How effective can EasyPaisa Digital Retail Bank be in Pakistan?

KARACHI: The State Bank of Pakistan (SBP) issued a license to the EasyPaisa Digital Retail Bank, establishing the country’s first digital retail bank.

The initiative aims to modernise the banking sector and improve financial ‘inclusion’, with the SBP Governor noting that licenses for four additional digital banks was ‘under consideration’.

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The question that arises is, how impactful would a digital bank be in a country like Pakistan where cash still reigns supreme?

Its hoped that the Easypaisa Digital Retail Bank will help improve financial inclusion in the country of 240 million, where an estimated 100 million adults remain unbanked (as per World Bank data).

Digital banks can provide access to financial services for underserved populations, particularly in remote areas of Balochistan and northern Pakistan. Pakistan also has around 114 million internet users, representing a penetration rate of around 51 per cent.

However, the literacy rate is about 59 per cent, which may limit the ability of some people to effectively use digital banking services. Digital banks generally operate with lower overhead costs than traditional banks, allowing them to offer ‘competitive’ interest rates and reduced fees.

The entry of digital banks may also foster innovation and competition within the banking sector, forcing the traditional banks to improve their services and adopt new technologies.

A more inclusive banking system can also contribute to economic growth, with Easypaisa and similar institutions able to support small and medium-sized enterprises. SMEs already account for around 40 per cent of Pakistan’s GDP, as per the International Finance Corporation.

Despite the potential benefits, the rise of digital banking in a largely undereducated country will carry huge challenges. Regulatory oversight will be essential to ensure compliance with standards that protect consumers and maintain financial stability.

A lack of robust regulatory framework could lead to issues such as fraud and data breaches.

Post-Covid, citizens across the country have reported a huge spike in scams, with thousands of victims having lost millions of rupees. Scammers target the elderly and uneducated victims in particular, given their lack of awareness. Banks were forced to issue regular reminders to not give out personal information to their users.

The digital divide is also a huge concern, particularly in rural areas where access to the internet and smartphones is limited. The gap could restrict the reach of digital banks and leave some people without essential financial services.

Cybersecurity risks are also heightened as digital banking grows. Increased consumer engagement with digital platforms raises the potential for data breaches and financial fraud, necessitating effective cybersecurity measures to protect consumers.

While the launch of EasyPaisa Digital Retail Bank is a huge step in the country’s advancement and digitisation attempts, it needs to be approached cautiously.

Read more: Pakistan’s cybercrime conviction rate remains alarmingly low at 3pc

The public’s limited understanding of digital security, and the lack of effective and quick response from public departments raises huge concerns. In fact, Pakistan’s cybercrime conviction rate remains at a mere 3 per cent!