Data Darbar, the total IT spending by 27 banks with complete annual reports clocked in at Rs46.6 billion in 2021, compared to Rs41bn in 2020.

Between 2018 and 2021, IT spending has increased at a compound annual growth rate of 12.77 per cent — almost twice as fast as the overall operating expenses at 6.7pc. Unsurprisingly, this has attracted some names to try their luck in this space, with leading software players entering through consolidation.

Over the last few years, the market for banking technology providers has substantially improved

The first was Contour buying Autosoft dynamics, a local banking solutions provider, and then Systems Ltd followed with the acquisition of NdcTech, which is the reseller of Temenos, arguably the market leader.

On top of this, new players — with experience in banking — have also entered the market. Among locals, Paysys Labs has made a decent name for itself, boasting some major projects including the overhaul of the National Savings Scheme. At the same time, BPC Group — a Swiss-headquartered banking tech company with business across the world — has aggressively expanded to Pakistan.

“The industry has evolved over the past few years when it used to be largely dominated by local players. But since 2015, there’s been a growing demand for Tier-1 products, creating room for international companies with a more product-centric approach and higher research and development capacity,” says Ahson Saeed, Pakistan Managing Director at BPC Technologies.

Mr Saeed has long been part of the banking and payments tech industry and was previously heading the global business development for TPS. While BPC has a global presence catering to both commercial and central banks as well as Payment Service Providers and neobanks, its expansion in Pakistan began with software licensing — the core offering. The company now lists the likes of Meezan, Allied and Apna Microfinance as its clients.

“Currently the biggest contributor to our revenue in Pakistan, and elsewhere, is SmartVista Card Management,” says Mr Saeed, referring to the software which basically helps banks with everything from issuing cards to merchant management and integrating with third-party payment networks. “We felt there were gaps in the card suites available in Pakistan and that there was a need for an end-to-end solution that could handle all types of cards be it credit, debit or anything,” he adds.

Now the company is looking to bring other solutions into the Pakistani market and expand its footprint, particularly in the digital banking, e-commerce and point-of-sale acquiring business. And there’s no shortage of opportunities here. As many as 20 contenders are waiting to hear from the State Bank regarding their digital banking license.

It probably helps that one of the applicants, TymeBank, is actually their client in South Africa and the company is serving some of the leading fintechs and neobanks in emerging markets. E-commerce has also been on a steep upwards trajectory post-Covid-19 in terms of throughput, attracting not only new Payment Service Operators/Providers but also a couple of banks.

Meanwhile, point-of-sale, after staying stagnant for a good few years, has gotten a second life thanks to some regulatory changes with respect to the acquiring business by the State Bank of Pakistan. That has led to some fresh competition in the space with the entry of Meezan and Nigerian unicorn OPay. As a result, the number of machines increased to 96,975 as of Q3FY22, compared to just 48,763 two years before.

Finally, there’s the regulatory push which is opening new business avenues for banking tech players. Raast is just one example, where all institutions need to integrate their various stacks into the micropayment gateway. For Mr Saeed, this means the market is big enough and believes they have already positioned themselves to ride on the high-growth opportunities.

Published in Dawn, The Business and Finance Weekly, August 1st, 2022