SBP awards in-principle approval to 5 digital retail banks

The State Bank of Pakistan (SBP) awarded in-principle approval (IPA) to five digital retail banks including HugoBank Limited, KT Bank Pakistan Limited, Mashreq Bank Pakistan Limited, Raqami Islamic Digital Bank Limited and Telenor Microfinance Bank Limited.

“This is a momentous occasion,” said SBP Governor Jameel Ahmed while addressing a ceremony on Wednesday.

This event was attended by sponsors of proposed DRBs, CEOs of incumbent banks, Payment System Operators (PSOs)/ Payment System Providers (PSPs), Electronic Money Institutions (EMIs), Fintechs and the central bank’s top management, according to a statement issued by the SBP.

“These entities are now ready to enter the next phase, which is preparing themselves for the launch of the pilot project. The SBP will work closely with each one of them to support their successful launch and ultimately towards full operations,” said Ahmad.

Ahmed said digital banking promises revolutionising the way for customers to access financial services.

The governor shared that the central bank in 2022 launched a licensing and regulatory framework for digital banks.

“The introduction of a digital bank license framework was a testament to our commitment to embracing the digital revolution in the banking sector,” said Ahmed.

In January 2022, the SBP introduced a licensing and regulatory framework for digital banks.

“The digital banks are expected to provide all the banking services through digital means without any need for their customers to visit the bank branches physically,” said the SBP back then.

Ahmad, during the event on Wednesday, said as a principle, the SBP decided not to grant licenses to the existing banks. “This was done to encourage the entrance of new entrants in this market,” he said.

“We believe new entrants will align their business models with the SBP objectives, which includes promoting financial inclusion, providing credit access to an unserved and underserved segment of society, providing affordable and cost-effective digital financial service, encouraging financial technology and innovation, fostering a new set of customer experiences, and further developing the digital ecosystem.

“Moreover, I hope that the emergence of digital banks has the potential to create more jobs in the economy, especially in areas such as technology, customer support and data analysis,” he said.

Ahmed was of the view that digital banks in Pakistan offer significant promise and potential.

“The SBP is also aware of the several challenges that need to be assessed for long-term sustainability,” he said.

Highlighting the challenges digital banking is expected to confront in the Pakistani market, the SBP chief said that ensuing cyber security and data privacy of customer data is paramount for digital banks.

“The digital banks must invest in robust security measures to protect against cyber attacks, cyber breaches and fraud,” he said. “In this regard, the SBP is currently revisiting its guidelines on information security and cyber security,” he shared.

The central bank chief said that digital banks should also work on improving digital literacy in Pakistan.

Earlier, SBP Deputy Governor Dr Inayat Hussain said the selection of five companies from a long list of applicants, having strong credentials, was a tough and challenging task for SBP.

Hussain said the SBP adopted a thorough and rigorous assessment process to evaluate these applicants.

The factors assessed included the quality of the value proposition, robustness of the technological infrastructure that these applicants were planning to put in place, relevant experience of the sponsors in the area of digital banking, and the quality of the risk management framework the companies were proposing, he said.