The Philippines May Have Up to 10 Digibanks Next Year But Will They Add Any Value?
BSP set to grant 4 more licenses in 2025, however, concerns remain on whether these new players can truly address the country's financial inclusion challenges.
While this expansion aims to boost financial inclusion and innovation, a critical look at the current landscape reveals a potential pitfall on where or not there will be an over-reliance on incumbent-led digital banks.
A Homogenous Playing Field?
The six existing digital banks in the Philippines – Tonik Digital Bank, GoTyme Bank, Maya Bank, Overseas Filipino Bank, UNObank, and UnionDigital Bank – have undoubtedly made strides in addressing key challenges.
They’ve expanded access to financial services for the unbanked, offered convenient mobile banking solutions, all while introducing competitive pricing.
However, a closer look reveals somewhat of a trend.
A number of these digibanks are either subsidiaries of traditional banks or have strong ties to major conglomerates with existing financial interests.
For instance, Overseas Filipino Bank is a subsidiary of Land Bank of the Philippines, and UnionDigital Bank is operated by Union Bank of the Philippines.
This incumbent-led model raises concerns about whether these digibanks are truly independent and capable of driving the kind of radical innovation seen in other markets.
Or are they offering truly differentiated products and services, or are they simply replicating existing models in a new digital format?
The Philippines, one of Southeast Asia’s fastest-growing economies, faces a significant challenge in financial inclusion due to the corporate-centric focus of its traditional banks, leaving a vast customer base underserved.
While digital technologies have boosted financial access in emerging markets globally, Philippine banks have been slow to adopt them, allocating less than 10% of revenues to IT compared to the 15% average among their Asia Pacific peers.
Additionally, digital channels contribute just 5-15% of their revenue, significantly lagging behind the 25% average in other Asian emerging markets, according to McKinsey.
At the same time, local fintechs remain largely focused on payments, with limited reach due to infrastructure constraints.
This has created a widening gap between the country’s large underbanked population and the innovative financial technologies gaining traction in neighbouring markets.
Plus, the banking penetration rate remains among the lowest in the region, (with only 56% of Filipino adults have a formal account at a financial institution back in 2021).
Furthermore, the issue of digital literacy persists.
Many Filipinos, particularly in rural areas, lack the skills and confidence to navigate digital platforms, which limits the potential impact of digibanks in reaching the most underserved segments of the population.
But credit where credit is due, there have been significant improvements and progress.
There has been a jump in the percentage of banked adults in the Philippines with the chief of BSP stating that the number has increased to 65%.
Eli M. Remolona, Jr
“The share of digital payment transactions reached 42% in 2022; account ownership was 56% in 2021; and 65% of households had accounts in 2022,” BSP Governor, Eli M. Remolona, Jr. told.
Moreover, the collective depositor base for the six digital banks expanded to 8.7 million by June 2024, up from 3.6 million in the same period the previous year.
This growth fuelled a significant increase in total deposits, which reached PHP 82 billion, reflecting an impressive annual growth rate of 32.26%.
In comparison, the entire Philippine banking system saw a 13.84% increase in depositor accounts, reaching 119 million, and a 9.5% rise in total deposits to PHP 19.5 trillion.
The Philippines’s digital banks have also successfully leveraged technology to offer convenient and cost-effective solutions.
Features like mobile check deposits, instant loan approvals, and 24/7 access to customer support have resonated with users.
However though, it remains to be seen whether these features are truly innovative or simply replicating what traditional banks are already offering through their own digital channels.
While their digibanks have some progress, the Philippines still has a long way to go.
Who Are the Potential Digibanks Applicants?
Despite these shortcomings, BSP has indicated that it will prioritise applicants with compelling value propositions and innovative solutions for underserved markets.
This opens the door for a variety of potential players.
Non-bank fintech players for starters, like GCash and PayMaya, have already demonstrated their ability to reach a large customer base and offer innovative financial solutions.
GCash, for instance, has disbursed PHP 155 billion in loans, serving 5.4 million borrowers, with this number growing by over 70% year-on-year.
Their entry into the digital banking space could further disrupt the market and drive financial inclusion.
Then, we have specialised players.
Digital banks focusing on niche markets within the Philippines, such as MSMEs, rural communities, or specific demographics, could offer tailored products and services that address unmet needs.
And let’s not forget foreign players.
International digital banks with proven track records could bring in best practices and expertise, fostering competition and knowledge transfer.
However, the key question still somewhat remains.
Will these potential applicants be truly independent and bring genuine diversity to the market, or will the incumbent-led model continue to dominate?
Can New Entrants Add Value?
To truly maximise the potential of digital banking, the Philippines needs more than just an increase in the number of players.
It needs diversity, innovation, and a focus on genuine value creation.
New entrants must go beyond simply digitising traditional banking services.
They need to offer truly differentiated products and services, leverage cutting-edge technologies, and demonstrate a commitment to reaching the most underserved segments of the population.
The BSP’s emphasis on quality over quantity is a step in the right direction.
However, it’s crucial to ensure that the licensing process fosters a level playing field and encourages the entry of diverse players, including non-bank entities and foreign players.
The Philippines has the opportunity to create a truly dynamic and inclusive digital banking sector.
But to achieve this, it needs to move beyond the incumbent-led model and embrace a more diverse and innovative ecosystem.
Only then can digital banking truly reach its full potential and benefit all Filipinos.
