The central bank has observed that commercial banks have put their depositors’ money at risk by allowing unauthorised mobile phone applications to provide online banking services to clients directly and indirectly.

The State Bank of Pakistan (SBP) said in a notification to its regulated entities (REs) providing digital banking services that “a number of unauthorised/ unlicensed digital lending mobile application(s) and platforms are using banking channels for loan disbursement and collection, and to perform creditworthiness checks through integration with bank accounts of customers.”

“Such usage of digital banking channels and integration with mobile banking platforms by these unauthorised/ unlicensed digital lending apps pose serious concerns about consumer protection and may also be a cause of reputational risk for banks.”

REs include commercial banks, microfinance banks (MFBs), payment system operators, payment service providers and electronic money institutions (EMIs).

REs shall not extend services such as deposits or lending products, mobile application integration with third parties, payment gateway services, credit scoring and creditworthiness checks, wallet services, and/or API integration services to the unauthorised/ unlicensed digital lending platforms (individuals or businesses) either directly or indirectly, the central bank said.

Talking to The Express Tribune, IT expert Noman Ahmad Said emphasised that the central bank should notify names of those financial institutions which were offering banking services through un-licensed applications. “This way, depositors can withdraw and take care of their deposits before something unusual happens,” he said.

He was surprised that unauthorised mobile platforms were offering banking services despite the SBP being one of the highly responsible regulators.

Banks are managing deposits of around Rs23 trillion and 67.52 million depositors’ accounts in the country having population of 227 million.

The number of branchless banking accounts stands at 103 million while EMIs are managing 1.60 million accounts (e-wallets).

The SBP’s notification further said that REs are advised to ensure that the licensing status of digital lending platforms/ mobile applications and their authorisation to conduct business are duly verified from the relevant regulatory bodies including the Securities and Exchange Commission of Pakistan and the central bank itself as part of know-your-client and customer due diligence process.

It advised REs to implement reasonable measures, including at the time of customer on-boarding and transaction monitoring, to ensure that their banking channels and platforms are not used by the unauthorised financial service providers, either directly or indirectly.

Published in The Express Tribune, June 23rd, 2023.

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