The Tag Digital Bank

The TAG Digital Bank was a promising startup that sought to become Pakistan's Revolut and Paytm. But it also experienced an abyssal period; Talal Gondal, its founder, and COO Ahsan Khan became embroiled in an embarrassing crisis that threatened to uproot their entire business and leave investors scratching their heads.

Few months back, TAG attempted to acquire Samba Bank through a consortium led by an investment firm in Hong Kong. This deal was meant to grant TAG access to the State Bank of Pakistan's license as well as backing for their venture.

TAG had recently closed a $5.5 million pre-seed round, placing them in an advantageous position to acquire a license from the SBP and start operating as an Electronic Money Institution (EMI). This license permits fintech startups like TAG to launch mobile wallets without needing full banking authorization from the SBP.

However, in late December the SBP issued a statement noting violations of regulatory requirements and other issues with TAG's pilot operations. TAG had received in-principle approval from the SBP in November last year and was eventually granted a pilot license to commence operations this August.

Weeks later, however, TAG received an unusual document in their mailbox which appeared to have been doctored. This forged letter purporting to be official confirmation from TTB Partners that they had successfully secured $45 million for purchase of Samba Bank had been forgeried.

At first, the SBP failed to notice this fraud until they ordered TAG to refund all customers' funds. This came as a major setback for TAG, who had hoped to gain an edge over other fintech startups by securing a banking license from the SBP.

As soon as the SBP discovered the fraud, they took a tough stance against TAG and declared that it would no longer permit its EMI pilot operations to expand. Meanwhile, rivals Sadapay and NayaPay had already obtained full EMI licenses from the SBP and were rapidly growing their businesses.

Talal and Ahsan Khan had been struggling to come to grips with what had transpired. Ultimately, Ahsan persuaded Talal to sign a written affidavit admitting his role in the forgery and that he accepted full responsibility.

After this exchange, Ahsan and General Afzal began discussing prudent measures that could get TAG out of this mess before the SBP did. They also considered writing to the central bank to explain what had transpired in a letter.

Ahsan and General Afzal used the letter, a copy of which is available to us, as an opportunity to explain what had transpired and propose solutions. It served as both parties' opportunity for resolution.