The Central Bank of the Philippines or Bangko Sentral ng Pilipinas (BSP) has issued a deadline for digital banks to register with the regulator. Digital banks are expected to comply and register before August 31, or else they will have to wait another three years or more before applying again.
Central Bank governor Benjamin Diokno said in a virtual briefing yesterday that limiting the number of digital banks will help monitor the banks’ impact on the government’s financial inclusion agenda. According to him, this will also ensure healthy competition among banks to offer innovative products and services.
At present, there are five digital banks licensed to operate in the country: Overseas Filipino Bank (of the state-owned Land Bank of the Philippines), Tonik Bank, UNObank, UnionDigital Bank, and GoTyme.
Two other pending applications will bring the number of digital banks to seven, BSP’s imposed limit. However, Diokno said that these two applications would need to satisfy all the requirements before being given the green light. And since there are only a few days left before the deadline, the chances of new applicants are very slim.
BSP’s moratorium is initially set for three years, but Diokno added that this may or may not be extended. The BSP Monetary Board will have to monitor the digital banking landscape and decide whether the number of digital banks is enough for the country’s digital economy.
Digitalization and financial inclusion
In 2020, BSP recognized digital banks as distinct from existing bank classifications, defining them 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.”
“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% of total retail payment transactions have shifted to digital, and 70% of adult Filipinos have transaction accounts by the year 2023,” Diokno said last year.
As early as 2020, BSP’s Monetary Board had already considered limiting the number of digital banks against the backdrop of the country’s overall banking situation.
Southeast Asia’s digital banking boom
2021 is the shining moment for digital banks in Southeast Asia. Early this year, the Monetary Authority of Singapore announced four successful applicants for the city-state’s first batch of digital banks. Meanwhile, Malaysia’s digital bank race has extremely heated up after 29 applicants confirmed their bid for one of the five slots on offer. While neighbouring Thailand and Indonesia do not issue full digital banking licenses, both countries remain popular for neobanks and digital banks. In the next two to three years, these countries are expected to roll out a comprehensive digital banking roadmap in response to the digital banking boom in the region.