The issuance of the digital banking licenses is in its final round. There are four stages in the process; three of which are complete. The last one is in the process now. The SBP has decided to issue five licenses at this point for which the final decision may be expected in December.

In the first two stages, applications were submitted and the SBP asked specific questions to the short-listed applicants and allowed them to present their case to the SBP team. The third stage was the final assessment. Since the three steps are done, now the final decision will be taken by the SBP executive committee which has twelve members including Governor, Deputy Governors, and executive directors.

Last month, at the time when the process was in its second stage, this space argued that the SBP should issue licenses to certain categories. For details read “Race to the digital banking license” published on 3rd October 2022. There are five types of applicants.

One: existing commercial banks, two: already operating fintech, third are telcos operating in the financial services, fourth are the international banks, and the last category is international fintech. This space argued to exclude the first two and concentrate on the last three.

In addition to that, the SBP should give higher weight to the companies that are technologically agile and are geared to bring new technology into the country. Further, the SBP should give higher weightage to those who have plans to take banking to the underserved population. Finally, foreign players should be encouraged on the premise of bringing FDI home.

Another angle that the SBP must explore is to look at existing banks and fintech which are bullish on digitization but have not applied for the license. Why did Meezan and other banks who are heavily investing in the digital banking infrastructure and human resource not apply? What was the rationale behind fintech like Keenu, NayaPay and Haball not applying for this license? Possibly, they opted out as they did not want to get trapped in too many regulations which could hinder their mushrooming growth. At the same time, the capital required to be deployed in digital banking is higher and the cashflows for these potential digital banks may remain tight in the initial 5-7 years.

SBP should look at the applicants and examine the different motivations for their submission. First, they should have patient capital. For that commercial banks are the best. But they don’t have any value addition through this license, as they can do any kind of digital banking under the existing license.

That makes telcos, international banks and international fintech viable options. Here SBP must look at the seriousness of the sponsors and their commitment to the Pakistani market. The commitment of telcos to financial inclusion can be gauged from the fact that one player has 38 million accounts and is Pakistan’s largest payment processor. Telcos have also sustained and grown their business during Covid where IBFT charges were eliminated and since then, have continued to digitize currency. These are nimble, tech native, and have strong financial backing. On seriousness of sponsors, there is news about one telco player leaving Pakistan. SBP could be reluctant to issue a license to that party, as there is no information on the potential new sponsor.

SBP is also doing its due diligence and investigation on the foreign players operating in other markets. SBP is in touch with the regulators of other countries where these players are operating. This would give SBP a good idea about these entities. And SBP should see the track record of these foreign investors’ investment commitments in other markets to gauge how much FDI these applicants may bring into Pakistan.

At the same time, SBP should evaluate local fintech and banks applying and try to gauge the motivation and drawbacks of these players and see how effectively they have utilized existing PSO/PSP, EMI and NBFC licenses. SBP should exercise caution with applicants who have not effectively demonstrated traction and good governance and pivoting from license to license too quickly.

In essence, while the SBP encourages innovation and fresh blood, it also needs to weigh the seriousness of sponsors, strength of their management and synergies the licensees must bring especially to the cause of digitizing the economy. This can be achieved if the successful licensees exhibit agility, focus, collaboration, and financial prudence. And a whole lot of patience.