The leading consumer tech startup Pathao announced yesterday that it has raised $12 million in a pre-series B funding round led by the MENA-based VentureSouq with participation from Anchorless Bangladesh, Osiris Group, South Asia Tech, Openspace Ventures, and other undisclosed investors. The company hinted that the new funding will be used to accelerate its strategic shifts towards fintech.
This is meaningful news for Pathao and for Bangladesh's startup ecosystem.
Pathao has gone through various strategic changes since 2020. The company saw a major restructuring in its leadership in 2021 and has since made several significant business and management changes. For the past two years, it followed a quiet execution approach, focusing on streamlining its operation, achieving sustainability, etc., and mostly stayed away from the limelight. With the new investment, the company indicates a different stage of its operation.
This investment takes Pathao’s total capital raised to over $50 million, the highest for a pre-series B startup in Bangladesh.
For Bangladesh’s startup ecosystem, this news comes at a time when the country is navigating a major political and economic change. People in Bangladesh and abroad have taken a generally cautious position about the country’s startup ecosystem. Pathao raising capital amid all these changes provides the ecosystem with much-needed positive boots to gain attention from both domestic policy-makers and international investors.
Pathao says the round comes as its strategic shift towards fintech gathers pace. Pathao claims that it has built a profitable and financially robust business over the past two years. It now plans to use that strength and the newly raised capital to “holistically serve its customers with fintech offerings”.
Pathao’s fintech ambition is not a new thing. The company launched its first version of Pathao Pay in 2018. That timing was perfect for the company. It had launched a series of successful products. The ride-hailing business was doing exceedingly well. It received backing from some of the prominent global investors. There was a growing interest in the company locally and globally. In April 2018, it utilized optimism and timing to launch a closed-loop version of its payment solution to serve its users to interact within its ecosystem of products. However, Bangladesh Bank denied Pathao permission to add payment service at that time, a decision that was highly consequential for the company.
That, however, didn't stop Pathao from pursuing fintech ambition. Between 2018 and 2023, Pathao continued to experiment with several financial services including Pathao Pay—a digital wallet, and Pay Later, Bangladesh’s first buy now pay later solution. These initiatives have largely targeted its own user base across its logistics, ride-sharing, and food delivery businesses.
Meanwhile, Pathao continued to pursue the fintech license and was finally given a payment service provider (PSP) license in 2023, paving the way for the company to launch a fintech product.
The strategic reasoning to launch a full-fledged fintech product does make sense for Pathao. The primary thesis is clear: Pathao already has a sizable user base across its various verticals who regularly need fintech solutions to use Pathao products and services. If Patho has its own fintech solution, these users can use the Pathao solution when interacting with Pathao services as well as outside of the Pathao ecosystem if they get used to it. It can improve retention, strengthen strategic moat, and amplify aggregation power for Pathao. Eventually, the company can take the service to users outside the Pathao ecosystem.
Pathao Managing Director and CEO Fahim Ahmed put this in its pre-series B funding press release in the following way:
“We’re looking to build a tailored financial management ecosystem for our customers, the young professionals and tech-enabled entrepreneurs in Bangladesh”.
The company says it aims to “provide personalized financial solutions to over 5 million young professionals and over 500,000 tech-enabled small businesses in Bangladesh, utilizing cutting-edge technology to enhance user experience” with its fintech products.
The expectation is that the existing users within the Pathao ecosystem will adopt Pathao Pay to interact within the Pathao ecosystem and then eventually take it up for external use as well. This is what Pathao alludes to in its funding press release when it writes:
“The company, which is the market leader in logistics, ride-sharing and food delivery, has already made some strides in fintech with the introduction of Pathao Pay, a digital wallet, and Pay Later, Bangladesh’s first and largest buy now pay later solution. Pathao’s machine learning-driven underwriting has already made the ‘Pay Later’ service gross profitable. The new funding will be instrumental in scaling these fintech offerings, refining their technology and broadening market reach.”
Pathao has a large user base. The company has played an important role in mainstreaming ride-hailing, online food delivery, and next-generation logistics. The company claims to have served over 10 million customers since its inception in 2015.
For Pathao, a payment product can help accelerate its customer acquisition, and retention and further strengthen its market power.
One assumption may be that Pathao has a growing ecosystem which can be the source of the initial customer base for a service like Pathao Pay. On the other hand, a seamless and advantageous digital payment integration can help expand the said ecosystem both in terms of serving more customers as well as adding more services.
Pathao has slowly been moving towards this new strategic direction where it aims to become a digital consumer services platform. The shift has accelerated since Fahim Ahmed, the current Managing Director and CEO of Pathao, took over the leadership position in 2021. The company has been focusing on several on-demand services verticals. It continues to be a leading player in rides, food delivery, and logistics. Pathao CEO reiterates this ambition in the latest press release:
“Pathao is far more than a brand, or a suite of products — it is a lifestyle. Just as it has radically transformed urban transportation, logistics and the gig economy, our efforts in fintech will reshape the financial landscape in Bangladesh.”
Payment can be a key strategic piece if you want to achieve this platform ambition. To that end, getting into BNPL has been an excellent move for the company, which must have helped it drive new demands, build retention, and improve margin. Pathao Pay can do the same for the broader market and ecosystem.
Secondly, fintech as a standalone market itself is a huge opportunity. Bangladesh has a young population. Credit card penetration in the country remains low. It is often difficult for young people to access credit. These factors make a seamless digital payment product a highly lucrative payment option to customers. Pathao CEO explains this in the press release:
“Our core users are the digital native youth of Bangladesh. The traditional banks are too primitive for them, and the other digital wallets are focused more on breadth targeting the underbanked.”
Finally, as Pathao rolls out its payment product, it will likely open up new doors of opportunities for the company and help the company build a new narrative in the market. This is particularly important because narrative power has shifted from Pathao’s existing product line and there is a perception that Pathao’s existing product lines have hit a growth ceiling, at least in terms of how market narrative works. To that end, a meaningful entry into fintech can bring new dynamism to the company, both internally and with its stakeholders.
However, while fintech offers several upsides for Pathao, it is not devoid of challenges. There are common ones. Doing too many things is always risky. It creates execution and management challenges. Dilutes resources. And takes away focus.
More importantly, introducing a standalone payment business will add new complexity to Pathao’s business. And complexity is often bad for your overall strategy.
Pathao already has three strong separate lines of business—ride, food delivery, and logistics. Although these businesses are separate, they have an underlying connection as all of these businesses are about moving things. More importantly, all these businesses have meaningful market potential that Pathao can exploit if it focuses on expanding these businesses with meaningful execution prowess. Adding an entirely new line of business will add unforeseen complexity to Pathao’s business and can jeopardize its growth opportunities in these current verticals.
Secondly, a full-fledged payment business will create new operational dynamics for Pathao.
It is true that Patho already runs several payment products within its ecosystem, but running a separate fintech product comes with different operational demands. It changes the entire business and competitive landscape for the company. It creates new management demands. It also creates the question of how compatible a payment business will be with the current core businesses of Pathao and whether it means Pathao will have to find a new operational strategy and rhythm.
All in all, while a payment product makes sense as an opportunity and can add potential strategic benefits to Pathao’s current businesses, it can also create new operational headaches for Pathao. A lot will depend on how Pathao handles these challenges as the company finally operationalizes its fintech solution at scale.
Expansion is always a lucrative strategy. It is also one of the easiest tricks in the playbook to expand your business, inspire new optimism, and project a new path for growth. However, most expansions cause unforeseen and unnecessary challenges for a company. Because new expansion often adds a certain complexity to a business, while the benefits of an expansion are always hypothetical. Moreover, making a new business work is always difficult.
The savvy operators often seek to simplify a business.
When Steve Jobs returned to Apple in the late 1990s, the first thing he did was streamline the entire product line of Apple by bringing the focus down to a few key products and discarding the rest. That simplification of organization and relentless focus on a few core products saved Apple and eventually helped it to become one of the most important tech companies in the entire history of technology.
The history of business is littered with terrible outcomes of unnecessary expansions. And there are cautionary lessons for Pathao and other companies in these examples.
Pathao is one of the most important technology companies in Bangladesh. The company has proven that it is possible to build world-class products and world-class businesses in Bangladesh. It has played an important role in taking the story of Bangladesh's startup ecosystem to the world. Like almost all good companies, Pathao has suffered its share of challenges and has also proven that it can navigate challenges. As the company pursues its next round of growth to cement its position as an important consumer tech company in Bangladesh, it will have to operate with equal amounts of good judgment, caution, and flexibility. We’ll be closely following to see how the company navigates the new trajectory of growth and expansion.
Photo Credit: Pathao funding press release
