The initiative of the State Bank of Pakistan (SBP) to introduce Digital Banks in the country has attracted overwhelming interest from over 40 companies including domestic and foreign entities to apply for its licenses.
According to the sources, the interested entities include over 10 foreign entities, and more than 35 domestic companies comprising major banks, EMIs, tech, and financial companies against the 5 licenses to be issued by the banking regulator.
The foreign companies also include Chinese tech companies and banks from the Middle East and Central Asian states whereas the domestic entities include banks such as Habib Bank Limited, United Bank Limited, Allied Bank Limited, Bank Alfalah, and JS Bank.
The overwhelming interest of the foreign and local institutions in the race for 5 licenses of digital banks has intensified the competition among the entities which might increase the prices of licenses up to Rs. 25 million.
It is pertinent to mention here that SBP announced that it will award licenses to 5 digital banks in the first phase which will also be an experiential stage to nurture a new concept of banking under digital banks. The banking regulator might issue more licenses in the second phase once the targeted results are achieved through setting up banks.
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) and Digital Full Bank (DFB).
Setting up digital banks will also require less capital relative to the brick-and-mortar banks currently in existence, encouraging new technology-oriented entrepreneurs to enter this new realm of business.
The minimum capital requirement for digital banks is set at Rs. 1.5 billion during the pilot phase, which will gradually increase to Rs. 4 billion over a transition period of three years. After completion of the transition phase, DRBs may graduate to receive a license of a DFB, subject to fulfillment of minimum capital requirement and completion of a two-year progression phase.
SBP expects that a few Digital Banks will be operational in 2022 and will play a significant role in an inclusive and efficient expansion of the financial ecosystem in Pakistan.