The Bangko Sentral ng Pilipinas (BSP) lifted the moratorium on the establishment of new digital banks and conversions of existing bank licenses to digital ones, effective January 1, 2025.
What’s the significance: To further improve financial inclusion and digital transformation in the country’s banking industry, the lift on the moratorium will enable broader access to financial services through digital platforms.
Key details:
- The country’s central bank announced recently that the moratorium on granting new digital banking licenses and converting existing licenses to digital banks will be lifted starting January 1, 2025.
- A maximum of 10 digital banks, including existing ones, will be allowed to operate in the Philippines.
What are digital banks:
In November 2020, the BSP recognized digital banks as a distinct category, requiring them to offer financial services exclusively through digital platforms, with a minimum capitalization of ₱1 billion and compliance with fiduciary regulations.
- In 2021, BSP imposed a three-year moratorium on digital banking licenses, limiting the number of digital banks to six, to gain regulatory experience.
- In the same year, then-BSP Governor Benjamin Diokno announced the possibility of reopening digital bank license applications after December 2024 if additional neobanks are needed.
Applications and Requirements:
- Applications for banks primarily offering end-to-end digital financial services will be treated as digital banking license applications.
- Existing banks seeking conversion to digital banks must comply with requirements such as minimum capital and a three-year transition plan for full digital transformation.
- Banks assessed as highly digital-centric may also be required to meet digital bank standards.
- Pre-Approval Documentation:
- Applicants must submit a feasibility study with financial projections, an IT infrastructure assessment, and plans for offering electronic payment and financial services (EPFS).
- They must also present details of ownership structure, governance, risk management, and consumer protection mechanisms.
Evaluation Criteria for New Digital Banks:
- Applicants must:
- Propose innovative business models not offered by current players.
- Demonstrate potential to reach underserved markets.
- Show readiness and capability to deploy scalable digital solutions in the Philippine context.
- A third-party IT expert must assess the bank’s IT infrastructure, including security, scalability, and AML/CFT measures.
- New digital banks must meet the minimum capital requirements outlined under Section 121 of the Manual of Regulations for Banks (MORB).
Previously: It can be remembered that in September 2022, the central bank updated regulations for digital banks, including new capital requirements and the inclusion of thrift, rural, and cooperative banks with digital models.
The numbers:
Six (6) digital banks are already operational, and up to four (4) additional licenses may be issued under the updated framework.
- The banks are:
- Maya Bank
- Overseas Filipino Bank
- Tonik Digital Bank
- UNO Digital Bank
- UnionDigital Bank
- GoTyme Bank
How it works:
- Applications are submitted with required documentation and undergo evaluation based on the bank’s business model, technical readiness, and compliance with regulatory requirements.
- Digital banks must prove viability, innovation, and their ability to comply with stringent capital and operational standards.
Between the lines: This move signals BSP’s intent to level the playing field between new entrants and incumbents while ensuring digital banks address potential risks like cybersecurity and AML/CFT compliance.
However: Stringent application requirements and the BSP’s prudential limits may deter smaller players or those unable to meet the high standards for licensing.
Worth reading: In December 2024, the central bank stated that it will require banks operating like digital banks to secure proper digital banking licenses under stricter standards.
This article is published on BitPinas: BSP Lifts Moratorium, Opens 4 Slots for Digital Banks
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