The permeability of digital payments in Pakistan has been an issue of serious concern for stakeholders in the country’s economy for some years. From credit cards to online banking, Pakistanis have been stubborn in accepting innovation when it comes to money. Cash is very much still King, and the dream of a digital Pakistan is hampered by not just customers untrusting of digital payments, but entire companies.
In 2018, it was to offer a solution to exactly this that Ziyad Parekh, a Pakistani-American entrepreneur, created a digital tool that would allow anyone to make and receive payments digitally.
This was the birth of Safepay. The idea is to enable any business to accept digital payments online. Whether you have a website or you don’t, Safepay can help you make digital payments. But there are plenty of fintech startups and technology companies that have been making inroads in Pakistan’s largely untapped market. Not to mention, this is not a particularly groundbreaking idea, since the Irish-America company called Stripe does the exact same thing – Online payment processing for internet businesses.
So what makes Safepay worth profiling? Well, for starters, it is how the company’s founder grew it. The idea for Safepay, even inspired by Stripe, is much needed in Pakistan. One would expect that Safepay will have grown in meetings with investors in sleek board rooms and over expensive if greasy business lunches. In the era of the startup, that is the culture that exists in Pakistan. Except Ziyad Parekh and Safepay did not start off like this at all.
Parekh had created the digital payments tool on his own time out of his own home. Now that he had it, he needed to pitch it. Normally, he would try to look for connections and contacts to get to investors or possible clients. Instead, he turned to Facebook, and simply started posting about his tool in different Facebook groups where the members would understand what he was offering. That is how Safepay came to be, and today, it is in the race for which company takes control of making payments easier in Pakistan.
Since those early Facebook days back in 2018, however, Safepay is now among the only three startups from Pakistan that have been accepted into, and secured seed funding from, the prestigious US-based Y-Combinator (YC) startup accelerator. But what makes it a star among the very few fintech startups is its recent funding round. Safepay raised an undisclosed seed amount from investors that include global financial technology company Stripe. Does the investment from Stripe signal a kind of blessing from the American company, and is Safepay looking to turn itself into the ‘Stripe of Pakistan?’
It is amazing what a single person sitting in their home with a laptop and an internet connection can do. That is what Parekh discovered when what began as mere dabblings in softwares and computers meant to sate his own curiosities turned into a major opportunity. “I started working on Safepay as a side project for my own knowledge, and just to see if it leads to anything. The platform was built all through 2018 and launched in May of 2019 on Facebook groups that I had been interacting with, trying to understand the pain points of customers when it comes to payments,” Ziyad Parekh told Profit.
“I worked on Safepay in my spare time while I still had a job here in the US. I worked on the weekends, in the evening, just building the platform, building the product, talking to potential customers in Pakistan and asking them what they like about existing payment options. Obviously, a lot of them were relying on COD and when they had this option of making payments digitally, the response was nothing short of overwhelming.”
It wasn’t anything fancy in the beginning. Just pitching a payments tool randomly to clients, asking for feedback, learning about the issues in the tools and then fixing them. “Surprisingly, however, I was overwhelmed by the response I got and a lot of people took a leap of faith and tried it out. So that made me realise that I might be onto something. And it also made me realise that right now, if I am going to try and maintain these customers, and turn them into clients, I needed some sort of support and the sort of customer service that I would want for myself,” he says.
That is when Raza Naqvi, the co-founder of the company joined Safepay. A Karachi-born solicitor practicing in London, Raza left his job in London to pursue Safepay. From its launch on Facebook groups in May of 2019, and then throughout the second half of 2019, Safepay’s focus remained on products where Ziyad would be talking to customers, getting their feedback and reiterating the product. The gaps in the market were appalling and as Ziyad identified, there was a need for a digital payments solution that suited individual customers’ needs. And customer interaction is what led them to discover an unmet need in the market that was quite significant.
It was one case in particular that would shape how Ziyad and Safepay would orient themselves. The particular customer in question was looking to start their own ecommerce business, even though they had not set up a website yet. Normally, digital payments are integrated into e-commerce stores. But what Ziyad’s client in this case wanted was a way where they could go to the Safepay website, enter in an amount, generate a link and send that link to a customer and have the customer pay me through that link.
This feature came to be known as Quick Links, which outlines the essence of digital payments that allows individual digital payments transactions even if you do not have a website to have digital payments integrated into the online store. And as Ziyad tells us, over time, Quick Links became one of Safepay’s most popular products forming about 25% of the volume on Safepay where customers would just generate a quick link and make payment through that.
Quick Links is essentially invoicing that makes reconciliation of transactions easy. While payments can be made through bank transfers as well, it is the reconciliation of these payments that becomes a hassle with other modes of payments like bank transfers.
Consider this. If you buy a shirt from an Instagram clothing store, chances are that to make an online payment, the owner of the page will have to send you their bank account details, after which you will have to add them as a beneficiary on your online banking account, make the payment after a two-step verification process, and then take a screenshot of the payment and send it to them to confirm. For the person buying the shirt, it is a bit of a nuisance but still manageable. But for the business, when these orders run in hundreds in numbers, manually reconciling each transaction individually becomes an arduous task and one that still carries the risk of errors.
Another way to make reconciliation easy is to go to the SafePay website, use Quick Links to generate an invoice for the customer placing the order. That invoice is sent to the customer and that invoice has a link that will take the customer to the checkout page where the customer can pay and complete the order. What this means is that small businesses such as e-commerce stores that do not have a website can also accept debit and credit card payments. With such invoicing, reconciliation is automatic and easy as compared to bank transfers.
“Though the customer who suggested this idea did not start their business, they gave us a use case that the market needed but did not have a way to express themselves,” says Ziyad. “It really led me to believe the power of talking to customers and listening to what they really want rather than working in a silo or building something the world really needs.”
The caveat, however, is that it is not only Safepay that is providing such service. Lahore-based Post-Ex provides the same option of Quick Links, and Bsecure also provides a checkout solution. So how is Safepay better? From what Profit learnt from sources in the industry, Safepay was winning on the speed of integration of these solutions with businesses. Where others will take 3-4 days or more, Safepay will get it done in a day.
“Our product is focused towards developers and is meant to make their lives easier while integrating payments across all their products,” says Ziyad. “Our focus is on using technology to create a better user interface and user experience for merchants and their customers,” he adds. But while everyone else is doing the same as what Safepay is doing, none of them is the pioneer of this model. “They started providing these payment solutions when nobody else was. They essentially brought the Stripe payments model into Pakistan and everyone is following them,” an expert in payments told Profit.
But pioneering only goes so far, especially if there are others on the market providing the same services. It is the recent investment and endorsement from Stripe that qualifies Safepay to be called Stripe for Pakistan. “We want to bring the payments experience that exists in the west to Pakistan by leveraging our experience working abroad. Our goal is to create a payments experience tailored for the Pakistani market,” Ziyad further says.
At the end of the day, the scope of digital payments lies with the SMEs and upcoming startups. There are an estimated 900,000 SMEs in Pakistan that are not properly served by banks and existing fintechs, according to Ziyad. Banks would rather focus on bigger brands and not have to deal with extra risks and burdens and customer support issues that will come with dealing with smaller guys.
“When we launched, we were figuring out how to democratise access to these tools. There is an extra element of risk with small companies, but maybe we can solve that with technology,” he explains. “What we realised was that small enterprises were so ready to accept digital payments that they did not care about any restrictions, like settlement times, put on them. We have the highest processing fees in the market but they wouldn’t care. They were happy with the fact they would get digital payments, and as long as eventually they got their money, they wouldn’t mind,” he adds.
The YC Experience
In January 2020, SafePay applied to YC, and in April they were accepted. This was a big deal. YCombinator (YC) is an American seed money startup accelerator launched in March 2005. It has been used to launch over 2,000 companies, including Stripe, Airbnb, Cruise Automation, DoorDash, Coinbase, Instacart, Dropbox, Twitch, and Reddit.
Safepay’s acceptance into YC and subsequent investment from investors at YC is what really got Safepay noticed in Pakistan. May 2019 was when YC started and that was also when Ziyad quit his job and made Safepay his only ambition. The three-month programme at YC was full of rigour, with learnings for a lifetime. “They really work you, make you focus on your business. It can get overwhelming,” says Ziyad.
Each year, YC invites applications from all around the world and incubates hundreds of startups. The number of startups has increased over the year with as many as 197 startups incubated at YC in the summer batch of 2019. YC runs two batches in a year. What makes it more intense at YC is that a startup is a part of a batch with 100-150 other startups that are presumably the cream of the crop from around the world that you are collaborating with. At the same time the startups and the founders are also competing with some of the smartest people in the world that are leading those 100-150 startups, striving to raise investment from a limited set of investors.
“Founders of various startups in the US came and talked about their experiences, their highs and lows, what were the most challenging things in their journey and that helps you learn from them,” says Ziyad. “Safepay also got paired up with mentors that were ex-founders that were now part of YC, one of which was head of growth at Airbnb learning from them was a great experience,” he adds.
But it isn’t just who you meet and who mentors you while you are at YC. The YC experience is for life and it continues even after you have graduated from the accelerator programme. You are a part of the network of startups and founders that have been to YC and whom you can reach out to whenever you want. It’s this network that makes YC even more precious. Any of the founders of top startups are only an email away and they are more inclined to reply to you because, according to Ziyad, YC has that pull about it.
“At YC, we were focusing on how we can grow our business,” says Ziyad. “Let’s say you are a startup that has come into YC with a concept, your main focus would be to turn that idea into MVP (minimum viable product) till the Demo Day. Now because we already had a product, our focus was how we can scale this and show numbers so that investors will be attracted,” he adds.
At YC, things were myopic, with the Safepay co-founders focusing on how the customer onboarding process could be streamlined and how bigger clients could be scored. “The focus really was on that at YC but after YC, the focus was on bigger picture items like enabling new features and going back to what you really wanted to do,” he adds further.
The Stripe investment
The YC experience culminates in a Demo Day when startups present in front of a whole host of investors. The startup presents what it has built, what it has worked on and wants to work on and the vision it holds. Safepay that was part of the Summer ‘20 batch at YC, secured $150,000 investment after its presentation on Demo Day. One of the audience members on that day was a team from Stripe, the global financial services company and one of the most successful startups to have graduated from YC.
Ziyad says that Safepay’s tagline that they used to introduce Safepay to the audience in America was “Stripe for Pakistan” and that is what perhaps resonated with the fellows from Stripe and caught their eye. It resonated with them because they are “Stripe for the world”.
Now for Stripe, one way to come into Pakistan is by coming individually into Pakistan which can be time-consuming and expensive. Stripe currently has no operations in Pakistan. The other way is to invest in a company that is more or less like Stripe. And it is not surprising that for a country like Pakistan that is not on the roadmap of technology companies around the world, it would rather make more sense for them to come into Pakistan via an investment into a company that has the similar ideology as them.
Consequently, Stripe ended up investing in Safepay in a seed round that was announced in February this year. Though the exact amount remains undisclosed, it is a seven-figure investment and the round was led by Stripe that put in the most money.
“We had closed our round and after we closed it, Stripe reached out. They were interested in what we were working on and they wanted to be able to back us and support us in their mission to bring digital payments to Pakistan. They were the last investor to come in but then they overtook everyone in terms of amount,” Ziyad says.
Stripe did not just come in with money. It came in with all their resources behind them that have made them successful in countries where they operate. There is a lot for Safepay to leverage from Stripe and what it can potentially bring to the Pakistani market and do things in ways that are global. And as such, that might actually help it become Stripe for Pakistan.
For now, the operations of Safepay are at a pause pending regulatory approval from the State Bank of Pakistan (SBP). For clarity, Ziyad says that the SBP did not shut Safepay down or forced it to stop operations. It was rather a deliberate decision by the company to have all the necessary regulatory covers to avoid any undesirable situation in the future.
Without giving many details about what happened, Zyad only said: “If one party isn’t a regulated entity and the other party is, then it becomes cumbersome for the regulated entity to realise where the liability of KYC (know your customer) lands. The SBPs main concern is consumer protection and preventing money laundering and terrorism financing. So they have regulations that fintechs have to adhere to.”
“If you are not a regulated entity and you are doing something in fintech, the SBP pretty much has no jurisdiction over you. But if you are working as a non-regulated entity with a regulated entity, all the responsibility goes to the regulated entity. If we do something wrong, the regulated entity will bear the burden of our mistake and that is something that we did not feel comfortable putting on someone else’s shoulder. Therefore, we are looking for regulatory cover from the SBP,” Ziyad adds.
An independent source in the industry told Profit that Safepay pausing its operations was followed by the central bank’s objection on one of the top Pakistani bank’s, Habib Bank, collaboration with Safepay.
As a fintech company, Safepay is only an enabler of payments and holds money in a settlement account with a bank for sometime before transferring it in bulk to a merchant’s account within that same bank.
The State Bank apparently had a reservation that Safepay holding money in a settlement account for some time before settlement with a business might be a risk as money could be transferred somewhere else before it was transferred to the business. Industry sources say that the SBP was right in its concern that money could flow out from the settlement account but fintech regulations do not prevent opening of such accounts and therefore it is the onus of the bank to ensure all mandatory regulatory requirements are fulfilled. “The banks should not allow opening up of such an account if it is a regulatory risk,” a source said.
The result was that Habib Bank and Safepay, upon intervention of the central bank, stopped collaborating and before it could spillover to other banks with which it had accounts, Safepay paused its operations to seek regulatory covers first to prevent any similar undesirable situation in the future. At the same time, sources say that the central bank was duplicitous in implementing this policy because Safepay is not the only fintech company that operates in this way but they still continue to operate.