The Promise of Frontier Markets; Why We Invested in Tez
FinTech is an exciting field anywhere in the world right now. But in certain markets, FinTech has the potential to truly shape the future of finance. In these countries—which include Pakistan, Bangladesh, Myanmar, parts of Africa and Latin America—a number of factors are coming together, creating the opportunity to leapfrog from a dismal banking landscape to a digital, more inclusive marketplace.
In these frontier markets, we’re seeing the beginnings of a completely digital economy, driven by several common factors:
- The spread of smartphones and falling data costs
- The growing ubiquity of first-generation mobile money platforms
- An expanding ecosystem to support digital entrepreneurs
- Forward-looking central banks
- A large unbanked population
At Omidyar Network, we have started to make investments in markets at the frontier of financial inclusion. We recently invested in Pakistan’s first digital-only, mobile-first neobank, Tez. In October, we led a $1.1 million seed round with Accion Venture Lab and Planet N to help Tez build its credit portfolio, further develop its mobile platform, and secure a license to operate in Pakistan as a Non-Bank Microfinance Company (NBMFC).
Tez aims to become the primary financial services provider for the unbanked and underbanked in Pakistan, starting with a large pool of millennial consumers who are digitally-native and already own a smartphone. And the company is already making ripples with its micro-loans platform, which approves applications in as little as 15 minutes. In this market, where only 23 percent of the population is served by formal channels and 24 percent by informal channels, similar-sized loans can take a month to access, and half the population has no access at all.
While the formal sector is severely limited, the reach of mobile is extensive—and growing fast. Pakistan has 50 million smartphone users, and many are technologically sophisticated. Half the population is under the age of 25 and an estimated 30 million people are on Facebook or WhatsApp. As the World Bank’s Findex data indicates, Pakistan tops the list of countries where the next generation of financially included consumers lives.
In this environment, over 20 accelerators and incubators are helping entrepreneurs scale FinTech solutions, and the central bank, the State Bank of Pakistan, has a consistent record of quickly embracing innovation.
In this fertile frontier market, a number of things excite us about Tez. First, its leadership has experience in building successful businesses that advance financial inclusion. CEO Nadeem Hussain developed Tameer, Pakistan’s first microfinance bank, which was acquired by Telenor and then Ant Financial. Second, he and his cofounders, Humza Hussain and Naureen Hyat, are taking a staged approach to licensing as they expand their services. The jump from digital front-end to fully licensed bank is the most challenging step in the growth of neobanks—and Tez has a plan to manage the risks and costs before applying for a full-fledged digital bank license. Finally, Tez has a unique vision for using data and its mobile platform to reimagine the role of financial products in Pakistanis’ lives, by drawing on their knowledge of how target-customers use the informal market.
Tez is just getting started. In addition to short-term credit and savings, as well as insurance, it will soon offer a full range of services. It is testing small-dollar loans with promising results. With widespread national coverage, its conversion rates are strong, providing diverse data to train its algorithm.
We are also just getting started investing in frontier markets to advance financial inclusion. We estimate the total frontier opportunity to represent over 350 million people. Investors such as Accion, Vostok and others are realizing the potential of this opportunity, and we hope others will join this movement soon.