SBP awards in-principle approval to 5 digital retail banks

Five digital retail banks, namely HugoBank Pakistan, KT Bank Pakistan Limited, Mashreq, Raqami Islamic Digital Bank, and Telenor Microfinance Bank, have received in-principle approval (IPA) from the State Bank of Pakistan (SBP).

SBP approval digital banks: At a ceremony on Wednesday, SBP Governor Jameel Ahmed declared, “This is a momentous occasion.”

“These organisations are now prepared to move on to the following stage, which is getting ready to start the pilot project. To ensure each of their effective launches and eventual full operations, the SBP will collaborate closely with each of them, he said.

According to Ahmed, digital banking will revolutionise how consumers access financial services.

Additionally, The governor revealed that the central bank introduced a licensing and regulatory framework for digital banks in 2022.

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

The SBP unveiled a licencing and regulatory framework for virtual banks in January 2022.

“At the time, the SBP stated that they expected digital banks to provide all banking services through digital means without requiring customers to physically visit the bank branches.”

At the event on Wednesday, Ahmad stated that the SBP has chosen not to issue licences to the current banks as a matter of principle. He explained, “This was done to promote the entry of new entrants in this market.”

“We believe new entrants will align their business models with the SBP objectives, which include promoting financial inclusion, granting credit to an underserved and unserved segment of society, offering affordable and cost-effective digital financial services, encouraging financial technology and innovation, encouraging a new set of customer experiences, and expanding the digital ecosystem.

Additionally, he expressed the expectation that the growth of digital banks might lead to the creation of more jobs throughout the economy, particularly in the fields of technology, customer service, and data analysis.

“Unlocking Potential and Addressing Challenges: Pakistan’s Digital Banking Landscape”

According to Ahmed, Pakistan’s digital banks have a lot of potential and promise.

Furthermore, “He added that the SBP has awareness of the various issues that require evaluation for long-term viability.”

The SBP chairman highlighted the difficulties that digital banks will likely face in the Pakistani market and stated that maintaining customer data privacy and cyber security is crucial.

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

Additionally, The head of the central bank suggested that digital banks try to raise digital literacy levels in Pakistan.

Earlier, SBP Deputy Governor Dr. Inayat Hussain said it was a difficult and complex assignment for SBP to choose five firms from a long list of candidates with excellent credentials.

Further, Hussain claimed that the SBP used a thorough and stringent evaluation process to analyse these applications.

“He evaluated factors such as the strength of the technological infrastructure the applicants planned to implement, the sponsors’ relevant experience in the field of digital banking, the quality of the risk management framework the companies were proposing, and the quality of the value proposition.”