Digital banks: force multipliers?

On January 13, 2023, the State Bank of Pakistan (SBP) issued five retail digital banks (RDB) No-Objection Certificates. The SBP communication advised that the successful applicants were Easypaisa Digital Bank (Alipay and Telenor), Hugo Bank (Getz, Atlas, and M&P), KT Bank (Kuda, Fatimah Fertiliser, and City School), Mashreq Bank, and Raqami Islamic Digital Bank (PKIC, Enertec, and Planet N). It also stated that it expected RDBs to promote digital financial services to the financially excluded. This market had been waiting anxiously for this announcement. There had been 23 applicants chasing the five licenses. Applicants included giant commercial banks, international digital banks with local partners, and savvy fintechs that raised capital for this purpose. The SBP, in its wisdom, did not entertain any commercial bank as it felt that they already had a license which allowed them what the new license would. The valuation argument by the commercial banks did not hold much water with the SBP. This was not surprising given the meagre financial inclusion (less than 1.5 million active loan customers) and convoluted customer journeys due to a lack of back-office automation.