Making the cut for digital banking licenses.

The State Bank of Pakistan has finally picked its winners of the five digital banking licenses from the 20 contenders that had tossed their hats in the ring over nine months ago. Or rather, it issued them no-objection certificates, and they will now have to undergo a long process.

For those in the fintech and startup circles, this triggered mixed reactions. It was quite like a reality show where everyone had their fan favourites. If your preferred contestant didn't make the cut, you would obviously be disappointed. On the other hand, a few winners had flooded the social media feed, just like high school kids with good grades do on results day.

The final list includes; Easypaisa DB; KT Bank - a joint venture between Fatima Fertiliser, City School, and Nigerian fintech Kuda Technologies; Hugo Bank - sponsored by courier company M and P, pharma group Getz Bros and Singaporean wealthtech HugoSave; UAE's Mashreq Bank; and Kuwait Investment Authority's Raqami.

None of the hyped fintechs, such as Dbank, Tyme or Alif, made the cut, raising the rationale behind the criteria. The main contention obviously is that how can players who have failed to incorporate any technology in their existing processes be expected to deliver digital financial services? Without naming, there's one sponsor whose existing cyber security is so bad that even someone like me can access critical customer data like addresses.

An entity would need at least $150-200m at the onset to commence operations

But is the presence of local business groups such a bad thing? Or even surprising, given the finer details of the digital banking regulations? For example, M and P, by virtue of being a major courier company, has a strong distribution across Pakistan and already offers cash on delivery. The use case they can build for their customer segment can give a major boost to digitisation.

Similarly, Fatima Fertiliser - which also tried to get its hands on Samba Bank while its director invested in the now defunct fintech TAG - can leverage its expertise in agri and come up with a solution that caters to the underserved segment. Even otherwise, there are arguments as to why venture capital (VC) funded startups weren't such a good fit for the licenses.

First, venture funding to Pakistan has plunged sharply. In Q4-2022, only $15.15 million was raised, down more than 79 per cent year-on-year and the lowest since Q1-2020. Global investment activity also fell 63.5pc during the comparable period...

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