SBP unveils licensing, regulatory framework for the digital banks

KARACHI: The State Bank of Pakistan (SBP) unveiled a licensing and regulatory framework for digital banks on Monday.
This is the first step towards introducing a complete digital bank that will provide all the banking services, from account opening to deposit and lending, through digital means and the customers will not have to visit any bank branch, a statement issued by the central bank said.
The framework for digital banks is the latest in a series of recent initiatives by the State Bank of Pakistan towards digitalisation of banking and payments solutions in the country, said the statement. It said the licensing and regulatory framework contains details for setting up digital banks as a separate and distinct category in Pakistan.
Under this framework, the SBP said it may grant two types of digital bank licences: Digital Retail Bank (DRB) and Digital Full Bank (DFB). DRBs will primarily focus on retail customers while DFBs can deal with retail customers as well as business and corporate entities.
“The framework mainly aims to enhance financial inclusion through affordable/cost effective digital financial services and is part of SBP’s comprehensive efforts to promote digital financial services in Pakistan,” the central bank said.
The framework includes guidance regarding licensing requirements, potential sponsors and permissible use-cases during different phases. It also sets an expectation for applicants to have sound digital governance, robust, secure and resilient technology infrastructure, effective data management strategy and practices.
As per the framework, digital banks are required to maintain a principal place of business in Pakistan to house the offices of its management, staff, other support operations and serve as the main hub/ point of contact for various stakeholders including SBP and other regulators.
The SBP said setting up digital banks will also require less capital when compared to the brick-and-mortar banks currently in existence, encouraging new technology oriented entrepreneurs to enter this new realm of business. Minimum capital requirement for DRBs is set at Rs1.5 billion during the pilot phase that will gradually increase to Rs4 billion over a transition period of three years.
The SBP expects that a few digital banks will be operational in the course of 2022, and is confident that digital banks will play an important role in an inclusive and efficient expansion of the financial ecosystem in Pakistan.
Other recent digitalisation initiatives introduced by SBP, which are gaining traction and have opened new avenues for introducing innovative solutions, include customers’ digital on-boarding, Roshan Digital Account, Raast – Instant Payment System, Electronic Money Institutions licences, and Asaan Mobile Accounts. – TLTP