Pakistan is set to embrace a transformative digital banking landscape with the anticipated rollout of full digital banks in 2025. Among the five financial entities racing to establish themselves in this digital realm, one has claimed it is nearing “operational readiness,” poised to apply for pilot project licensing in the coming weeks. A successful small-scale trial could pave the way for comprehensive digital retail banking operations as the New Year approaches.
Mashreq Bank’s Group Head of Retail Banking, Fernando Morillo, recently announced that they have achieved over “90% operational readiness” to initiate digital banking in Pakistan. Mashreq Bank Pakistan’s CEO, Hamayan Sajjad, indicated that they plan to apply for pilot project licensing from the State Bank of Pakistan (SBP) shortly, with full-fledged digital banking operations expected to commence within months of 2025. A significant aspect of their business strategy will focus on financing Small and Medium Enterprises (SMEs) to bolster economic growth in the country.
To encourage innovation and financial inclusion, the SBP has granted In-Principle Approval (IPA) to establish 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. Earlier, the central bank issued no-objection certificates (NoCs) to these five banks out of 20 applicants, which included prominent conventional banks in Pakistan, in January 2023.
These new digital banks aim to fill the gaps left by traditional banks, particularly in SME financing and serving remote areas. Their mission is to address the financial needs of businesses rather than solely lending deposits to the government. By offering user-friendly and reliable digital financial services, these banks aspire to build trust with customers, enabling a shift from conventional banking to a full digital bank experience.
Despite the potential, these new entrants face the challenge of winning customer trust for full-scale banking through smartphones. Many consumers still prefer the reassurance of queuing in long lines, especially given the increasing concerns about cyber theft and data breaches. Their success will depend on changing mindsets from manual transactions to digital ones, enhancing customer confidence in technology, and increasing their customer base through innovative, customer-centric products.
The five digital banks are currently ramping up their preparations, forming teams, finalizing banking apps, and deploying technology to penetrate the tech-savvy yet largely unbanked Pakistani market, particularly in remote regions. Each bank is at varying stages of “operational readiness,” which is crucial for their success.
SBP Governor Jameel Ahmad emphasized that once operational, these digital banks will contribute to developing a robust digital ecosystem, improving customer experiences, and providing affordable digital financial services, including credit access for underserved segments of society.
The central bank insists that these banks must attain “operational readiness” across all functions, encompassing governance, risk management, capital requirements, compliance, consumer protection, cybersecurity, and product development.
Sajjad noted that Mashreq Bank, along with the other digital banks, is focused on establishing a long-term presence in Pakistan rather than rushing to capture the market. He explained, “Our global experience suggests it takes 10 to 15 years to shift people from conventional banking to digital banking,” highlighting the significant changes that have accelerated in the past five years.
Currently, while digital banking is partly managed by existing conventional banks and fintech companies, 83% of financial transactions are conducted online, according to the SBP. However, 64% of total fund transfers still occur through physical banking methods like cash or checks, indicating ongoing mistrust in technology and concerns over cyber theft.
Nadeem Hussain, a coach at Planet N and Raqami Bank, underscored that the five digital banks are set to revolutionize the lending landscape in Pakistan. He stated, “Lending will be key to the success of digital banks. They are expected to lend more than conventional banks within five years, though they will still rely on their partners to generate deposits.”
Furthermore, digital banks are poised to streamline processes significantly, reducing the time to open a bank account for corporate entities to just one day, compared to the current one-month timeframe. Similarly, the time required for lending to industries is expected to decrease from one month to a mere day, enhancing operational efficiency and customer satisfaction.
Benefits of Digital Banking
Digital banking has transformed the financial landscape by offering a range of advantages that enhance customer experience, increase financial accessibility, and foster economic growth. Here are some key benefits of digital banking:
1. Convenience and Accessibility
One of the most significant advantages of digital banking is its convenience. Customers can access banking services anytime and anywhere, using their smartphones or computers.
2. Faster Transactions
Digital banking enables instantaneous transactions, which is a stark contrast to traditional banking methods that often involve waiting in lines or adhering to banking hours.
3. Lower Costs
Digital banks typically have lower operational costs than conventional banks because they require less physical infrastructure.
4. Enhanced Security
With advancements in technology, digital banking provides enhanced security features such as two-factor authentication, biometric identification, and encryption protocols.
5. Environmental Sustainability
Digital banking reduces the reliance on paper-based transactions, contributing to environmental sustainability.
Also Read: Visa Inc Targets 10x Growth in Pakistan Digital Payments
As Pakistan prepares for the launch of full digital banks in 2025, the benefits of digital banking will play a pivotal role in reshaping the financial landscape. From enhanced convenience and lower costs to improved financial inclusion and security, digital banking is set to revolutionize how individuals and businesses interact with financial services. By embracing digital banking, Pakistan can create a more accessible, efficient, and sustainable financial ecosystem that supports economic growth and innovation.
