BSP to issue stricter circular on ‘digital bank’ branding

The Bangko Sentral ng Pilipinas (BSP) is preparing a new rule that will ban any bank from branding and marketing itself as a digital bank when it does not meet any of the requirements of an online-only bank.

The proposed new circular, currently circulated among banks and has a feedback deadline of June 28, said that “universal and commercial banks which do not meet the criteria (listed in the draft circular), as well as thrift, rural and cooperative banks, that have online banking site or mobile applications, are prohibited from using ‘digital banks’ in their marketing channels.”

The proposed amendments in the existing BSP rules and regulations on bank advertisements, specifically states that no bank advertisement will “mislead, misrepresent, or a give a false impression to the public with respect to the banking category of a bank and the products and/or services that the bank is authorized to offer.”

The BSP, however, is allowing big banks to market themselves as digital banks but only if they follow central bank conditions such as: these banks have no physical branches or branch lite units; has at least one fully-digital activity; has an advanced electronic payment and financial services or EPFS license; has at least one board member that has technical know-how and experience in e-commerce; and a minimum IT composite rating of “3”.

The digital bank circular, first approved in November last year, already contain a provision that said only a bank that is “granted a digital banking license may represent itself to the public as such in connection with its business name.”

Circular No. 1105 (Guidelines on the Establishment of Digital Banks), that BSP Governor Benjamin E. Diokno signed last December 2, also require all banks with digital banking services to apply for the appropriate digital bank license based on the new circular’s transitory provision. It states that existing banks may apply for conversion to a digital bank and that the BSP may likewise require banks that already meet the definition of a digital bank under the new circular to convert their existing banking license to digital banking license.

In January this year, the BSP issued a clarificatory memo that said new bank applicants that are proposing to operate business models that looked like digital banks will be approved as digital banks.

BSP Circular Letter No. CL-2021-006 or “Clarification on the Guidelines on the Establishment of New Banks” explained that even if new bank applicants have not stated which of the seven bank license category they are applying for, the BSP will assign them the category that fits their proposal.

A digital bank license is the BSP’s seventh bank category. The digital bank circular clearly distinguishes it from the other types of banks, according to BSP Deputy Governor Chuchi G. Fonacier.

“In this respect, new bank applications with business model that essentially meets the definition of a digital bank shall be treated and evaluated as digital banking license applications, regardless of the type of bank indicated in the application,” said Fonacier in the January memo.

A digital bank license has a required capitalization of at least P1 billion. Digital banks are banks that will have no physical presence and will rely only on an all-digital platform and/or electronic channels in offering financial products and services. Foreigners – individual or non-bank corporation – can own or control up to 40 percent of a digital bank, the same rule of ownership applied to commercial banks and thrift banks.

So far, the BSP has already approved three digital bank license applications. These are Overseas Filipino Bank, owned by Land Bank of the Philippines, and two Singapore financial institutions, Tonik Digital Bank and UNOBank. There are four more digital bank applications in the pipeline, and three of which are large local banks.