New digital bank applicants must hurdle ‘stricter’ criteria — BSP

By Luisa Maria Jacinta C. Jocson, Reporter

NEW DIGITAL BANKS applying for a license must adhere to tighter standards on financial inclusion, a Bangko Sentral ng Pilipinas (BSP) official said, adding that there is a possibility that not all four new licenses would be granted immediately.

“Since digital bank applicants will be assessed against stricter criteria and parameters against our financial inclusion goals, it is possible that the number of digital bank players in the financial system will not reach the maximum limit of 10,” BSP Deputy Governor Chuchi G. Fonacier told BusinessWorld.

“We are optimistic that the new players are going to offer financial products and services that have not been widely offered to the market,” she added.

Earlier this month, the Monetary Board approved the lifting of the moratorium on new digital banking licenses starting Jan. 1, 2025. It will allow four more digital banks to operate in the country, which would bring the maximum number to 10. These can either be new applicants or banks that seek to convert their existing license to a digital one.

“There are some entities that have shown interest, but we have yet to really see the bigger picture when the application window opens in January 2025,” Ms. Fonacier said.

“With our continuous market surveillance, we are also looking at a limited number of players who might be interested in converting their license to a digital banking license.”

Ms. Fonacier said limiting the number of digital lenders to 10 allows the central bank to “strike a balance between being open to seeing the potential of new players yet remaining cautious and sensitive to the possible risks that the new digital bank licensees may bring.”

Earlier this year, the BSP said only two of the six digital banks were profitable.

Ms. Fonacier also noted that most jurisdictions with licensed digital banks have kept their industry players to a “handful” or even fewer than 10.

“Since we are still currently further understanding this bank category, we want to be cautious. Hence, keeping the additional players few is more prudent compared with opening up to a bigger or unlimited number, which may potentially expose the financial system to a wider set of unknown and novel risks,” she added.

In 2021, the BSP capped the number of digital banking licenses at six as it sought to boost regulatory capacity and supervision of the sector.

The six online lenders in the country are Tonik Digital Bank, Inc.; GoTyme Bank of the Gokongwei group and Singapore-based Tyme; Maya Bank of Voyager Innovations, Inc.; Overseas Filipino Bank, a subsidiary of Land Bank of the Philippines; UNObank of DigibankASIA Pte. Ltd.; and UnionDigital Bank of Union Bank of the Philippines, Inc. (UnionBank).

BSP Governor Eli M. Remolona, Jr. earlier said applicants must “bring something new to the table.”

“We want to see digital banks offer innovative products that will reach the undertapped and unserved markets to contribute to greater financial inclusion,” Ms. Fonacier said.

Applicants must also have potential to reach untapped or underserved markets.

“For example, they must show that they have access to a large pool of data/ecosystem that will support the delivery of innovative and game-changing financial products and services, specifically lending solutions,” she added.

The central bank is also eyeing applicants that can offer credit products to more Filipinos.

“As we push for greater credit inclusion, we are hoping for the players to be able to grant credit facilities to those customers who have not been granted such loans by incumbent financial institutions due to lack of formal documentation,” she said.

“Now, we see that alternative data points are being utilized to generate credit scores for individuals, and we want to see digital banks maximize the capabilities of these technologies, of course, within appropriate safeguards/safety nets,” she added.

The BSP wants to onboard at least 70% of adult Filipinos into the formal financial system.

The central bank earlier said applicants would also undergo a “rigorous” licensing process that will evaluate their value proposition, business models and resource capabilities. Applicants must also be compliant with the standard licensing criteria, which cover capital adequacy and corporate governance and risk management, among others.