The Bangko Sentral ng Pilipinas (BSP) has approved the framework for digital banking in the country, creating a seventh bank category.

“Digital banks will play an important role in the digital financial ecosystem,” said BSP Governor Benjamin E. Diokno in a statement Thursday. These banks, he added, will improve market efficiencies and will help the BSP reach its target of shifting 50 percent of total retail payment transactions to digital, and to have 70 percent of adult Filipinos with transaction accounts in three years or by 2023.

“This (framework) is seen to remove sticky points and leapfrog our financial inclusiveness agenda,” said Diokno.

Diokno said previously that the Monetary Board may limit the number of digital banks in view of the total number of applications they are receiving. The number of digital banking license the BSP will grant will depend on their overall assessment of the banking situation. The BSP is "looking to attract players with strong value proposition, sufficient financial strength, technical expertise of management and effective risk management,” he reiterated.

The approved circular for the establishment of digital banks in the country has not yet been released and there were no specific details on the final digital banking rules and regulation. There were two draft circulars that were circulated to the banking community for comments, the first one was in July and the second was in October.

The most recent version was that these banks will require capitalization of at least P1 billion.

The BSP will also allow existing banks with traditional brick and mortar branches to convert to digital banks, and there will be a three-year transition period.

Digital banks are banks that will have no physical presence and will rely only on an all-digital platform and/or electronic channels in offering financial products and services.

The BSP said applicants for digital banking license should have sound digital governance, robust, secure and resilient technology infrastructure, and effective data management strategy and practices. “The BSP recognizes 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,” said the BSP.

While digital banks will have minimal or zero-reliance on physical touchpoints, it will have to set up one office in the Philippines to receive and address customer complaints or issues.