BSP studying expansion of digital banking sector
The Bangko Sentral ng Pilipinas (BSP) will review by April or May this year whether or not they will lift the moratorium on digital bank license application and open up the category to more than just six banks.
BSP Governor Eli M. Remolona Jr. said that while there are “quite a few” interested banks and non-banks in the pipeline waiting for BSP to accept digital bank license applications again, they are “not yet comfortable” with digital banks’ business models.
“I don't think anyone is making money yet…we're looking at what's going on and we're trying to understand the new business models that they bring,” he said in a press briefing last March 6.
The BSP only allowed six digital banks to operate in the Philippines. It closed the application window for three years beginning on August 31, 2021. Supposedly, it can be reopened by August this year.
BSP Deputy Director Melchor Plabasan of Core IT Specialist Group said of the six banks, only two are making profits. He said it would take five to seven years before a digital bank will become profitable. Globally, only five percent of digital banks are profitable.
“We are expecting that there will be losses but we don't expect that some will be out of the red already, probably even before the five to seven years (are up),” he said.
Plabasan said they are expected to submit an industry report in the second quarter this year. “Part of that report is a recommendation on whether to -- let's say is it going to be a partial lifting, is it complete lifting, or is it going to be an extension of the moratorium,” he said.
“But essentially, we are looking at first the impact of these digital banks to the overall financial system, and in terms of their contribution to our financial institutions. But so far the six digital banks have already generated around 8.7 million deposit accounts which represent around seven percent of the total of the Philippine banks,” added Plabasan.
The BSP official said they could submit the industry report as early as April this year. “Based on what we saw, based on the performance of digital banks here in the Philippines and also in Asia-Pacific, the indicators of success when it comes to lending is ecosystem partnership. What does that mean? It means that those that have access to huge amount of data can already be profitable. I mean (they) can develop a suitable credit scoring model,” he said.
He noted that in South Korea and China, the successful digital banks are backed by a telecommunication unit. “They have access to telco data which they use to feed their credit scoring model. So, that would be, in terms of credit underwriting, that is an indicator of success as well,” said Plabasan.
Meanwhile, Remolona said in the upcoming review, “some digital banks are assessed on the basis of how regular your payments are, for example.”
“Or whether you are part of a network or group of friends or a group of community in which most people in that network are reliable in terms of paying off loans. So that's digital banking. We're now only six licenses. But once we know more, once we understand more, we're happy to open it up so that we can issue more digital licenses,” said the BSP chief.
Right now, the BSP is carefully monitoring the six digital banks that were allowed to operate before the moratorium. The review is to determine how many more digital banks the industry can accommodate and if the market is ready for additional online-only banks.
The establishment of a digital bank require P1 billion minimum capitalization.
A digital bank is the BSP’s seventh bank category. Digital banks will have minimal or zero-reliance on physical touchpoints but it will have to set up one office in the Philippines to receive and address customer complaints or issues.
The BSP has limited the number of digital banks to allow them the space to closely monitor the performance and impact of digital banks to the banking system and their contribution to the financial inclusion agenda.
The six digital banks currently in operation are: government-owned Overseas Filipino Bank Inc. of Land Bank of the Philippines; Tonik Digital Bank of Tonik Financial Pte Ltd. of Singapore; MAYA Bank of the PLDT Group; UNObank Inc. of Singapore; UnionDigital Bank of Aboitiz-led Union Bank of the Philippines; and GoTyme Bank Corp. of the Gokongwei Group.