VRG is seeking Rs1bn to capture the unbanked. What makes it tick?

If you are an investor, would you place your bet on a fintech company that has based its business case on what the banks have actively tried to avoid? Lets flip the question to make it more easily comprehensible: would you place your bet on financial inclusion? 

The popular belief, that Pakistan has a hugely unbanked population therefore the opportunity to provide financial services therefore create a great business is massive, comes with a caveat: the financially excluded are poor and there is not enough money that can be made off of them. This argument is enough for the banks to rest their case of not banking the unbanked or serving the underbanked. Unless these segments do not have money, it does not make sense for the banks to chase them. The flag bearers of financial inclusion, fintech companies JazzCash and EasyPaisa, have done phenomenally well in banking the unbanked up until Covid-19. Without spreading physical brick-and-mortar branches like banks, both these fintech companies built a sprawling infrastructure of branchless banking agents to provide financial services to the segments untouched by the banks because it did not make a commercial case for them. 

The abilities of these fintech companies, however, were severed seriously when the State Bank of Pakistan (SBP) slashed IBFT charges during the pandemic, and kept most of the transactions free later as well, dampening the prospects of making money for these financial institutions. The bulk of the money that these fintech companies make is by charging customers an IBFT fee each time they send money to someone through a branchless banking agent. The SBP completely waived these charges for consumers during the pandemic, restoring the charges later on transactions of over Rs25,000. According to the central bank, 80% of the IBFT transactions are below Rs25,000. This has hit them hard. Both EasyPaisa and JazzCash are now rethinking their model of branchless banking, now that less money can be made on financial inclusion.

 

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