GVS: What led Akhtar Group to invest in the fintech sector?
Qasim Akhtar Khan: Akhtar Group (“AG”) is a conglomerate with interests spanning the beverage, sugar, ethanol, steel, C02, and textile industries. In particular, the group has significant exposure to sectors revolving around sugar.
When AG sold a majority stake in its beverage business to Korean conglomerate Lotte Chilsung Beverage, there was a strategic shift within the group to diversify into the tech space.
In due course, AG was introduced to Shanghai-based Payments platform Fuiou Payment Service Corporation (“Fuiou Pay”) and Hangzhou-based E-Commerce platform Jollychic. Fuiou Pay is one of the largest players in the payments space in China, processing up to $200 Billion in transactions (2/3 of Pakistan GDP) and $15 Billion in inward remittances (Half the number of home remittances Pakistan received in FY 2021) on an annual basis.
Meanwhile, Jollychic is the second-largest E-Commerce platform in Saudi Arabia and UAE, with a Gross Merchandise Value (“GMV”) of $1 Billion. Both groups have co-invested with AG in its new fintech platform called Akhtar Fuiou Technologies (“AFT”), which has recently attained In-Principal Approval (“IPA”) from the State Bank of Pakistan (“SBP”) for an Electronic Money Institution (“EMI”) license.
AG’s interest in technology goes beyond just creating a digital payments platform. The group envisions utilizing its network in China to partner with a leading Chinese social media application, E-Commerce platform, Smartphone manufacturer, and Electric Vehicle assembler to create a synergistic in-novation-driven ecosystem that helps the group and the country transition towards the new economy.
We feel that the combination of cutting-edge Chinese technology and AG’s influential presence across a wide range of industries in Pakistan indicates that this joint venture (“JV”) has great potential.
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GVS: Since you now have in-principal approval from the State Bank to operate as an Electronic Money Institution, what are the next steps you would take to synergize this opportunity?
Qasim Akhtar Khan: AFT intends to ramp up its wallet user base by offering cloud-based payroll solutions to agricultural commodity-based industries located in rural areas where most of the population is unbanked, eventually digitizing, documenting, and streamlining the entire value chain of these sectors.
AFT will issue debit cards to its wallet users and PoS terminals to retailers to create a digital payments ecosystem. Use cases for wallets include cross-border remittances, interbank fund transfers, utility bill payments, health and education bills, QR Code payments, Online shopping, cash withdrawals at ATMs, and cashback at PoS Terminals.
Meanwhile, SBP’s target of increasing the number of PoS Terminals 10x within the next two years from 50,000 to 500,000 creates a lucrative opportunity for AFT to step into the acquiring space by providing merchant services to acquiring banks and selling PoS hardware and software.
Our JV partner Fuiou Pay has vast experience in the payments industry where it provides aggregated acquiring services for some of the largest multinational banks such as HSBC and payment processing services for the likes of Amazon.
GVS: Who are you aiming for as your target market?
Qasim Akhtar Khan: AFT’s target market is the unbanked rural population of Pakistan, which is either employed in or associated with agricultural commodity-based industries. Just 21 percent of Pakistan’s population has access to financial services, of which 13 percent have bank accounts and 8 percent have mobile wallets.
Most of the population that has access to financial services is employed within the urban areas of the country, which make up just 40 percent of the country’s population. In addition, the sectors where AG has achieved scale and influence also happen to be those that revolve around manufacturing agricultural commodities and provide a source of income to the unbanked rural population.
Therefore, AFT has identified the unbanked rural population as low-hanging fruit and an appropriate target market for its wallet product. For the PoS business, our target market is the banks going into the acquiring space as we intend to sell Payment hardware and software to them and provide them with merchant services.
GVS: How do you intend to advertise your services?
Qasim Akhtar Khan: AFT has a multi-pronged strategy for advertising its services. To ramp up our base of wallet users, we intend to roll out our payroll service in industries where AG has scale and influence and creates viable use cases to have active wallet users.
We would also like to utilize the distribution network of AG’s FMCG business to onboard merchants to help banks install PoS terminals at strategic locations where usage may be highest and simultaneously create merchant wallets that will help digitize the supply chain from distributor to retailer. In addition, we intend to partner with payment card schemes to issue branded debit cards.
GVS: Do you see yourselves and the fintech industry working in cooperation with banks, or do you think you will be perceived as competitors?
Qasim Akhtar Khan: As far as AFT is concerned, I believe there would be more cooperation than competition because the segment we are targeting is the unbanked rural population, while banks primarily pursue customers in urban areas who maintain a reasonable minimum balance on which the bank can make money by charging interest.
AFT intends to partner with banks on various fronts as banks would be providing a custody account to AFT in which all its wallet users’ deposits would be secured; AFT plans to partner with acquiring banks by selling Payment’s hardware and software and providing merchant services.
AFT is interested in the cross-border remittance space where cooperation with banks would be required for remittances sent through banks SWIFT network, IBFT’s, and cash withdrawals from ATMs.
However, for those Fintech’s who are attaining a license from SBP for Digital Banking, MFI’s, or NBFC’s, there may be competition with banks since they are venturing into lending and insurance services.
In addition, some fintech’s are targeting the urban middle class banked customer and aiming to provide a better digital product than that which traditional banks already offer, so they may be considered competitors to the incumbents.
GVS: What is your strategy to deal with credit risks?
Qasim Akhtar Khan: An EMI cannot charge interest on deposits, nor can it lend. A Microfinance Institution (“MFI”) license is required for consumer lending, while for corporate lending, a Digital Banking license is required.
The minimum paid-up capital requirement for the two licenses is 5-6x that of an EMI. Contrary to how a couple of EMI’s have marketed themselves to investors, an EMI license alone does not enable a Fintech to operate as a Digital Bank.
In the short term, AFT does not intend to go into lending, but at a later stage, as the business scales up, it may evaluate schemes such as Buy Now Pay Later (“BNPL”), which have been successful in China and would have synergies with the E-Commerce platform it intends to launch.
When we reach that stage, we intend to create an innovative algorithm-based mechanism to evaluate credit risk based on the customer transactional data we have accumulated from our Wallets and PoS terminals.
GVS: Do you see yourself getting NBFC accreditation from SECP as well?
Qasim Akhtar Khan: AFT has not yet evaluated the prospect of attaining NBFC accreditation from SECP as insurance services are not currently our priority. However, our long-term vision is to become a full-fledged digital financial institution.
For that, we would proceed towards transitioning from an EMI to a Digital Bank and get the relevant license from SBP so we can start lending and provide other financial services to address the needs and provide innovative solutions to consumers, merchants, and freelancers.