Digital Banking


Mahnoor Sheikh

Pakistan has long been struggling with providing an affordable and user-friendly banking experience to its huge population of 220 million. From simply opening a bank account to carrying out day-to-day financial transactions, dealing with the banking sector in Pakistan is as painstaking as it can be. While the central bank, commercial banks, microfinance banks and growing Fintech companies are trying to ease the woes of the customers by improving the access to financial services, they still struggle with completely unlocking the untapped potential of digital transformation in the country. Not to mention that not a single traditional domestic bank has developed an end-to-end digital operation.
Pakistan is home to more than 50 per cent of the world’s unbanked population, also reflected in the Global Findex 2021 – Pakistan’s financial inclusion rate remains stagnated at 21% between 2017 and 2021, lagging far behind regionally and globally. Over the years, the government and private entities have made substantial efforts to address this challenge with the central bank facilitating the process. The journey towards digital banking particularly began with the State Bank of Pakistan’s (SBP) Branchless Banking Regulatory Framework promulgated in 2008 and revised in 2011 and 2016 respectively. In a big leap forward, the SBP is now set to issue five to seven digital banking licenses to promote financial inclusion in the country.
In the first phase, the SBP has received 20 applications for Digital Retail Bank (DRB) and Digital Full Bank (DFB) under its Licensing and Regulatory Framework for Digital Banks, and is currently conducting due diligence and evaluating the technical expertise, financial strength, technological infrastructure and risk management frameworks of these applicants. Given the country headlines, a limited number of Global Digital Banks have participated in the application process. The forthcoming digital banking regime is expected to revolutionise the banking services for the unbanked people in remote areas and also for micro, small and medium-sized businesses. Digitalising the SME segment prior to raising banking penetration in the individual segment will be a challenge when this sector remains out of Pakistan’s tax system and generally operates on a cash basis.
Among the primary applicants for the digital banking license are the traditional domestic commercial banks, telecommunication and Fintech companies which are already leveraging their huge consumer base in digital financial services. Despite the strengths of traditional banks and Telcos, users often complain about their services, with persisting controversies around data leaks and unauthorised transactions. Not only this, the User Interface and User Experience of some of the banking applications often raise questions about their functionality, reliability and usability as the digital platforms often cease to work, especially in times of utmost need. While domestic banks are investing in digital technology, they continue to run a traditional model of branch-based acquisition and servicing of customers. Even some branchless banks are opening branches.
Enter international banks and Fintechs; they are also rallying to get the digital banking license with the aim to provide affordable and inclusive financial services to the large population base in Pakistan. Considering the strengths of these players already operating in the digital banking space outside the country, the traditional domestic entities could be considered as a separate category so that the foreign entrants are encouraged to bring their expertise and capital to Pakistan. In fact, all domestic banks should be encouraged to digitalise their existing businesses and launch digital-only banks through their existing bank licenses or a domestic digital bank license category. At a time when Pakistan is struggling with dwindling foreign reserves, foreign capital investments could serve as a blessing in disguise to bring the much-needed investment to launch and build operations in Pakistan. This will be an opportunity for the country to make a positive statement that Pakistan offers potential for foreign investors. Pakistan badly needs to build unicorns and these digital banking licenses could create one in the near future thus creating a path for foreign inflow of investments.
While the country has made significant progress in financial inclusion, it still faces a multitude of challenges as the unbanked segments complain about the lack of funds, unnecessary documentation and lack of basic understanding to use banking services. This can be resolved by the banks that have proven experience in penetrating unbanked segments more successfully and have the expertise to train the local population on financial literacy. Moreover, international digital banks will bring expertise to Pakistan, groom local talent and create opportunities for global placements. As the next ten years will see digital innovation, the new talent pool and neo-banks will provide optimal solutions to digitally driven businesses.
Successful international digital banks have the experience of providing seamless digital banking experience including instant credit disbursement aligning with the SBP’s key objective of increasing active loan customers under the digital licensing framework. The SBP aims to add 100 million active loan customers, with a special focus on the inclusion of rural, female and youth. Given their tried and tested technology, big quantum size and successful track record, Pakistan’s digital financial ecosystem could greatly benefit from the experience of such foreign players. Digital banking has globally been proved as a gateway to financial inclusion and with 55 per cent of Pakistan’s population over 15 years of age having a mobile phone, digital payments can help harness the potential of a digitally documented economy.
Pakistan’s banking industry had rich participation of regional and global banks in the past but over the last two decades, the landscape has predominantly become domestic only. Allowing foreign companies to enter the country and play a role in our economic growth can also be used as an opportunity to improve the positive image of Pakistan.

This could significantly improve Pakistan’s ranking in the Ease of Doing Business Index where it currently stands at 108th position among 190 economies, according to World Bank annual ratings. Lessons can also be learnt from the start-up ecosystem recently shaken due to the unstable macroeconomic environment and complicated business regulations.

While the commercial launch of these digital banks will take time, their smooth functioning calls for political and economic stability. Given this, the country’s top leadership should prioritise policies that can aid the digital economy and financial inclusion.

The writer is a freelance journalist. She can be reached at and tweets @mahnoorrsheikh.