MANILA, Philippines – Digital banks will be facing more competition as the Bangko Sentral ng Pilipinas (BSP) will soon allow as many as 10 digital banks to operate in the country.

The Monetary Board of the central bank has approved the lifting of the moratorium on the grant of new digital bank licenses in the country. Starting January 1, 2025, a maximum of 10 digital banks will be allowed to operate, four more than the current six digital bank license holders.

Crucially, the new slots will also be available for existing banks which may want to convert into a digital bank.

“The grant of new digital bank licenses, which include the conversion of an existing bank’s license to digital bank license, aims to continuously harness the potential of these banks in bringing positive impact to the Philippine financial system while remaining sensitive to their attendant risks,” the BSP said in a statement on Thursday, August 8.

This means that the new players may include popular “digital” banks such as CIMB Bank Philippines, SeaBank, and OwnBank. These banks do not actually hold a digital bank license. CIMB Bank Philippines is classified as a foreign bank branch; while SeaBank and OwnBank (previously named the Rural Bank of Cavite City) hold rural bank licenses. However, all three share similar characteristics with digital banks, such as having a strong mobile bank app and not having a physical branch footprint.

Although these “digital” banks are already operating, they could obtain some benefits by officially converting into a licensed digital bank. Digital banks can start operations with much less capital, having a minimum capitalization of just P1 billion. Meanwhile, a universal bank — BDO Unibank, Bank of the Philippine Islands (BPI), Metrobank, and most other big banks — can be required to keep up to P20 billion in minimum capital if they have more than 100 branches.

Having more capital freed up means that digital banks can serve a broader range of customers who might otherwise be left out by big banks. For instance, UnionDigital can still profitably serve a P1,000 loan whereas a larger bank might prioritize a P100,000 loan since the bank has a higher cost-to-serve.

But the BSP reminds would-be applicants that they have to distinguish themselves from the competition if they want to get a license.

“Applicants must bring something new to the table,” BSP Governor Eli Remolona Jr. said in Thursday’s statement. “We want to see unique product and service offerings that are different from that offered by the existing market players. These offerings should have significant potential to reach broader clientele, particularly the untapped or underserved market segments.”

The BSP said new applicants will go through a “rigorous licensing process” that looks into their value proposition, business models, and resource capabilities, on top of the standard licensing criteria.

“Only digital bank applicants that have demonstrated capacity to meet the minimum criteria and offer unique value proposition, or develop new and innovative business models that are currently not offered or accessed by existing players, will be granted a digital banking license. Applicants must also display sufficient capabilities and readiness to deploy their digital solutions and to sustainably grow their business within the Philippine setting,” it added.

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Current digital banks

The BSP first started licensing digital banks in December 2020 under its Digital Banking Framework. In the three and a half years since, only six digital bank license holders have been allowed to operate.

The current licensed digital banks are:

• Maya Bank
• UnionDigital
• Tonik Digital Bank
• GoTyme Bank
• UnoBank (UNO)
• Overseas Filipino Bank (OFBank)

These banks have since exploded in popularity, with every digital bank except Tonik making it into Forbes’ list of best Philippine banks in 2024.

Although digital banks still hold relatively modest total assets, many of these banks are backed by heavyweights. Maya is part of Manny Pangilinan‘s group of companies, UnionDigital is a wholly-owned subsidiary of the Aboitizes’ UnionBank, GoTyme is part of the Gokongwei Group, and OFBank is part of government-owned Land Bank of the Philippines.

Meanwhile, industry titans such as BDO and BPI are unlikely to set up a separate digital bank, instead opting for a “phygital” approach that improves digitalization within their current bank setup while retaining their large network of physical branches. BPI president and chief executive officer Jose Teodoro “TG” Limcaoco said they had no plans to get a digital bank license, stating that “anything they can do, we can do better.” – Rappler.com