Algeria has finally thrown open the doors to digital banking. The country’s banking regulator, the Bank of Algeria, has outlined the framework for establishing digital banks under Instruction №02–25, issued on March 2, 2025. This follows Regulation №24–04 from October 2024, which set the stage for Algeria’s cautious entry into digital finance.

At first glance, the regulatory shift appears progressive, promising a financial system free of brick-and-mortar constraints. However, Algeria’s cautious optimism translates into a framework that is as much about control as it is about innovation.

The Catch: A Digital Bank Must Still Have a Physical Home

A digital bank, under Algerian law, is defined as an institution that offers services exclusively through digital platforms — no long queues, no scribbled forms, no physical branches. But before one imagines an app-driven utopia, there’s a twist: these banks must maintain a physical headquarters in Algeria for administrative purposes. Why? Apparently, digital complaints still need a physical desk.

And that’s not all — all operational platforms and data redundancies must be hosted locally. This insistence on domestic infrastructure reflects Algeria’s commitment to data sovereignty and cybersecurity, but it also throws a wrench into the plans of nimble startups that thrive on flexible, cloud-based solutions.

Who’s Allowed to Play?

Not just anyone can start a digital bank in Algeria. The regulators have taken a protectionist stance:

• Digital banks cannot be foreign bank branches. Translation: No international digital banking giants setting up shop with ease.
• At least 30% of the bank’s equity must be held by an established Algerian bank with experience in online banking. This ensures that digital banks are backed by seasoned players — or, as some might say, keeps control in the hands of traditional institutions.
• Digital banks are banned from opening physical branches but may operate fully automated “digital branches” — essentially glorified ATMs. It’s a compromise that retains a semblance of the old banking world while pretending to embrace the future.

Innovation Meets Bureaucracy

The regulation imposes the same prudential rules on digital banks as traditional ones, with some extra hurdles:

• No single customer can hold more than 1% of total deposits in the first year. This rule is designed to prevent instability but could also limit digital banks’ ability to scale quickly.
• Lending to large companies is off-limits, unless they’ve only recently transitioned from SME status. The goal? To ensure digital banks focus on financial inclusion rather than competing with established institutions. The effect? Potentially stifling the innovation these banks might bring to corporate finance.

The Two-Stage Gauntlet

Setting up a digital bank in Algeria requires navigating a two-step approval process:

1. Authorization to Establish: Applicants must submit a hefty dossier to the Monetary and Banking Council, detailing everything from market analysis to a legally binding “exit plan.” Yes, before they even start operations, banks must have a well-documented roadmap for shutting down.
2. Approval to Operate: Once authorized, the bank must seek final approval from the Governor of the Bank of Algeria, proving compliance with prudential rules, risk management frameworks, and cybersecurity standards.

It’s a regulatory tightrope that could leave applicants wondering whether they’re launching a financial institution or writing a doctoral thesis in compliance.

Investor Outlook: Golden Opportunity or Regulatory Headache?

For investors, Algeria’s digital banking framework presents a mixed bag. On the bright side, the regulations signal a willingness to modernize financial services and tap into a largely underserved market. If executed well, digital banking could be a game-changer, particularly for young, tech-savvy consumers and rural populations with limited access to traditional banks.

However, the mandatory local ownership, strict compliance demands, and limitations on deposits and lending create significant barriers to entry. Foreign investors might find the environment too restrictive, stalling the kind of rapid innovation seen in other emerging markets.

For those with deep pockets and patience, Algeria’s digital banking sector could offer long-term potential. But for fast-moving fintech disruptors seeking agility and market flexibility, the country’s cautious and tightly controlled approach might be a deal-breaker.

The Bottom Line

Algeria’s move towards digital banking is a step forward, but it’s one taken with both eyes firmly on the rearview mirror. While the initiative opens doors for financial innovation, the tightly controlled environment, bureaucratic hurdles, and heavy regulatory oversight suggest that Algeria’s first digital banks will operate under a highly conservative regime. Whether this cautious approach fosters sustainable growth or stifles competition remains to be seen. One thing is certain: Algeria’s digital banking landscape is not for the faint-hearted.

 The new guidelines on how to submit applications are available here.