The State Bank of Pakistan (SBP) is yet to issue licenses for digital banks despite the overwhelming response received from the private sector.
The central bank announced its landmark Licensing and Regulatory Framework for Digital Banks in Pakistan. At the time, the central bank said that it expects a few Digital Banks will be operational in the course of 2022.
Following the announcement, SBP received 20 applications for digital bank licenses. The interested companies are from a diverse range of applicants, including domestic commercial banks, microfinance banks, electronic money institutions, and FinTech players.
Digital banks will be a new phenomenon for the local banking industry which is expected to transform the landscape of digital banking in Pakistan but it will also attract sizeable investment in the financial sector.
Various challenges including the internal transition of leadership at the State Bank of Pakistan (SBP) and external macroeconomic issues caused delays in the issuance of the licenses.
The private sector expected digital licenses to be rolled out in July or August and then in November and December 2022 but there was complete silence from the banking regulator.
Official sources at the SBP told the scribe that the banking regulator will consider strong entities for setting up digital banks since the launch of digital banks is a significant initiative.
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 this framework, SBP may grant two types of digital bank licenses:
- Digital Retail Bank (DRB)
- Digital Full Bank (DFB)
DRBs will primarily focus on retail customers, while DFBs can deal with retail customers along with business and corporate entities. These banks will be designed to enhance financial inclusion through affordable/cost-effective digital financial services.
The establishment of digital banks is part of SBP’s comprehensive efforts to promote digital financial services in Pakistan.