Digital banking in the Philippines

One industry that will definitely benefit in terms of fast and reliable internet connections is digital banking.

The Bangko Sentral has created a new category of banks and has awarded digital banking licenses to Maya Bank, Overseas Filipino Bank Tonik Digital Bank, UNOBank, Union Digital Bank and Gotyme. There was supposed to be a maximum of seven, but the seventh slot was not filled up because the nine applicants failed to complete documentation.

The BSP stopped entertaining new applications last Sept. 1, a deadline applicable to both new digital banks and incumbent ones that plan to convert their existing licenses to a digital banking one.

The central monetary authority is hoping that digital banks can assist the BSP in achieving its goal of shifting 50 percent of total retail transactions in the Philippines to digital, and of raising the number of Filipino adults with bank accounts to 70 percent by 2023.

Prior to having digital bank as a new and separate banking category, there have been banks offering no-branch banking servies through their apps. These include CIMB Bank Philippines, which manages the GCash app, and ING Philippines, which provides all-online retail banking services, even though they have  an existing commercial and universal banking license, respectively.

Other lenders like East West Bank, through its Komo app, and RCBC, through its Diskartech app, also offer all-online banking services.

But what is digital banking?

The BSP defines a digital bank as a lender that mainly offers its products and services through a digital platform instead of just through brick-and-mortar branches.

As explained by CIMB, digital banking is the full digitization of a bank from its processes to its products, and to the services it provides. This, it said, goes beyond being just a brick-and-mortar bank having an app or a website. Digital banking can completely migrate all the aspects of a bank into a portable device, which means clients can perform transactions and all their banking errands within the confines of a mobile application.

With digital banking, it explained that there is no need for human intervention since everything is automated using the latest in technology, as well as data to improve the overall customer experience. This is different from online banking, which yes, makes bank functions available via the internet, but some if not most of the processes still follow the traditional way.

CIMB pointed out that the most identifiable difference between traditional banking and digital banking is that traditional banking relies on face-to-face contact and a lot of manual processes. These are required to ensure the security of both the customer and the bank, and is not a step that can be bypassed. But with the technologies deployed by digital banks, they can provide an all-digital, end-to-end, safe, and secure onboarding experience.

“All banks have ‘Know Your Customer’ (KYC) policies to ensure that their products are not abused. That’s why before opening an account, customers are required to make a personal appearance, submit government documents, and fill up forms. With digital banking, the bank can perform KYC via the mobile application; all customers have to do is fill up online forms and take a photo of themselves, along with a valid ID. After filling up all the required information, customers will be required to provide their digital signature, which can be signed directly on their phone screens or by taking a photo of their actual signatures,” it added.

It noted that while digital banking has become an increasingly advantageous business model because it significantly reduces cost, this alternative or new way of banking, appeals to people of all ages and demographics for a couple of reasons.

First is it is flexible. Digital banking was designed so that account holders can have full control of their finances in the palm of their hands. This means that they can sign up for a bank account and access their accounts anytime, as long as they have a smartphone and a stable internet connection, it said.

Banking with a digital bank can also save you time and effort, CIMB said. One doesn’t have to queue up for long lines as everything can be done within the app. No more rushing through cut-offs as you can schedule bills payment or process deposits at your most convenient time.

Second, is it is cheaper. Because digital banks can cut the bulk of their operation costs by not having a branch and employing less people, they are also able to lessen or completely eliminate the fees typically charged by traditional banks. This includes free withdrawals, free interbank transfers, and more.

CIMB said that due to operating costs like rent, manpower, and equipment, traditional banks usually need to charge their customers with fees on some transactions. For example, a simple balance inquiry through an ATM may cost  P1 to P2 per transaction. Meanwhile, withdrawing money from an account may cost P10 to P15 per transaction. On the other hand, digital banks have fewer worries when it comes to operating expenses. This gives them the opportunity to offer their customers their services free-of-charge.

And since digital banks result in less operating expenses, they can offer better interest rates. Unlike traditional banks that only offer one to two percent on deposit accounts, digital banks can go over three percent.

Third, it involves less requirements. With digital banking, everything is done within the app and as long as one can provide and fill-up everything correctly, they can open an account in just a few minutes. Unlike traditional banks, some digital banks allow customers to open an account without having to make an initial deposit.

Fourth is that it is safe and secure. CIMB explained that like any other bank account, a digital bank account requires a password before it can be accessed. But unlike regular banks, account holders are doubly protected by having to provide a fingerprint before a transaction is made or having to confirm it with a one-time PIN (OTP).

According to a recent report from finder.com, digital-only banking penetration in the Philippines is expected to double in the next five years, and that by 2026, 36 percent of Filipinos or around 26 million people will have a digital-only bank account.

Finder’s global fintech editor Elizabeth Barry said digital-only banking usage in the Philippines is expected to increase far faster than the global average. By 2026, Asia will have four of the top five countries for digital banking adoption.

For comments, e-mail at [email protected]