The Bangko Sentral ng Pilipinas (BSP) has approved the recognition of digital bank as a new bank category that is separate and distinct from existing bank classifications.
According to the BSP, a digital bank is defined as a bank that offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches.
BSP governor Benjamin E. Diokno said digital banks will play an important role in the digital financial ecosystem by providing another channel for the unbanked.
“We see these banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services, bringing us closer to the realization of our target that at least 50 percent of total retail payment transactions have shifted to digital, and 70 percent of adult Filipinos have transaction accounts by year 2023. This is seen to remove sticky points and leapfrog our financial inclusiveness agenda,” Diokno said.
The central bank said it expects digital banking applicants to have sound digital governance, robust, secure and resilient technology infrastructure, and effective data management strategy and practices.
The BSP noted that digital banks are exposed to the same financial risks faced by conventional banks with potential elevated exposure to cybersecurity and money laundering risks.
“As such, digital banks would be subject to the same prudential requirements applicable to other types of banks with recalibration to be commensurate to their business model and risk profile,” it said.
The central bank said digital banks are expected to maintain a principal place of business in the Philippines to house the offices of management and other support operations and serve as the main hub for customer concerns handling and point of contact for stakeholders, including the BSP and other regulators.
“Digital banks are also allowed to tap cash agents and other qualified service providers subject to existing regulations to complement the innovative delivery of financial services,” it added.
The BSP said it may limit the number of digital banks that may be established considering the total number of applications received and the assessment of the overall banking situation.
“Essentially, the BSP is looking to attract players with strong value proposition, sufficient financial strength, technical expertise of management and effective risk management,” Diokno said.
The Fintech Alliance, an organization of players from the local fintech and digital industry, welcomed the government’s issuance of the digital bank licensing regulations.
“Coupled with the recently released draft on the guidelines on open finance framework and a comprehensive digital payments transformation roadmap, the Philippines is poised as an emerging digital hub in the Asia Pacific region,” said Lito Villanueva, Fintech Alliance.PH chairman and RCBC executive vice president and chief innovation and inclusion officer.
“We are seeing more foreign technology players coming in and traditional banks leveling up to be at par with the increasing competition towards creating its own hybrid neo-banks. These developments present an expansive array of choices to consumers. Consumers are the ultimate winners. At the end of the day, it is all about delivery of awesome customer experience and unique value proposition.”