The Philippine central bank has paved the way for digital banks in the Southeast Asian country with the approval of rules for their creation and licensing, as it seeks to give more Filipinos access to a wider range of financial services and products.
Benjamin E. Diokno, governor of the central bank, Banko Sentral ng Pilipinas (BSP), says digital lenders will play a key role in the digital financial ecosystem.
“We see these banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services,” he says in a statement on November 29.
He did not say when the central bank will begin issuing licences or specify the requirements. A BSP spokesperson did not immediately respond to questions from Asia Asset Management (AAM).
Mr. Diokno says the central bank targets to have at least half of total retail payment transactions done via digital channels such as electronic wallets by 2023 with at least 70% of adults using digital accounts by then.
According to the central bank, 51.1 million Filipinos, or over 71% of the country’s 72 million adult population, are unbanked.
Mr. Dionko says digital lenders must have sound governance, robust and secure technology infrastructure, and effective data management practices. He also notes that digital banks are potentially more exposed to cyber security and money laundering risks.
“As such, digital banks would be subject to the same prudential requirements applicable to other types of banks with recalibration to be commensurate to their business model and risk profile,” he says.
The central bank didn’t set a limit on the number of licences it will issue but says there may be a cap depending on the number of applications.
“Essentially, the BSP is looking to attract players with strong value proposition, sufficient financial strength, technical expertise of management and effective risk management,” Mr. Diokno says.
The digital banking plan can indeed help more Filipinos gain access to financial services and products, according to the founder of a Manila-based financial technology company.
“However, it really depends how vibrant the digital banking industry is; the more digital banks in the market, the more competitive the market will be and consumers will be the ultimate winners,” he tells AAM, speaking on condition of anonymity. “So, it really depends on the capital requirements that BSP imposes on the digital banks. We expect more details to be released soon.”