BSP clarifies what digital banks are

Published October 13, 2021, 5:37 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP), in another clarificatory memo, reminded all banks not to use the “digital bank” branding if they do not have a digital bank license.

The new memo (Memorandum No. M-2021-053/Clarification on the Definition of Digital Banks) has made it clearer that a universal and commercial bank, or thrift bank, rural and cooperative bank, and Islamic bank can offer financial products and services through a digital platform and electronic channels if they have been approved by the BSP to do so.

BSP Deputy Governor Chuchi G. Fonacier

BSP Deputy Governor Chuchi G. Fonacier, who signed the memo on Wednesday, Oct. 13, said a bank that will offer digital products and services should first secure the “requisite” central bank license on electronic payment and financial services for these digital banking products or services.

Fonacier further clarified that a bank with a digital-centric business model and operating as such based on BSP’s relevant rules and regulations may market itself as a bank offering digital banking products and services provided that they have a license to conduct or transact electronic payments.

Fonacier reminded all banks that a digital bank category is a distinct classification of banks and there are corresponding guidelines for their establishment as per Circular No. 1105 approved on December 2, 2020.

The BSP defines a digital bank as a bank which offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch/sub-branch or branch-lite unit offering the same, said Fonacier.

“The BSP recognizes that certain banks belonging to other categories use the phrase ‘digital bank’ in their marketing channels even if these banks do not fall under the definition of a digital bank pursuant to Circular No. 1105. Under the said circular, only a bank that is granted the license to operate as a digital bank may represent itself to the public as such in connection with its business name,” said Fonacier.

She again stressed that a bank “should represent itself consistent with its bank classification and the products and/or services that it is authorized to offer.”

For now and until December 2024, the BSP will allow only six digital banks to operate in the country. The BSP has stopped receiving applications for digital bank license last August 31.

The six digital banks operating in the Philippines are: Overseas Filipino Bank (OF Bank) of Land Bank of the Philippines (its license was approved on March 25, 2021); Tonik Bank of Singapore (June 3); UNObank of Singapore (June 3); UnionDigital of Union Bank of the Philippines (July 15): GOtyme of Robinsons Bank Corp. (Aug. 12); and Maya Bank, owned by PayMaya of PLDT Inc. (Sept. 16). Of the six, only OF Bank and Tonik Bank are already operating as digital banks while the rest are expected to fully set up their operations within six months or less.

Last June, the BSP circulated a draft circular that proposes to ban any bank from branding and marketing itself as a digital bank when it does not meet any of the requirements of an online-only bank.

In the draft circular, the BSP will allow big banks to market themselves as digital banks but only if they follow central bank conditions such as: these banks have no physical branches or branch lite units; has at least one fully-digital activity; has an advanced electronic payment and financial services or EPFS license; has at least one board member that has technical know-how and experience in e-commerce; and a minimum IT composite rating of “3”.

The December 2020 digital bank circular for the establishment of a neobank already contain a provision that said that only a bank that is “granted a digital banking license may represent itself to the public as such in connection with its business name”.

In January this year, the BSP issued its first clarificatory memo that said new bank applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks.

 
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