• Fintech Startups in Pakistan Struggling to Get Approved to Operate As Electronic Money Institutions (EMIs)

    Pakistan boasts one of the world's largest unbanked populations, and startup fintech companies are eager to capitalize on this. Companies such as SadaPay and NayaPay are trying to break into this market by providing bank accounts to a significant segment that lacks access to traditional banking. With government regulations pushing them out, these startups hope to take advantage of an untapped market. Additional info found at tag pakistan.

     

    Tag Innovation Pvt Ltd, the digital bank founded by former YCombinator summer 21 cohort Talal Gondal, has successfully secured over US$12 million in seed funding from Liberty City Ventures and Canaan Partners. These funds will be used to expand their product portfolio and hire more staff members.

     

    Gondal describes the startup as "a new industry" in the region and believes it has created a "new market in Pakistan", noting that 70% of adults lack bank accounts - something the company's services could help address.

     

    In Pakistan, many people struggle to open a bank account due to the lengthy and costly process. With its free mobile applications that deliver financial services instantly with no fees for sending or receiving money, the company hopes to alleviate this pain point for millions of Pakistanis.

     

    But a major obstacle for these startups is obtaining regulatory approvals from their country's central bank. Last year, the State Bank of Pakistan revoked TAG Innovation Pvt Ltd's in-principle and pilot operations license to operate as an electronic money institution (EMI).

     

    After identifying violations of regulatory requirements and other concerns during its pilot operations, the SBP ordered Tag to refund all outstanding funds to wallet holders immediately but no later than August 19. Furthermore, they advised TAG to close all customer wallet accounts and remove their apps from Google's Play Store and Apple's App Store with immediate effect.

     

    Electronic Money Institutions (EMIs) are businesses that provide innovative, user-friendly and cost effective digital payment instruments like wallets, prepaid cards and contactless payments. They function similarly to basic banks but without deposit taking or credit-based loans that traditional banks may provide.

     

    Startups can raise capital through various methods, but the most popular is an equity or priced round. In an equity round, a founder sells shares to investors at an agreed valuation cap.

     

    These rounds can either be SAFE or NON-SAFE. The primary distinction is that in a SAFE round, investors receive a discount to the company's actual value at investment time. They then have the opportunity to convert their investment into shares at a specified valuation cap in the future.

     

    When evaluating a company's value, several factors come into play; its growth potential and ability to reach new markets. Some of these include its penetration rate into new markets, size of customer base and degree of penetration therein.