As competition in the digital banking sector intensifies, the Bangko Sentral ng Pilipinas (BSP) expects the potential entry of foreign-backed digital banks to lower banking costs, ease transaction frictions, and streamline cross-border services.

This comes against the backdrop of the expected introduction of new digital banking licensees by the end of March. Qualified candidates could join the six existing lenders in the sector and add fuel to competition.

BSP Deputy Governor Lyn I. Javier said last week that the central bank is currently conducting a parallel assessment of business models submitted by interested parties to ensure they align with the government’s financial inclusion goals.

Javier declined to disclose the number of interested entities but noted that, aside from domestic banks, foreign lenders are also eager to fill the remaining four slots offered by the BSP.

“Potential entry of [foreign] banks could help in lowering the cost, providing more transparent services, streamlining onboarding and payments through frictionless digital platforms or apps, and offering efficient cross-border solutions, which can directly benefit Filipino consumers around the globe,” the BSP told Manila Bulletin on Tuesday night, Jan. 27.

It added that the introduction of unique value propositions could sharpen competition, accelerate innovation, and improve operational efficiency.

State policy think tank Philippine Institute for Development Studies (PIDS) said foreign-backed digital lenders can raise the sector’s standards by bringing in fresh capital, technology, and governance practices.

This, in turn, would pressure existing players to improve their pricing schemes and services, according to John Paolo Rivera, senior research fellow at PIDS.

As such, the BSP told Manila Bulletin that it is standing by its commitment to maintaining a “level playing field by applying consistent and proportionate regulations to all digital bank players, whether foreign or domestic.”

Given growing competition, the BSP expects digital banks to continue capitalizing on their technological strengths to expand while maintaining “robust” governance and risk management, “including sound capital, liquidity, and provisioning.”

To sustain momentum in expanding their customer base, the BSP is urging digital lenders to focus their efforts on easing friction, “particularly in terms of cost and optimized transaction journey.”

Digital banks, the BSP added, should likewise strengthen security across all potential attack surfaces as fraud schemes evolve, while delivering more personalized products and services.

Meanwhile, Rivera said the looming entry of foreign digital banks will likely prompt the BSP to “be more vigilant on data privacy, outsourcing, anti-money laundering / countering the financing of terrorism (AML/CFT), and systemic risk.”

Six digital banks are currently operating in the Philippines, namely GoTyme Bank, Maya Bank, Overseas Filipino (OF) Bank, UnionDigital Bank, UNObank, and Tonik Digital Bank.

Final results of the parallel assessment will be elevated to the Monetary Board (MB) in the first quarter for approval.

Over the next five years, Rivera expects competition in the sector to shift away from high deposit rates used to attract users, toward scale, trust, and profitable lending. He added that consolidation or specialization—mass retail, micro, small, and medium enterprises (MSME), or ecosystem-led finance—is likely as weaker players struggle to sustain promotional offers.