Digital banking in Pakistan: paving the way for an inclusive financial future

In January 2023, Pakistan’s financial landscape witnessed a transformative shift. The State Bank of Pakistan (SBP) granted No Objection Certificates (NoCs) to several entities eager to launch digital banks. While these NoCs are not full banking licenses, they mark a significant milestone in Pakistan’s journey toward a more inclusive and tech-driven financial ecosystem. This move promises to reshape how banking is delivered and experienced, especially for the millions of Pakistanis who have limited access to traditional banking services.

Fast forward to January 2025, Mashreq Pakistan became the first bank to launch pilot operations as a digital retail bank, following the issuance of a restricted license from the SBP. This development is a testament to the rapid progress and potential of digital banking in Pakistan.

Embracing digital transformation

As the financial sector evolves, it is crucial for institutions to adopt cutting-edge solutions that align with the shift toward digital banking and the increasing demand for Shariah-compliant financial products. But how exactly will digital banking transform Pakistan’s financial landscape? Let’s explore what the future holds.

Financial inclusion at the core

With a population of over 230 million, approximately 100 million adults in Pakistan remain unbanked, according to the World Bank. In rural areas, where 63% of the population resides, limited access to physical bank branches exacerbates financial exclusion. This highlights a massive opportunity for digital banking to bridge the gap.

Traditional banking models have struggled to keep pace with the needs of these underserved populations. By offering services via mobile apps and online platforms, digital banks can reach even the most remote areas of the country. The requirement for a physical branch disappears, meaning that individuals who previously lacked access to a bank can now open accounts, make transfers, take out loans, and even access insurance — all through their smartphones.

This has the potential to dramatically increase financial inclusion. In rural areas where mobile penetration is already high, digital banking offers a cost-effective and scalable way to bring essential financial services to the people who need them most. As digital banking operations ramp up, millions of Pakistanis will be able to enter the formal financial system for the first time, enabling them to participate more fully in the economy.

Shariah-compliant digital banking: a new era

One of the most exciting elements of Pakistan’s digital banking revolution is the alignment with the country’s Islamic finance principles. The SBP has mandated that all banks in Pakistan must become fully Shariah-compliant by 2027, a move that is shaping the direction of both traditional and digital banking in the country. This is where digital banking has a unique advantage. It can more easily cater to the specific needs of Islamic finance.

Islamic banking is already a dominant force in Pakistan, with a growing demand for financial products that comply with Shariah law. As digital banks begin to emerge, they’ll have an opportunity to offer a wide array of Islamic banking services such as interestfree loans, profit-sharing deposit accounts, and Shariah-compliant investment products. The flexibility of digital platforms means these products can be delivered in innovative ways that traditional banks might find difficult to replicate

As a provider of iMAL — the world’s leading and only AAIOFI-certified Islamic banking software — Azentio is uniquely positioned to support the rise of digital Islamic banking in Pakistan. Our certification ensures full Shariah compliance, giving financial institutions the confidence to innovate while adhering to Islamic principles

This shift is not only in line with the needs of Pakistan’s consumers, but also with the global trend of digital Islamic banking. Financial institutions will need robust, compliant platforms to support the rise of digital Islamic banking in Pakistan. Solutions that are already trusted by financial institutions around the globe will be essential as local banks move toward offering digital, Shariah-compliant financial services.

Innovating with emerging technologies

Beyond accessibility, digital banking has the potential to empower Pakistanis in ways that were previously unimaginable. By integrating emerging technologies like artificial intelligence (AI), machine learning (ML), and blockchain, digital banks will be able to offer more personalized financial services to their customers. For instance, AI can help evaluate creditworthiness and provide micro-loans to individuals who lack formal credit histories, while blockchain can offer secure and transparent cross-border payments.

The possibilities for innovation are endless. Digital banking platforms can offer tailored financial solutions based on real-time data, providing customers with access to services that meet their unique needs.

Whether it’s a low-interest loan, a micro-insurance policy, or personalized savings products, these advancements in technology will allow digital banks to cater to a wider range of consumers, from young people looking for mobile wallets to small businesses seeking access to working capital.

The ability to innovate quickly and offer new products will give digital banks an edge in a competitive market. This flexibility will be especially valuable in Pakistan, where financial products often need to be customized to meet the needs of the country’s diverse population.

Ensuring security and trust

While the future of digital banking looks promising, it is crucial to ensure that the regulatory framework is in place to support this growth. The SBP has made it clear that digital banks must adhere to rigorous security standards and provide consumer protection, ensuring that trust in digital banking systems is established from the outset.

Moreover, as digital banking becomes more widespread, the SBP will need to continue overseeing the implementation of cybersecurity measures, fraud prevention, and data privacy laws. These measures will help ensure that the shift toward digital financial services doesn’t come at the cost of security, providing consumers with confidence in using digital platforms.

Additionally, there will need to be an emphasis on financial literacy. While the technology is powerful, it will only be effective if users understand how to navigate the digital landscape safely and securely. Educating consumers on digital banking’s benefits and risks will be critical in maximizing its potential.

The need for robust digital banking platforms

As digital banks in Pakistan launch and evolve, they will require robust technology infrastructure to offer innovative and compliant financial products. Platforms that enhance core banking capabilities and enable the digital delivery of Islamic finance products will be crucial in this transformation.

The granting of No Objection Certificates by the SBP in 2023 has set the stage for a new chapter in Pakistan’s financial services sector. With digital banking’s ability to reach underserved populations, enhance access to financial products, and cater to the growing demand for Shariah-compliant services, Pakistan is on the cusp of a financial revolution.

At Azentio, we believe that digital banking will empower millions, enhance economic participation, and drive long-term growth. As this new era unfolds, we’re proud to be part of the journey, providing the tools and technology that will shape the future of banking in Pakistan. The road ahead is digital, inclusive, and full of potential, and we’re excited to be along for the ride.

Ready to revolutionize your digital banking experience? Discover how Azentio’s highly customizable low-code platform can accelerate your speed to market and empower your bank to lead in the digital era. Contact us today!