The Future of Digital Banking in Pakistan by Shumaila Ghani

Categories : Blog


Author: Digital Frontiers Institute

The word “Digital” is a commonly used phrase these days. Everything now has the precursor ‘digital’ attached to it, and digital banking is no exception to it. With the advent of Covid-19, many articles are roaming around claiming a “digital financial revolution” in Pakistan, but the picture is not as favourable as it is portrayed and sleeping commercial banking sector yet to play its role.

No doubt that Covid-19 could be seen as an opportunity to go digital, but we need to go a little back to see the broader picture for exploring Pakistan’s digital landscape. We need to relate before and after Covid time zones. In the era of 2000 to 2010, it was in 2009 when “Easypaisa” was launched as a money transfer service through Unstructured Supplementary Service Data (USSD) channels. It was founded in 2009 by Telenor Pakistan in partnership with Tameer Bank, which was renamed to Telenor Microfinance Bank in 2017. The commercial banking industry was still sleeping. In 2016, Easypaisa mobile app was launched and since then it has been unfolding the milestones of becoming the pioneer and trend setter Pakistani mobile wallet, mobile payments, branchless banking, followed by other telecom companies. With this the Pakistan’s payment industry evolved and disrupted by Telecom and Fintech players. This gained traction in 2016 and onwards.

EMIs Licensing

Due to the boom of electronic money and continuous entry of the players in the market, Pakistan’s regulator State Bank of Pakistan (SBP) decided to regulate them and finally in April 2019, SBP launched Electronic Money Institutions (EMIs) Regulations that will be licensed by SBP to issue e-money for digital payment with the objectives:

  1. “To provide regulatory framework for EMIs desirous of offering innovative payment services to the general public.
  2. To prescribe minimum service standards and requirements for EMIs to ensure delivery of payment services in a safe, sound and cost-effective manner.
  • To outline the permissible activities that can be carried out by an EMI and its agents’ network.
  1. To provide a baseline for protection of EMI’s customers.
  2. To achieve the SBP’s objective of digital payments and financial inclusion.”

As of now there are 8 entities that got the license of EMIs and are operating as authorized EMIs, from which 3 got the in-principal approval and the rest are under pilot phase.

With this we should endorsed the role played by Payment Service Operators / Payment Service Providers (PSO/PSP) for bringing the fresh blood in DFS lifecycle of the country, by providing the rails of interoperability, Inter Bank Fund Transfers (IBFT), Bill Payment solutions via any Bank’s Alternate Delivery Channel (ADC) and last but not the least launched country’s 1st domestic payment scheme.  Just after the arrival of Covid-19, regulator (SBP) had taken the initiative and waived off transactional charges on various modes of online payments for customers, to curtail the risk of the spread of Coronavirus (COVID-19) and limit the physical interaction of citizens at the branch level and the Country witnessed a strong growth in such transactions during the second quarter of current fiscal year 2020-21. According to the SBP’s report, during the Oct-Dec 2020 quarter, 296.7 million e-banking transactions, valuing at Rs21.4 trillion, were carried out, registering a growth of 24% in volumes and 22% in value compared to the same quarter of last year.

But unfortunately, the real digital transformation cannot be merely achieved by offering these products but by transforming the consumers’ behaviours, how they transact. The real digital transformation would be when the mom-and-pop shop in petty markets accepts payment via Card, QR code or any such cashless mechanism. This is the area where commercial banking industry has to play its role being in the B2C zone they better understand the customer needs, preferences, their behaviours and so the touchpoints!! The definition of digital banking is simply the provision of service over the internet or through a digital platform. An example would be to transfer money to a mobile wallet as opposed to giving a cheque or cash or using an app to pay your utility bill as opposed to physically with cash. The real end result has to be a change in the customer journey. The customer must find the use of the digital medium convenient, secure and transparent and cost effective. As PSO/PSPs are playing the role of enablers in digital landscape but the role of commercial banking industry is not promising and supporting except for few. The ground reality is that most commercial banks in Pakistan have activities like an asset management fund as opposed to a bank. The most profitable banks in Pakistan are heavily dependent on the interest rate arbitrage available between their cheap cost of funds and risk-free investment in government securities (Treasury Bills and Pakistan Investment Bonds). Commercial banks have little risk appetite for consumer or micro-lending. The notion that commercial bank branches will disappear due to digital progress flies against the realities of these branches being sources of cheap deposits. In fact, it is very possible that commercial banks will continue to grow their physical footprints in order to protect their interests.

Raast and Roshan Digital Account

In 2021, in an effort to shift the country’s economy from cash to digital, Prime Minister (PM) has launched country’s first instant digital payment system ‘Raast’ that enables end-to-end digital payments among individuals, businesses and government entities. Launched by PM Imran Khan on January 11, the initiative is part of his “Digital Pakistan Vision” aimed at including poor segments of society in the formal economy. With the combined flavour of Roshan Digital account, which is a tailor-made financial solution, designed to facilitate Non-Resident Pakistanis in their plans for investment in Pakistan based Savings Schemes and is suitable for both PKR and USD based transactions. This facility allows them to have access to banking services within Pakistan without having to visit a consulate, embassy or a physical bank branch.

Exposure draft of Digital Bank

Then in March 2021 SBP released the Exposure Draft of Digital Bank Regulatory Framework for public consultation and feedback with the objective to

  • Promote financial inclusion
  • Provide credit access to unserved and underserved.
  • Extend low-cost digital financial services
  • Paper instrument clearing facilities on T+1 basis, backed by a network of more than 27 clearing/satellite centres around the country
  • Encourage application of financial technology and innovation to banking
  • Foster new set of customer experience
  • Further develop digital eco-system

A digital bank serves customers primarily through digital/electronic channels that were historically carried out at a bank branch. A digital bank would not have physical branch network, headquarters and regional headquarters like traditional banks.

There shall be two types of digital banks:

  1. a) Digital Retail Bank (DRB), which may deal with retail customer segments. Retail customer segment include all the customer segments permissible for commercial banks in general except the corporate and commercial segments. The term mainly comprises individuals, SMEs, micro and agriculture entities, as defined in these regulations.
  2. b) Digital Full Bank (DFB), which may deal with corporate, commercial and retail customer segments.


For Country’s digital banking revolution to succeed 3 things must happen, service providers need to see from the customers’ lens, 2nd there has to be a greater partnership between commercial banks and fin-techs for open application programming interface followed by open banking. Combining the innovative brains of fin-techs along with the deep pockets of the commercial banks can provide a win-win situation, 3rd the government has to play its role in providing an environment where G2P and P2G payments would become the norm.

Being the financial technology enthusiast, it’s my dream to see my Country a cashless and a paperless society. Although there are challenges in achieving these goals, but there is still hope that with the initiatives taken by the government, journey to the digital evolution has just begun with a long way to go.


Shumaila Ghani

Assistant Vice President – International Audit at Mashreq Bank

DFI Alumni and Community Member