SBP issues 5 licences to establish digital banks

KARACHI: The State Bank of Pakistan (SBP) on Friday granted five licenses for digital banking, in an effort to promote financial inclusion and encourage digital financial services in the country, a statement said.

Five applicants for the establishment of digital banks have received no objection certificates from the SBP: Easy Paisa DB (Telenor Pakistan B.V & Ali Pay Holding Ltd.); Hugo Bank (Getz Bros & Co., Atlas Consolidated Pte. Ltd. and M & P Pakistan Pvt. Ltd.); KT Bank (Kuda Technologies Ltd., Fatima Fertilizer Ltd. and City School Pvt. Ltd (Kuwait Investment Authority through – PKIC and Enertech Holding Co.).

“The five (05) applicants were selected after a thorough and rigorous assessment process as per the requirements of the Licensing and Regulatory Framework for Digital Banks,” the SBP said in a statement.

Applicants were assessed on various parameters that included fitness and propriety, experience and financial strength; business plan; implementation plan; funding and capital plan; IT and cyber security strategy and outsourcing arrangements, etc. Further, all the applicants were given the opportunity to present their business case to SBP, it added.

Going forward, each of these five applicants will incorporate a public limited company with Securities and Exchange Commission of Pakistan. Afterwards, they will approach SBP for in-principle approval for demonstrating operational readiness and for commencement of operations under the pilot phase. Subsequently, they will commercially launch their operations after obtaining SBP’s approval.

SBP expects that after commencement of their operations, these digital banks will promote financial inclusion by providing affordable/cost effective digital financial services including credit access to unserved and underserved segments of the society, it said.

In January 2022, SBP introduced a Licensing and Regulatory Framework for Digital Banks in line with international best practices and decided to issue up to five digital banks’ licenses. The framework was the first step towards introducing full-fledged digital banks in Pakistan. 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.

In response to SBP’s frame for digital banks, SBP received 20 applications from a diverse range of interested players such as commercial banks, microfinance banks, electronic money institutions and fintech firms by March 31, 2022. Further, a number of foreign players including venture capital firms already operating in the digital banking space also expressed their interest to venture into the Pakistani market directly or in collaboration with local partners.

The use of digital payments is gaining momentum in Pakistan.

The users of the Raast person-to-person (P2P) payment system made 7.9 million transactions worth Rs102.1 billion during the last fiscal year.

In continuation of its efforts to promote and enhance digital payment system in the country, the SBP in February 2022, launched Raast P2P, which enabled payments among individuals, businesses and other entities to settle transactions in real-time. The number of users of this instant payments platform stood at 15 million during FY2022.

The overall e-banking transactions rose 59.4 percent to Rs137.9 trillion in FY2022, according to the annual payment systems report for the fiscal year 2021-22.

The E-banking channel was mainly utilised for online funds transfer, the report said.

The SBP issued licenses to four new Electronic Money Institutions (EMIs) during the fiscal year.

These EMIs issued 514,961 payment cards to their 262,558 account holders, on-boarded 4,941 merchants, and issued Rs5.0 million in e-money during FY22.

“In the coming years, SBP plans to further enhance and promote digital payment system, not just for household consumers, but for private and government sector as well, along-with giving more emphasis on supply chain digitisation,” it said.