Half a century ago, Pakistan’s banks were locked down by the state—slow, rigid, and built for a different world. Today, banking happens on the go, fintech startups are rewriting the rules, and customers do not just expect speed—they demand it. From nationalisation to digital domination, the shift has been nothing short of transformative. A country once built on keeping cash in hand at all times is now embracing a cashless, connected future.
The sector’s evolution has not been gradual—it has been a battle. And the next wave, driven by AI, technological advancement, and financial inclusion, could hit even harder. This is the real story behind the numbers. How Pakistan’s banking industry fought, adapted, and is now gearing up for its most unpredictable chapter yet.
A decade-by-decade examination of Pakistan’s banking evolution—tracing its transformation from state control to digital disruption, assessing where the industry stands today and what it must do to secure a resilient, competitive future.
Until the early 1970s, Pakistan’s banking sector was steadily gaining momentum. In 1974, the government nationalised thirteen private banks, merging them into six state-run institutions to align financial services with national development goals and direct resources toward priority sectors while promoting broader economic participation. The creation of the Pakistan Banking Council helped coordinate these efforts.
While the State Bank of Pakistan continued to play a supportive role in maintaining stability. While the transition brought operational challenges, it also marked a pivotal moment in the country’s effort to build an inclusive and government-driven financial framework.
By the 1980s, Pakistan’s banking sector was navigating a complex phase of state-led operations and centralised oversight. While the public ownership model aimed to broaden access to credit and support national development, evolving economic conditions presented significant operational and structural challenges.
Banks took on an expanded role in supporting industrial and public sector initiatives. But this often stretched institutional capacity and led to inefficiencies. Governance frameworks were still maturing, and lending practices at times lacked the risk management systems typically found in market-driven environments.
Despite these limitations, this period laid the groundwork for important reforms and a growing recognition of the need for modernisation and greater institutional autonomy.
By the early 1990s, Pakistan’s banking sector stood at a turning point. Decades of state-led financial management had created the need for structural reform to enhance efficiency, transparency, and competitiveness.
Recognising these evolving needs, the government, financial regulators, and key stakeholders initiated a series of thoughtful policy shifts to modernise the sector: setting the stage for sustained growth and innovation in the decades to come.
By 1991, Pakistan entered a new chapter in financial sector development, marked by important regulatory reforms. Amendments to the Bank Nationalisation Act paved the way for greater private sector participation and increased competition in the industry.
As a result, twenty-three new banks were established—ten of which were domestically licensed. This broadened the landscape of financial services. Among the early milestones, the Muslim Commercial Bank transitioned to private ownership in 1991. Followed by the transfer of Allied Bank’s majority ownership to its management in 1993.
These early transitions signalled a growing momentum towards a more diversified and dynamic banking environment.
Behind the scenes, important shifts were underway in how financial markets operated. Interest rate policies were gradually liberalised, allowing rates to be better reflect the market dynamics rather than centrally administered benchmarks. Credit ceilings were also removed, enabling banks to extend financing based on commercial viability and assessed risk, rather than predefined allocation limits.
Government borrowing practices also evolved significantly during this period. Rather than relying on administratively fixed borrowing arrangements. The government began participating in open market auctions, allowing interest rates to be transparently determined by market forces.
This shift introduced greater discipline and competitiveness into public sector financing, reinforcing broader efforts to strengthen fiscal management and deepen capital markets. It marked a key milestone in the transition toward a more open and market-driven financial ecosystem.
By 1997, four major state-owned banks remained active, operating alongside a growing number of private and international institutions, twenty-one domestic and twenty-seven foreign banks. This increasingly diverse and competitive environment signalled the emergence of a more dynamic and inclusive financial sector. Where market principles began to take a stronger hold.
Hence, privatisation ushered in a new era of regulatory reform. Aimed at strengthening oversight and enhancing the financial system’s efficiency and integrity. The State Bank of Pakistan’s role was revitalised, and key legislative frameworks, such as the Banking Companies Ordinance and the SBP Act, were comprehensively updated to align with emerging market needs.
Measures to streamline loan recovery were introduced, enabling banks to manage credit risk more effectively. With greater operational flexibility, financial institutions began expanding into new areas, including small business lending, consumer finance, and housing. This period marked the sector’s transition toward a more resilient, responsive, and growth-oriented model.
Furthermore, liberalisation unleashed a seismic shift. By 2010, Pakistan’s banking landscape was unrecognisable, with five public banks, twenty-five private players, six foreign entrants and four specialised banks. The numbers tell the story: 9,348 branches, 28 million depositors.
The sector experienced an unstoppable boom, reshaping the nation’s economy. But the real game-changer was yet to come – the digital storm that would shatter traditional banking’s last strongholds. Alongside the rise of digital transformation. Another powerful force has been reshaping Pakistan’s financial landscape: the steady and growing expansion of Islamic banking.
Driven by deep-rooted religious values and a growing demand for Shariah-compliant financial services. Pakistan has witnessed a notable expansion of Islamic banking. Islamic banking in Pakistan has evolved beyond a niche alternative to become a mainstream force. Commanding approximately 20% of total banking assets (around Rs 7 trillion), 25% of advances (approximately Rs 3 trillion), and 22% of total deposits (around Rs 5 trillion).
Islamic banking in Pakistan continues to gain momentum. Marked by Faysal Bank’s full conversion in early 2023, bringing the number of dedicated Islamic banks to six. The sector’s trajectory was further shaped by the Federal Shariah Court’s 2022 ruling. To transition the country to an interest-free financial system by 2027. Backed by strong regulatory support and public alignment with Shariah-Compliant values. Islamic banking is emerging as a central pillar of Pakistan’s financial future, blending economic purpose with personal conviction.
While Islamic banking reshapes the domestic landscape, a few institutions have also expanded globally. HBL, Pakistan’s largest multinational bank, has built a strategic international presence. Particularly in China, where it plays a leading role in CPEC financing and became the first Pakistani bank to obtain a branch license in Beijing in 2019. UBL, with over 1,400 domestic branches and nineteen overseas locations, serves more than 4 million customers worldwide. Together, these banks reflect Pakistan’s growing financial footprint on the international stage.
To meet growing domestic demand, Pakistan’s banking sector is undergoing a significant shift, driven by fintech innovation and a rising generation of digitally savvy consumers. Digital wallets such as easypaisa and JazzCash are accelerating the adoption of cashless transactions.
QR codes are enabling more efficient small business payments, and micro-lending platforms are supporting a growing wave of entrepreneurship. Meanwhile, open banking is helping to break down data silos, giving consumers greater control over their financial choices.
The result is a financial system that is faster, sharper, far more inclusive, and more powerful.
Pakistan’s customer base is also evolving rapidly, led by a younger generation embracing mobile-first banking over cash. This shift is fuelled by proactive policies from the State Bank of Pakistan and a rising wave of tech-savvy users, driving unprecedented growth in digital financial activity.
In 2024 alone, retail digital transactions surpassed 7.5 billion, reflecting a 38% annual increase in volume. The total transaction value rose from Rs 495 trillion to Rs 559 trillion, a 13% jump. In the last five years, the share of retail transactions conducted digitally has climbed from 52% to 87%. Underscoring the deepening integration of digital payment methods into everyday life.
The numbers further highlight the scale of this shift: mobile banking apps processed 1,450 million payments worth Rs 24 trillion in just one quarter. Branchless banking apps now serve 64.3 million users, while bank mobile apps and EMI wallets reach 21 million and 4.7 million users, respectively.
With digital channels now accounting for 88% of retail transactions, 77% of volume and 53% of value. The future of banking in Pakistan is increasingly cashless, connected, and digital-first.
The efficiency of fund transfers has also seen major improvement. Transfers that once took seventeen seconds now take in just six, enabling faster business transactions and reducing the operational delays that previously spanned several days.
The State Bank of Pakistan is propelling digital payments through its flagship systems – Raast and RTGS. Raast, the instant payment system, has processed a staggering 296 million transactions worth Rs 6.4 trillion in just one quarter, taking its total tally to 1.144 billion transactions valued at Rs 26 trillion.
Meanwhile, RTGS, the real-time gross settlement system, has settled a whopping Rs 330 trillion in large-value transactions, a 19% surge in value. SBP’s systems are driving Pakistan’s digital payments revolution forward.
To build on this momentum, the government, along with the State Bank, have introduced a five-year National Financial Inclusion Strategy. Aimed at expanding access to formal financial services and accelerating digital adoption. In 2015, only 16% of adults had access to banking, despite 64% adults using some form of formal financial service.
The strategy sets an ambitious goal: significantly improve financial inclusion by 2028, with a strong focus on underserved sectors such as SMEs, agriculture, housing, microenterprises, and rural communities.
Yet, despite progress, Pakistan’s digital banking landscape still faces significant barriers. Regulatory uncertainty around digital-only banks and fintech partnerships continues to limit innovation. At the same time, low digital and financial literacy, especially in rural areas, is preventing millions from safely accessing or trusting digital services.
For many, usage remains limited to basic transactions, such as bill payments, while cash still dominates in smaller towns. Overcoming these challenges will require more than just app-based solutions. It calls for clear regulation, widespread education, and a shift in user behaviour.
On top of everything, lurking in the shadows are cybersecurity threats and regulatory roadblocks, threatening to derail the fintech revolution. Data breaches, phishing scams, and hacker attacks are multiplying fast, exploiting weak security frameworks and a serious shortage of strict data protection laws.
In spite of ongoing challenges, Pakistan’s fintech sector is gaining momentum, with the potential to reshape the country’s financial future. Mobile financial services are expanding access for the unbanked, QR payments are rising, and e-commerce is increasingly reliant on seamless digital transactions.
Emerging technologies like blockchain, cryptocurrency, and AI-driven fraud detection are also being explored to enhance security and transparency. The outlook for digital finance in Pakistan remains strong and full of opportunity.
The State Bank of Pakistan’s issuance of digital banking licences to five institutions marks a major step forward in expanding financial inclusion through technology. These licensees are expected to deliver innovative and fully digital banking models that serve the unbanked and underserved communities.
To remain competitive, traditional banks must enhance digital integration across operations, partner with fintechs, and invest in seamless, user-focused services. Banks like Alfalah, HBL, and Meezan are leading this shift. With Allied Bank, Standard Chartered Pakistan, and UBL also making notable progress. These frontrunners benefit from strong digital infrastructure, strategic partnerships, and a proven commitment to transformation through platforms like Raast and Roshan Digital Accounts.
Still, some banks are hesitant to fully adopt digital transformation. They focus on traditional branch banking and deposits, despite knowing digital channels are more cost-effective. This approach risks long-term relevance.
Banks continue to face structural and cultural challenges in achieving full digital transformation, including fragmented systems, outdated processes, and internal silos. To move forward, they must modernise their tech infrastructure, integrate digital and traditional channels, invest in employee training, and adopt data-driven strategies. Developing locally relevant, inclusive products will also be critical to making digital banking more effective and widely accessible.
Henceforth, the map is drawn, the stakes are clear, and now, the only thing left is to move. Pakistan’s banking story is ready for its next chapter.
As Pakistan’s banking sector embarks on its next 50 years, the stakes are high. The possibilities for digital transformation far outweigh predictions of incremental change. This moment demands collaboration among regulators, innovators, and educators to harness technology, cultivate talent, and drive inclusive growth. The path forward requires bold action, strategic partnerships, and a shared vision to unlock Pakistan’s economic potential and ignite a brighter financial future – one that leaves no one behind!
