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The State Bank of Pakistan (SBP) is working on introduction of a separate category of bank, ie, 'Digital Bank' in Pakistan. The virtual/digital branch environment, innovative payment solutions, mobile technology, social media interactions will be some of the features of the Digital Bank. Presently, the SBP is in process of developing a concept paper on the Digital Bank and this concept paper would include the international experiences of Digital Bank, regulatory framework available, best international practices, etc.

Addressing the Digital Banking & Mobile Payments Summit 2017, organised by TerraBiz here Wednesday, Syed Irfan Ali, Executive Director Banking Policy and Regulation Group, State Bank said the SBP is working on development of a way forward for digital banks in Pakistan....the central bank would invite comments/feedback of local and international experts on the concept paper.

The SBP would develop a regulatory framework on digital banks after inviting feedback on the concept paper, he added. "The regulatory framework would ideally encompass several areas including entry criteria for the establishment of digital banks, Minimum Capital Requirement (MCR) for establishment of a digital bank and customer on boarding criteria as well as digitisation support for an Omni Channel Banking Paradigm," he maintained.

He said the SBP encourages banks to help shape the stage for digitization by offering innovative and sound products. Banks therefore need to reinvent themselves to some degree which would make the banking sector more stable and resilient towards the needs of customers.

Executive Director, SBP said digital bank will incorporates new and developing technologies throughout a financial services entity, in concert with associated changes in internal and external relationships, to provide enhanced customer services and experiences effectively and efficiently. He said the expectations of customers, especially technology savvy and millennial towards banking services are changing therefore the digital consumers demand more choices, immediate availability and direct access to ready-to-use services.

Technology companies, especially FinTechs are rapidly expanding their activities to financial services, continually innovating and competing/collaborating with banks for digitising the customer behaviour. In order to enhance the financial inclusion in Pakistan, the SBP has formulated and launched National Financial Inclusion Strategy (NFIS) wherein a target of 50 percent growth in bank accounts by adult population till 2020 has been set out to enhance the outreach of basic financial services to unbanked/underserved segments, he said

Irfan said the achievement of financial inclusion is the first and foremost objective of the government of Pakistan and the central bank and branchless banking is considered the strongest driver for achievement of financial inclusion objective. He said presently, there are 11 branchless banking operators in Pakistan which are conducting around 1.3 million transactions a day. Over 20 million people have opened their digital transaction accounts, ie, mobile wallets.

"Financial deepening is another objective that the SBP intends to achieve by increasing the provision of financial services with a wider choice geared to all levels of society. It can also play an important role in reducing risk and vulnerability for disadvantaged groups, and increasing the ability of individuals and households to access basic services," he added.

He said the SBP is keen to work with different stakeholders of banking industry, including but of course not limited to, financial institutions, non-banking financial institutions other regulatory bodies and private sector enterprises in order to further strengthen our local banking sector as well as our economy.

Partnerships between banks and Financial Technologies firms OR FinTechs and starts-ups are needed to succeed in this competitive banking landscape of the future. "SBP is cognisant of the bank-Fintech collaborations and aware that twenty three (23) Fintechs are currently available in our market," he added.

Irfan informed that some 137.7 million Mobile Subscribers and 38.9 3G/4G subscribers are big number that shows the underlying potential for Digital Banking in Pakistan. According to estimate over 35 million smart phones are available in Pakistan and the trend is increasing day by day. Banks therefore need to leverage the distribution network and muscular strength of telecom operators for the financial services.

The emergence of the digital forces - Social, Mobile, Analytics, Cloud and the Internet of Things (IoT) - are creating new and valuable avenues and the means to do the cost effective business. The task at hand is certainly not easy. The digital shift is also a cultural shift, with new skills required to meet new "digitally aware" customers, he concluded.

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