Digital Banking coming to the

Philippines soon; “WINNING

TRUST IS THE KEY TO
SUCCESS”.
 The Philippines may see its
first purely digital banks by 2022
as the central bank prepares to
issue them licenses. But the
challenge for the neobanks will be
to build trust and convince
customers in a country with low
financial services penetration and a
preference for face-to-face
interaction, analysts say.

The Bangko Sentral ng Pilipinas in

November 2020 approved a new
license category for digital banks.
"Digital banks can help reduce the
barriers that hinder financial access,
such as the small and irregular
income of clients, high transaction
costs, geographical distance, and
lack of proper documentation" -
Fonacier said.

The BSP sees digital banks as future

partners in advancing financial
inclusion in the country by
leveraging on digital technology to
offer financial products and services
that bridge the market gaps in the
unserved and underserved segments.
STRONG LOCAL BANKS
Digital banks may find it challenging
to chip away at the entrenched market
positions of the traditional lenders given
their strong franchise, particularly in the
Metro Manila area, the nation's wealth hub.
The top five banks in terms of assets in the
Philippines handle about 60% of the
country's loans and deposits.
"Digital banks will only meaningfully
compete for the mass-affluent market if they
provide significantly improved, and cheaper,
products and services. Otherwise, while they
may make inroads into specialized
financing, their market share will remain
small" Anand said.
Traditional banks "are lumbered with old,
slow, unreliable legacy technology, while
also having to deliver to much larger
customer segments across many services"
-Finastra's Jain said.

Digital banks can move faster and innovate

quickly and easily integrate new services,
Jain said. "They may not take significant
market share from incumbents in the first
few years, but over a period of time they will
start becoming the primary account holders
for customers who currently hold primary
accounts with incumbent banks”
CHALLENGES FOR NEOBANKS

A challenge for the neobanks will be

to win consumer trust as they are starting
from scratch, compared with incumbent
banks that have already built their
reputations over many decades, said Shweta
Jain, director of digital and cloud product
and strategy at Finastra.
"Since neobanks are faceless and
branchless, a powerful way for them to build
consumer trust is by forging partnerships
with local merchants such as, convenience
stores, to enable some level of face-to-face
interaction for things like payments and
remittance services”.
NEW GUIDELINES

Under the BSP's guidelines, digital banks will be required to have a

minimum capitalization of 1 billion pesos and will be allowed to offer
traditional banking services. They will not be allowed to establish
physical branches and will need to maintain a head office in the
Philippines.
"Virtual banks have a huge opportunity in the
Philippines, where most of the country is
young, online and without access to any
banking services. Youthful demographics, a
large untapped market, low costs and
regulatory latitude make the Philippines an
attractive market" Nikita Anand, an analyst at
S&P Global Ratings, said.
-END!

Masangcay, Cristine P. BSBA-4A