SBP to Issue Licenses to 5 New Digital Banks

The State Bank of Pakistan (SBP) will soon embark upon a journey toward an advanced banking system in the country by issuing licenses for setting up digital banks. In the first phase, the regulatory authority will issue five licenses to different entities for setting up digital banks.

This revelation was made by top SBP management while addressing a webinar titled, “Digital Banks – A New Era in Pakistan,” hosted by SBP on Friday.

In his welcome address, Executive Director, Banking Policy and Regulation Group, SBP Arshad Mehmood Bhatti informed the audience that SBP will grant up to five licenses for digital banks, as it intends to promote digital banks with a strong value proposition, robust technological infrastructure, sufficient financial strength, technical expertise, and effective risk management culture.

He assured the market participants and potential investors that his team would remain available to provide necessary guidance in this regard.

In his keynote address, Governor SBP Dr. Reza Baqir highlighted the potential of digital financial services to become ubiquitous in the banking industry and its significance in terms of inclusion and innovation. Shedding light on the prospects of digital banks in Pakistan, he emphasized that one of the key goals of SBP was to promote inclusion, innovation, and modernization of the financial sector of Pakistan.

He emphasized SBP’s expectations from digital banks in promoting financial inclusion by providing affordable financial services to unserved and underserved segments of society, alongside fostering a new set of customer experiences.

Dr. Baqir highlighted how the digitization of financial services was picking up pace and was transforming the way banking was done for both individuals and businesses. He mentioned that Pakistan’s journey for digital financial services started in the early 2000s, and since then, a number of enabling regulatory initiatives were launched, notably, Branchless Banking Regulatory Framework, Electronic Money Institutions Regulations, Roshan Digital Account, RAAST, Customers’ Digital Onboarding Framework, and Asaan Mobile Accounts etc.

He added that Licensing and Regulatory Framework for Digital Banks is another milestone towards digital transformation and a major step towards revolutionizing our banking services industry.

A digital bank has been defined as a bank that offers all kinds of financial products and services primarily through digital platforms or electronic channels instead of physical branches. Under the plan, SBP may grant two types of digital bank licenses:

  • Digital Retail Bank (DRB)
  • Digital Full Bank (DFB)

The emergence of digital banking services and innovative payment solutions through different entities such as fintech and EMI has paved the way towards digital banks in Pakistan which further receive a demand during the lockdowns related to Covid-19 with millions of customers becoming users of digital banking in a short span of time.

SBP issued “Licensing and Regulatory Framework for Digital Banks” on January 03, 2022. To create awareness of this important development in the regulatory ambit, SBP organized the online event on digital banks. The objective of the webinar was primarily to create awareness about the next generation of banks, i.e., digital banks and the potential they offer for financial inclusion in the country. It was also aimed at sharing the details of the digital banking framework amongst the market participants and prospective investors and addressing their queries.

The event was attended by prominent members of the banking community, fintech, business fraternity and government agencies.

It also covered a panel discussion moderated by Nadeem Hussain, founder Planet-N. The panelists included Muhammad Aurangzeb, Chairman Pakistan Banks’ Association, Tania Aidrus, former Executive of Google and Special Assistant to Prime Minister, Qasif Shahid, CEO & Co-Founder of M/s Finja, and Muhammad Akhtar Javed, Director Banking Policy & Regulations Department of SBP.

The panelists were of the view that digital banks would offer a faster, cheaper and more efficient solution for meeting the financial requirements of unserved and underserved segments of the society. They welcomed SBP’s landmark initiative, as they believed that digital banks would become an essential part of the financial ecosystem, enhancing market efficiencies, providing access to a wider range of financial services, and thereby, advancing the broader agenda of financial inclusion.

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