Banking's digital reckoning in Pakistan

Digital banking is about transformation, not just apps

Muzamil Hasan opens by positioning digital banking as a much broader mandate than consumer touchpoints. Suhail Malik agrees: digital transformation touches every corner of the organization, from hiring and training to how loans are underwritten and products are delivered.

“Digital banking is all about changing the way of doing business,” Malik says. A mobile app is just the visible artifact. Behind it sits an entire reimagining of how a bank acquires customers, onboards them, scores their creditworthiness, and serves them at scale.

Muzamil pushes the question: How has banking infrastructure actually changed since the 1990s? Malik notes that at its core, banking is debit and credit. Everything else builds on that. But the way you operationalize those transactions has shifted from manual checkbooks and branch visits to instant digital settlement. That shift is not trivial.

The splintered banking license regime

The conversation turns to why Pakistan now has so many different banking tiers. Malik explains the evolution: conventional commercial banks served the wealthy, microfinance banks emerged around 2000 to capture small loans (starting at 25,000 rupees), branchless banking arrived in 2008-09, and now digital banks and electronic money institutions carve out new niches.

Each license type serves a different market segment and carries distinct regulatory limits. Microfinance banks have loan caps. Wallets have transaction ceilings. Digital banks operate without physical branches but function like full-fledged commercial banks. Malik clarifies: “They are different total entities. You can’t do certain lending in microfinance. Deposit, anybody can open a deposit account.”

The state bank’s segmentation was deliberate: financial inclusion meant reaching people no conventional bank wanted to serve. That mission has succeeded in terms of reach but is now hitting limits of profitability and behavior.

How wallets changed everything

In 2008-09, branchless banking relied on the telco agent network, which already had 450,000 retail points selling airtime scratch cards. Wallets went live on basic USSD, then jumped to mobile apps. By 2013, over-the-counter transactions dominated wallets at 90 percent; direct wallet-to-wallet transfers were only 10 percent.

The bottleneck was trust and handset literacy. As smartphones proliferated, the ratio flipped. Today, state bank data shows Jazz Cash alone claims 40 percent of RAS (Raast, the state bank’s instant payment system) IDs. That scale demonstrates demand for branchless financial services.

“But the customer has told their legitimate source of income,” Malik notes. A person sending 10,000 rupees monthly needs to prove where it comes from. That documentation requirement, combined with low transaction limits on wallets, leaves a gap for digital banks and microfinance products offering higher ceilings.

Security: social engineering, not system breaches

Muzamil raises scams and data leaks. Malik separates the threats: banks almost never suffer system breaches that drain accounts directly. What actually happens is social engineering.

A person gets a spoofed call claiming their account will close. Fear kicks in. They click a link, log into a fake website, and hand over credentials. Or they ignore an SMS alert because they did not read it carefully.

“You can see, you can see, I can tell you, digital banking is to show people dreams,” Malik says, gesturing at the aspirational pull of every scam. Someone calls and says you have money locked away, or your account is at risk, or an opportunity is closing. The greedy element is always there.

The state bank has tightened KYC rules and added a cool-off period after mobile app registration. SMS remains the primary alert channel because telcos charge banks only 3-4 rupees per SMS, whereas WhatsApp costs 4-5 cents each. Customers must stay vigilant: read their email, monitor their SMS, and never share OTPs.

Credit scoring is where inclusion breaks

Near the end, Muzamil zeroes in on the real bottleneck. Most Pakistani banks do not use ECIB (electronic credit information bureau) or link defaults to consequences. A salary earner might default on a loan and face no penalty beyond losing that bank’s credit.

Malik’s previous bank built an in-house AI scoring model so good that NPL stayed below 10 percent while the industry sat above 60 percent. The difference was selection: the algorithm identified which customers would actually repay.

But even that engine sits idle if defaults carry no teeth. Until defaults block mobile SIMs, electricity meters, or travel, borrowers do not internalize the consequence. “I just won’t take a loan next time,” they think. Financial inclusion stalls when the risk-and-behavior feedback loop is broken.

The unbanked 25 percent

Despite a decade of regulatory support, roughly 75 percent of Pakistan remains banked, leaving a quarter still outside formal finance. Malik attributes this partly to economics: some customers transact so little that traditional banks cannot profitably serve them. But wallets and digital banks have proven you can reach them if you reimagine the cost structure.

His metaphor is water: a person in a remote area accepts tap water; someone in the city buys mineral water; no one can mandate which brand they prefer. The same logic applies to banking. A driver or plumber needs basic services, not a brand. Digital banks and wallets deliver that at sustainable unit economics.

Muzamil asks the hard question: How close is National Bank to solving financial inclusion? Malik acknowledges the challenge is not regulatory or technical; it is behavioral. Customers must stay alert to fraud, complete their own KYC, and understand that digital onboarding takes weeks if they do not submit documents on time.

The transformation Malik describes is not just a mobile app. It is a complete rethinking of who banks serve, how they serve them, and what security and profiling mean in a 1.5 billion-person country where most citizens are still outside the formal system.