Qudsia Bano

The State Bank of Pakistan has formally launched its Regulatory Sandbox to encourage responsible experimentation in financial technology, a landmark reform under the bank’s Vision 2028 strategy. As detailed in the Annual Payment Systems Review FY 2024-25, the sandbox offers a controlled environment where licensed institutions, startups, and cross-sector innovators can test novel financial products under temporarily relaxed regulations while ensuring consumer protection.

Applications for the first cohort were invited between August 25 and October 5 2025, focusing on Open Banking interfaces, technology-enabled remittance solutions, and remote merchant onboarding mechanisms. Each participant is allowed a limited user base and transaction cap, after which SBP evaluates results to determine broader market readiness. Officials explained that the framework aims to balance innovation with systemic stability.

By allowing supervised trials, SBP can observe new models in real-time, collect empirical data, and design proportionate regulations instead of imposing one-size-fits-all rules. The sandbox also facilitates collaboration among regulators, SBP, SECP, and PTA, where products intersect across banking, insurance, and telecom sectors. Analysts consider the sandbox a critical step toward building Pakistan’s fintech ecosystem, which has grown rapidly since the introduction of Electronic-Money Institutions in 2019.

The new framework lowers entry barriers for startups exploring blockchain payments, RegTech solutions, or artificial-intelligence-based credit scoring. International investors are expected to view the sandbox as a sign of regulatory maturity, improving the country’s ranking in global innovation indices. The SBP emphasised that consumer protection remains central to the experiment.

Participants must maintain clear disclosure, data-security standards, and complaint-handling mechanisms. The central bank monitors all trials through a specialised Fintech Supervision Unit that reports directly to senior management. Lessons drawn from the first cohort will feed into updates of Pakistan’s payment system rules and cybersecurity protocols. Experts predict that the sandbox will accelerate financial inclusion by fostering low-cost, technology-driven services targeting youth, freelancers, and small enterprises.

As successful models graduate to full licensing, they are expected to diversify the domestic payments ecosystem and increase competition among incumbent players. SBP’s initiative thus positions Pakistan among countries such as Singapore and the UAE that employ regulatory sandboxes to drive digital finance responsibly.

Credit: INP-WealthPk