KARACHI: The Pakistani central bank has been making efforts to award licenses for first-ever digital banks in the country from March this year, with its governor saying the South Asian nation has the potential to turn around 100 million mobile phone subscribers into digital bank account-holders. 

A digital bank offers all kinds of financial products and services primarily through digital platforms or electronic channels, essentially giving people access to banking wherever they may be and wherever they have secure Wi-Fi and strong cell signal. 

The introduction of a regulatory framework for digital banks earlier this month was the latest in a series of recent initiatives by the State Bank of Pakistan (SBP) toward introducing new payment solutions in a country with a massive unbanked population. 

The framework allows the issuance of two types of digital bank licenses, Digital Retail Bank (DRB) and Digital Full Bank (DFB). The minimum capital requirement for DRBs is set at Rs1.5 billion during the pilot phase that will gradually increase to Rs4 billion over a transition period of three years. DRBs may graduate to receive license of a DFB if they would meet minimum capital requirement and completion of a two-years progression phase. 

“One of our goals as regulator to introduce a digital bank licensing framework is to promote access to financial services and include those who are not able to access the banking system,” SBP governor Reza Baqir said, during the “Digital Banks – A New Era in Pakistan” webinar hosted by the central bank on Friday.

He said Pakistan’s banking system was sound but it had not realized its full potential in servicing the people who needed access to banking services. 

“As of December 2020, Pakistan had 82 million active deposit accounts, including microfinance accounts as well as mobile accounts,” Baqir said. “During the last three years, 30 million or 60 percent growth was seen in the accounts and the big reason was the mobile phone accounts.” 

The SBP governor said Pakistan had more than 180 million mobile phone subscribers, which meant still there were roughly around 100 million people who didn’t have mobile accounts. “This is one of the illustrations of the potential that is in front of us.” 

Through digital banking, he said, the central bank wanted to promote inclusion, innovation and modernization of the financial sector of the country. 

Baqir said they expected digital banks to promote financial inclusion by providing affordable financial services to unserved and underserved segments of the society, alongside fostering a new set of customer experience. 

The Licensing and Regulatory Framework for Digital Banks is another milestone toward digital transformation and a major step toward revolutionizing the banking industry, he said. 

Arshad Mehmood Bhatti, the executive director of SBP’s Banking Policy and Regulation Group, informed the central bank would initially grant up to five licenses for digital banks. 

“SBP intends to bring digital banks with strong value proposition, robust technological infrastructure, sufficient financial strength, technical expertise and effective risk management culture,” Bhatti said, adding there was no capping on the number of licenses that would be issued after examining the success and failures of the banks. 

SBP officials said both local and international investors could apply for digital bank licenses. A traditional bank having minimum one-year experience of delivering Digital Financial Services (DFS) in the retail customer segments could apply either individually or with other equity participants, they explained.