Just recently The State Bank of Pakistan (SBP) issued its guidelines for digital banks for public consultation. The draft guidelines cover both digital retail banks (dealing with retail customers) and full digital banks (offering services to corporate customers).
Digital banks can have a profound effect on financial inclusion. If executed properly, the idea can change the customer journey by reducing paperwork, providing services remotely and leveraging customer data.
On the face of it, Pakistan offers a major opportunity for such an intervention. Why? Because we are a “cash society”. We have about Rs4.6 trillion in circulation. which means money printed but not in any bank account. Secondly, our median age is 22.
Pakistan’s total telephone subscriptions have now bounced to 183 million with the number of smartphones rising to 89m.
The regulations for digital financial interventions are also quite advanced compared with those in other emerging markets. Payment regulations enabling non-banks exist via electronic money institutions (EMIs) and the latest sandbox of the Securities and Exchange Commission of Pakistan (SECP)–piloted peer-to-peer lending. Despite favourable aspects, it is highly unlikely that digital banks will be able to move the needle. Let us examine the causes for this pessimism.
Digital banks that have a path to profitability offer digital lending, personal finance management and robo-advisory
Global success stories of digital banks like Monzo, Revolut, Atom and Moven indicate that the principal service that these banks started with was the ability to open an account remotely, followed by the ease of payments and personal finance management.