Licenses for digital banking are being issued in Pakistan by the State Bank of Pakistan. Around 20 applications have been submitted for the SBP, and the central bank plans to grant 5-7 licences in the initial round. The major goals of digital banks are to advance financial inclusion, extend credit to those who are unbanked or underserved, offer inexpensive digital financial services, support financial technology and innovation in banking, enhance customer experience, and expand the digital ecosystem as a whole.
Simply put, SBP wants digital banks to be digital first and offer full-service banking without the need for physical facilities. That would be a departure from Pakistan’s customary relationship-based banking. Since the senior management has changed since the process was first began during the previous Governor’stenture, there have been some delays. Since the teams and deputy governors are so enthusiastic about this new digital banking system, let’s hope the incoming governor displays a similar level of enthusiasm.
Many people wonder who should be granted these licences and what value they would provide to achieving the SBP’s stated objectives. There are various applicant types. Existing conventional commercial banks are one example. The second is current fintech that is active in Pakistan. The third category consists of telcos that are using their sizable customer bases for digital banking services. International banks come in fourth. International fintech is the fifth category.
Additionally, the elimination of IBFT fees under COVID and the ensuing reduction in fees have adversely affected these businesses’ bottom lines. The regulator must offer them some assistance. Without making enough money, they changed Pakistan’s telecommunications industry. Still, their sponsors are eager to grow. SBP must be grateful for that. Their DNA is infused with creativity and technology. They are familiar with the mindset of the financially excluded section thanks to their 20 years of expertise. To begin with, they have a robust database. They have a branchless banking network, albeit primarily for payment solutions. All they need to capitalise on their labour of love for lending and other financial services is the appropriate licence. These two deserve considerable consideration from SBP for the licences.
For the puzzle of financial inclusion in Pakistan, digital banking is crucial. Other rising economies have adopted the digital path in large numbers. Pakistan is not an exception. The conventional banks have had only modest success in it during the previous 75 years. Rethinking the entire model is necessary. New players with a strong digital presence and a distinctive perspective can greatly enhance the work being done by current institutions.
