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Digital Banks to Bring Significant Impact on The Philippines Financial Sector

The emergence of digital banks, according to the Bangko Sentral ng Pilipinas (BSP), can be a game-changer in the delivery of financial products and services by traditional brick-and-mortar banks. The Philippine government has prioritised e-commerce and electronic payment methods in its efforts to increase financial and digital inclusion across the country. In a statement, the BSP governor stated that the rise of digital banks can drive existing banks’ digital transformation initiatives to stay relevant and competitive.

He also noted that as new entrants provide affordable financial services to the mass market, digital banking can promote financial inclusion, prosperity, and poverty alleviation. “In all of these, the customers and business community will reap the benefits,” the governor pointed out. Digital banks provide end-to-end financial products and services through a digital platform and or electronic channels, with no physical branch or sub-branch or branch-lite unit providing financial products and services.

Six digital banks’ applications have been approved by the Monetary Board so far. These digital banks intend to serve Overseas Filipino Workers, as well as the underserved, unbanked, and mass market, based on their profiles. They may, however, venture into investments, insurance, and payment services.

The BSP is limiting the number of digital banks to closely monitor their performance and impact on the banking system, as well as their contribution to the financial inclusion agenda. The BSP governor has also stated that the BSP must ensure healthy competition among banks to encourage the development of innovative and competitive financial products and services.

The BSP chief explained that with only six neo-banks, they will be able to closely monitor the development of the digital bank market and ensure healthy competition between digital banks and existing traditional banks. Digital banks, which must have at least P1 billion in capitalisation, have little or no reliance on physical touchpoints but must set up one office in the Philippines as a central hub to receive and resolve customer complaints.

Digital banking is a key component of the BSP’s Digital Payment Transformation Roadmap, which aims to transform at least 50% of total retail payments to digital form and onboard at least 70% of Filipino adults to the financial system through transaction account ownership and use.

As reported by Opengov Asia, the roadmap intends to transform the country into a cash-lite society. During the pandemic, the use of digital payments reduced the need for mobility and helped to avoid health risks associated with face-to-face and over-the-counter financial transactions. The BSP stated that in the first seven months of 2021, the value of transactions made through its local E-wallets increased by more than 180%, and another by more than 80%.

Both Philippines’ leading E-wallets are automated clearing houses under the National Retail Payment System. One of the leading E-wallet platforms is a batch electronic fund transfer (EFT) that can be thought of as an electronic alternative to the paper-based check system, whereas the other leading E-wallet is a real-time, low-value EFT for transactions up to P50,000 that is useful for e-commerce.

The use of contactless technology is undeniably increasing, but in addition to more people tapping their cards, it is known that there is also a significant increase in engagement with QR payments. It would allow customers to authenticate themselves when purchasing without the use of a PIN pad. More importantly, it gives consumers complete control over their transactions from their device, resulting in a richer overall experience. Recognising this, rapid developments in QR and NFC-enabled tap and go payments are expected over the next year.

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