Pakistan has long been struggling with providing an affordable and user-friendly banking experience to its huge population of 220 million. From simply opening a bank account to carrying out day-to-day financial transactions, dealing with the banking sector in Pakistan is as painstaking as it can be. While the central bank, commercial banks, microfinance banks and growing Fintech companies are trying to ease the woes of the customers by improving the access to financial services, they still struggle with completely unlocking the untapped potential of digital transformation in the country. Not to mention that not a single traditional domestic bank has developed an end-to-end digital operation. Pakistan is home to more than 50 per cent of the world’s unbanked population, also reflected in the Global Findex 2021 – Pakistan’s financial inclusion rate remains stagnated at 21% between 2017 and 2021, lagging far behind regionally and globally. Over the years, the government and private entities have made substantial efforts to address this challenge with the central bank facilitating the process. The journey towards digital banking particularly began with the State Bank of Pakistan’s (SBP) Branchless Banking Regulatory Framework promulgated in 2008 and revised in 2011 and 2016 respectively. In a big leap forward, the SBP is now set to issue five to seven digital banking licenses to promote financial inclusion in the country. In the first phase, the SBP has received 20 applications for Digital Retail Bank (DRB) and Digital Full Bank (DFB) under its Licensing and Regulatory Framework for Digital Banks, and is currently conducting due diligence and evaluating the technical expertise, financial strength, technological infrastructure and risk management frameworks of these applicants. Given the country headlines, limited number of Global Digital Banks have participated in the application process. The forthcoming digital banking regime is expected to revolutionise the banking services for the unbanked people in remote areas and also for micro, small and medium-sized businesses. Digitalising SME segment prior to raising banking penetration in individual segment will be a challenge when this sector remains out of Pakistan’s tax system and generally operates on cash basis. Among the primary applicants for the digital banking license are the traditional domestic commercial banks, telecommunication and Fintech companies which are already leveraging their huge consumer base in digital financial services. Despite the strengths of traditional banks and Telcos, users often complain about their services, with persisting controversies around data leaks and unauthorised transactions. Not only this, the User Interface and User Experience of some of the banking applications often raise questions about their functionality, reliability and usability as the digital platforms often cease to work, especially in times of utmost need. While the domestic banks are investing in digital technology, they continue to run a traditional model of branch-based acquisition and servicing of customers. Even some branchless banks are opening branches. Enter international banks and Fintechs; they are also rallying to get the digital banking license with the aim to provide affordable and inclusive financial services to the large population base in Pakistan. Considering the strengths of these players already operating in the digital banking space outside the country, the traditional domestic entities could be considered as a separate category so that the foreign entrants are encouraged to bring their expertise and capital to Pakistan. In fact, all domestic banks should be encouraged to digitalise their existing businesses and launch digital only banks through their existing bank licenses or through a domestic digital bank license category. At a time when Pakistan is struggling with dwindling foreign reserves, foreign capital investments could serve as a blessing in disguise to bring the much needed investment to launch and build operations in Pakistan. This will be an opportunity for the country to make a positive statement that Pakistan offers potential for foreign investors. Pakistan badly needs to build Unicorns and these digital banking licenses could create one in the near future thus creating a path for foreign inflow of investments.