Banking and Financial Services

Since 1998, Aurora has been covering the banking sector in detail,chartering the financial sector’s trajectory from the nineties onwards. Thenineties were the decade that saw the rise of consumerism in Pakistan;banks started to focus on consumers heralding the advent of what we nowrefer to as consumer financing.

Pakistan’s first credit card was introduced by CitiBank in 1994, followed by theintroduction of new financing options such as car loans. Then, in 1998, followingthe nuclear tests carried out by the second Nawaz Sharif-led government, foreigncurrency accounts were frozen in Pakistan, wiping out the deposit base of manybanks and causing them to amplify their efforts to draw in local consumers.

As the 2000s unfolded, the consumer was undoubtedly king, with banks scramblingto attract depositors. Taking the lead were the multinational banks, followed by therecently privatised banks – all increasing the scope of their services by introducingfeatures such as ATMs to ease the customer journey and focusing on relationshipmanagement. By 2005, consumer banking was the second fastest growing sector inPakistan after the telecom companies in terms of ad spend. Consumer financing wasfurther buoyed by measures taken by the State Bank of Pakistan (SBP) to promoteconsumer banking, an improving economy and higher levels of purchasing power.Banks responded by increasing their consumer product offerings and adopting a moremarketing-oriented approach to cater to an increasingly aware market.

Faced with competition from the multinational banks, local banks began tooffer alternative delivery channels such as internet and mobile banking poweredby rising telecom penetration. The SBP upped the ante and introduced the firstBranchless Banking Regulations in 2008, allowing banks to partner with telecomcompanies and for telecom companies to purchase banks – all in a bid to jumpstartbranchless banking services (prior to this branchless banking could only beundertaken by financial institutions). In this respect, it has to be said that the SBPhas played a major and positive role in encouraging the digitisation of bankingservices; one of its most notable achievements being the launch of Raast inJanuary 2021 to facilitate digital payments.

In 2006, Telenor Easypaisa was established, followed by Mobilink’s Mobicashand Zong’s Timepey. Their inception was triggered largely by the fact that only 12 to16% of Pakistan’s population was ‘banked’, and the limited number of branches inthe country (approximately 10,000 in urban and semi-urban areas). This signaledthe beginning of what we now call fintechs. Fintechs would become a major gamechangerby making financial services like payments, insurance, e-commerce,lending, and e-wallets available to a wider segment of the population 24/7.In November 2022, the Government of Pakistan announced the intention toconvert the banking ecosystem to a completely Islamic one by 2027, a deadlinethat remains ambitious given the challenges posed, particularly the development ofIslamic products and services.

However, the biggest change underway is the disruption posed by technology –more specifically, Banking 4.0 – a term which refers to the next generation of bankingdriven by smartphones, AI and instant payments. Digital banks are a key componentof Banking 4.0, and in January 2023, the SBP provided NOCs to five applicantsto establish digital banks: Easypaisa, Hugo Bank, KT Bank, Mashreq Bank, andRaqami; and in 2025, Easypaisa was awarded a license to operate. Digital banksare expected to be a game-changer as far as financial inclusion and the customerjourney is concerned, and is poised to change the face of the banking sector.

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