Systems Ltd’s play on Pakistan’s payments evolution gains momentum

Systems Ltd (SYS), a data entry services company has received in-principle approval form the State Bank of Pakistan (SBP) to grow its mobile payment application, called OneLoad.

This makes the SYS the third entity to get in-principle approval under the SBP’s Electronic Money Institution (EMI) regulations, which were enacted on April 1, 2019.

The other two are Nayapay, and Finja. SYS is still the only publicly listed technology company to get approval.

OneLoad currently operates as a mobile payment aggregator or gateway, which only allows users to pool in cash, but does not allow users to cash out. Cash can only be used to clear payments against mobile loads, utility bills payments, and other transfers. The new approval means that users can now withdraw cash from retailers, and agents across the country.

Additionally, the International Finance Corporation (IFC) has signed an agreement to invest in around 20% of equity of E-Processing Inc, the company which owns and operates OneLoad. SYS holds 59.13% of E-Processing.

“Financial impact of said transaction is currently unclear, it will increase consumer confidence in OneLoad, in our view. OneLoad has shown impressive growth in the number of users and transactions by growing 95% and 55% respectively in the last 9 months.” wrote Mohammed Ahmed, a research analyst at Insight Securities, a securities brokerage firm, in a note issued to clients on February 3.

SYS is in the business of software development, trading of software and business process outsourcing services. The Group comprises of Systems Ltd (Holding Company) and its subsidiaries – TechVista Systems and E-Processing Systems Ltd. The company’s revenue is primarily from software development and IT services work subcontracted by its subsidiary TVS operating in the Middle East region and its associated company Visionet Systems operating in the North America region.

Originally started, like other fintech companies, to digitize payments and provide an e-wallet to people, OneLoad soon came to a realization that the need was not on the consumer side because many other players were there to cater to those needs like Easy Paisa, SimSim, Jazz Cash and even banks to a certain extent. Entering the market with a consumer-orientation was going to be an expensive investment because the competitors were pumping in a lot of money but OneLoad’s funds had to be used optimally.

In order to get into the space without having to outspend its well-financed rivals, OneLoad decided to shift its focus to the retailer/merchant side as the company had identified a need: keeping inventory of scratch cards was a pain for the merchants. They were unable to hold big inventories, lost count of scratch cards sold of a specific telecommunication company, coupled with a fear of theft. Moreover, getting top-ups from different companies was expensive and cumbersome as it required paying several service providers upfront and tying up money in physical cards or buying credits which were only usable for one particular service. Unused credit was also lost money for retailers.

That was an opportunity there. OneLoad moved quickly and successfully digitized the retailer to make it easy for them to serve walk-in customers as retailers could now work with less upfront investment, did not have to tie up capital in multiple dedicated services and did not have to deal with numerous vendors visiting their shops demanding them to purchase more than they needed for the day.

Presently, OneLoad claims that more than 25,000 retailers actively use its platform and earn commission on a transactional basis. It has served over 100 million consumers — meaning that 100 million people have bought airtime from OneLoad — since its full-service launch in late 2016, with over 20 million retailer views of the application each month. It also claims of being the largest fintech in Pakistan in terms of transactions performed and has entrenched itself for mass market, bottom of the pyramid commerce.

Separately, the Pakistan Software Houses Association for IT, or P@SHA, has proposed to the SBP to actually provide incentives to the IT industry. These could take the form of: permission to raise funds on owner’s pledged properties, 5% cash incentive on exports remittances through legal channel, and retention of 35% of foreign remittance in foreign account and its usage. According to the report, “these incentives will bode well for SYS.”

Additionally, on January 28, the SBP announced it would provide an additional Rs100 billion to the Export Refinance Scheme. SYS is currently availing said scheme.

The approval for OneLoad comes at a time when the government of Pakistan is actively seeking to increase the use of online transactions and boost the digital economy. Several new companies are trying to crack the code of becoming the default payment platform for Pakistan’s digital economy, but it has thus far been an uphill battle.

Nonetheless, the industry has been attracting some strong global interest. Alibaba’s financial technology (fintech) subsidiary Ant Financial bought a 45% share in Telenor Microfinance Bank for $185 million in March 2018.

Ant Financial’s strategy is likely to combine the offering of its product in China – Alipay – with that of Easypaisa’s mobile wallet offerings. In essence, it would replicate what Paytm built in India: a single service that combines bank accounts at formal financial institutions with the cash-vendor-dependent mobile wallet model of Easypaisa.

Another startup that is looking to enter the payments space is SadaPay, a mobile wallet started by Miami-based Tech entrepreneur Brandon Timinsky, who led a successful gas delivery startup GasNinjas to a multi-million dollar exit in the United States (US). Brandon now plans to introduce Sadapay as a neobank in Pakistan.