“We maintain that the major-rated Philippine banks have well-entrenched banking franchises and adequate resources to adapt to the potentially disruptive entry of neobanks,” said Fitch in its latest report.
Fintech said BSP’s decision to limit the digital bank players to only seven in the next three years was “favorable” to existing banks.
The five current license-holders are GOTyme of the Gokongwei Group and Singapore-based Tyme), Landbank-backed Overseas Filipino Bank, Tonik Digital Bank Inc. (Philippines), UNOBank, and the Aboitiz family’s Union Digital Bank. At least three – Lucio Tan’s Philippine National Bank, Helen Yuchengco-Dee’s Rizal Commercial Banking Corp., and Manny V. Pangilinan’s PayMaya.
“We believe BSP’s imposition of a license cap is motivated by a regulatory philosophy of promoting innovation and financial inclusion without introducing destructive competition into the sector,” said Fitch.
But Fitch reckoned banks need not fear the competition because BSPs’ requirement that digital banks should have sustainable financial viability would limit their capacity to undertake predatory pricing and seize market share from incumbents.
Fitch noted that two of the current licensees were owned by big banks.
“We believe that while they may accelerate the groups’ digitalization efforts, they do not materially intensify competition beyond that already posed by their parents,” said Fitch.
Fitch also does not see digital banks having an impact on conventional banks in the near to medium term.
“The leading banks already have large customer pools, sufficient investment resources, and tend to be connected to their customers across multiple product relationships that put them in good stead to compete,” Fitch said.
Fitch said the BSP was insulating the brick-and-mortar banks from “formidable” digital rivals that have the ingredients for immediate success:
* A large existing user base – such as from a ubiquitous corporate sponsor – to reduce customer acquisition costs;
* Deep-pocketed shareholders that can sustain heavy capital investments during the breakeven period; and
*Close integration to consumer lifestyles and/or commercial platforms to enhance the likelihood of user adoption and retention.
Fintech believed that closing the doors on digital banks would be a missed opportunity to serve the country’s “large unbanked population” and take advantage of “lucrative lending spreads.”
Citing data from the World Bank’s Global Findex, Fith said just over one-third of the adult population in the country has a bank account; less than 10 percent has borrowed from a financial institution; and over 41 percent has borrowed from family or friends, indicating significant unfulfilled demand for credit.