BSP issues framework for digital banking

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has issued the regulatory framework on digital banks in its bid to promote market efficiencies and expand the access of Filipinos to a broad range of financial services.

BSP Governor Benjamin Diokno said the Monetary Board has approved the recognition of digital bank as a new bank category that is separate and distinct from the existing bank classifications.

“Digital banks will play an important role in the digital financial ecosystem. We see these banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services,” Diokno said.

Diokno said the new digital banking framework would bring the BSP closer to the realization of its target that at least 50 percent of total retail payment transactions have shifted to digital and 70 percent of adult Filipinos have transaction accounts by year 2023 under its Digital Payments Transformation Roadmap.

“This is seen to remove sticky points and leapfrog our financial inclusiveness agenda,” Diokno said.

Latest data from the Better Than Cash Alliance showed the share of digital payments to total transaction increased to 10 percent in 2018 from only one percent in 2013 in terms of volume and to 20 percent from eight percent in terms of value due to the launch of the National Retail Payment System (NRPS) in December 2015.

A digital bank is defined as a bank that offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches.

The BSP chief said digital banking applicants are expected to have sound digital governance, robust, secure and resilient technology infrastructure, and effective data management strategy and practices.

The BSP recognizes that digital banks are exposed to the same financial risks faced by conventional banks with potential elevated exposure to cybersecurity and money laundering risks. As such, digital banks would be subject to the same prudential requirements applicable to other types of banks with recalibration to be commensurate to their business model and risk profile,” he said.

The BSP said digital banks are expected to maintain a principal place of business in the Philippines to house the offices of management and other support operations and serve as the main hub for customer concerns handling and point of contact for stakeholders, including the BSP and other regulators.

Likewise, the BSP added digital banks are also allowed to tap cash agents and other qualified service providers subject to existing regulations to complement the innovative delivery of financial services.

Diokno said the Monetary Board could limit the number of digital banks that may be established considering the total number of applications received and the assessment of the overall banking situation.

“Essentially, the BSP is looking to attract players with strong value proposition, sufficient financial strength, technical expertise of management and effective risk management,” Diokno said.