BSP lifts ban on new digital banks

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) will officially lift the moratorium on new digital banking licenses starting Jan. 1, 2025, allowing up to 10 digital banks, including existing ones, to operate.

In a circular signed by BSP Governor Eli Remolona Jr., the Monetary Board approved the lifting of the ban on the issuance of new digital banking licenses. This includes the conversion of traditional banks into digital entities.

“This aims to continuously harness the potential of digital banks in bringing positive impact to the financial system through the introduction of new or emerging business models while remaining sensitive to their attendant risks and at the same time, levels the playing field between incumbent banks and new entrants,” the BSP said.

Starting Jan. 1, 2025, a maximum of 10 digital banks will be allowed to operate in the country. Six digital banks are currently operating in the Philippines since the issuance of the Digital Banking Framework in December 2020.

Thus, lifting the moratorium will only accommodate four additional licenses, coming from either new or converting banks.

Traditional banks seeking conversion must meet stringent requirements, including maintaining a minimum capital threshold and adhering to a three-year transition plan to phase out physical branches and other brick-and-mortar operations. The transition plan must be submitted to the BSP.

“Applications for the establishment of other types of banks that will primarily offer financial products and services that are processed end-to-end through a digital platform and/or electronic channel shall be treated and evaluated as a digital banking license application,” the central bank said.

To apply for a digital bank license, whether for establishment or conversion, applicants must provide the necessary documentation and supporting information to the BSP.

This includes a feasibility study detailing projected monthly financial statements for the first year and yearly financial statements for the first five years.

The study should be based on realistic assumptions aligned with the proposed business model and corporate strategy, demonstrating the viability of the business and adherence to the minimum capital requirements.

Applicants should also demonstrate their capacity to offer unique value propositions, or develop new and innovative business models that are currently not offered or accessed by existing players.

“A foreign applicant with a solid background and good track record on digital banking may be considered as having the capacity to offer new value propositions, provided that its business model is currently not offered in the country,” the BSP said.

The proposed products and services should have significant potential to serve broader customer segments, especially untapped or underserved markets.

Applicants must also undergo a thorough review of their IT systems and infrastructure by a qualified independent third-party expert. The results of this assessment, along with technical reports, must be submitted to the BSP as part of the application.

Applicant-banks must present their proposal to the BSP. This presentation should cover ownership structure (including ultimate beneficial owners), corporate plans, business model, feasibility study results, governance framework, capitalization sources, risk management systems, consumer assistance mechanisms as well as anti-money laundering measures, among others.

The BSP previously granted digital banking licenses to Maya Bank, Overseas Filipino Bank Inc., Tonik Digital Bank Inc., UNObank Inc., UnionDigital Bank and GoTyme Bank Corp.