The Shortcut to Digital Banking Is Closing
For several years, there has been a somewhat secretive shortcut in the Philippine banking sector. Instead of complying as a full digital bank, which requires at least ₱1 billion in capital, some FinTech companies took a faster, much more affordable approach: acquiring rural banks and placing digital platforms on top of them.
Hence, this allowed such FinTech companies to expand nationwide without technically being licensed to operate digital banks.
However, that route is now closing — as the Bangko Sentral ng Pilipinas is drafting new rules to eliminate this workaround, ultimately reshaping how players should grow in the country.
What is the Rule that Changes the Game?
At first glance, it may seem like a simple shift: Rural Banks that use digital platforms must ensure that only 30% of their customers are outside their physical service areas.
Yet, the underlying consequence is indeed powerful — it forces one to obtain a license for Digital Banking if that threshold is not met.
Beforehand, FinTech can simply acquire rural banks with capital of ₱50 million to ₱200 million, launch their digital platform, and serve customers across the nation. In case that such rural bank exceeds the 30% threshold, the BSP can reclassify it as a Digital Banking, triggering to comply the ₱1 billion capital requirements, stricter governance standards, and higher expectations for cybersecurity and risk management.
Hence, in other words, you can no longer just expand nationally without paying the price of being a licensed Digital Bank.
What This Means for Businesses and Fintech Growth
The proposed regulation is not just about banks themselves, as it can affect the entire ecosystem.
1. Growth Comes With Stricter Capital
The BSP is correlating the digital expansion with corresponding capital requirements:
- 30% threshold = ₱200 million capital
- 50% threshold = ₱600 million capital
- 75% threshold = ₱1 billion capital
Thus, this means that the more you scale digitally, the more financial capacity you must prove.
2. The “Hybrid Model” Is Getting Squeezed
Previously, FinTech Companies could operate in a gray area, which is having a local license yet can operate to reach customers nationwide.
However, that gray area will disappear — making businesses choose whether they stay local and limited or expand nationally and comply as a full digital bank.
3. Expected Industry Consolidation or Acquisitions
With stricter rules to implement, this will commonly lead to:
- Merger, Acquisitions, or Partnerships
- Fewer but firm players
- Higher barriers to enter in the Industry
On the other hand, some institutions already foresee this and already adapting, such as Salmon Bank who increases capital to scale sustainably, and MariBank Philippines expanding with a higher asset backing.
Meanwhile, other financial institutions may struggle to keep up and may lead to compromises.
4. Potential Impact on SMEs and Digital Access
While the BSP aims to reduce the systemic risk regarding the scheme, experts argue that geographic limits do not reflect the modern customer behavior. In addition, small banks may also be slow towards digital innovation, and expansion for underserved areas could be affected.
For companies that are dependent on digital lenders or FinTech platforms, this simply means:
- Fewer options
- Stricter onboarding
- More stable, but less flexible services
Things That You Should Do Next
If you are a business owner, whether as a startup or planning to scale up your company, here are some ways to respond to the proposed regulation:
- Reassess your Financial Partners: check if your FinTech or Banking partners are compliant with the recent BSP rules, including the proposed draft. Also, do background research if they have sufficient capital to expand and can sustain long-term operations.
- Plan ahead for Tigher Credit & Compliance: Expect more documentation requirements, stricter lending terms or policies, and slower but secure approvals.
- Work with Experts: Such regulatory amendments like these typically affect cash flow strategies, financing options, and scaling-up plans. Hence, having the right financial and compliance support can be considered as a competitive advantage
Final Thoughts
The BSP is not stopping Digital Banking — they are redefining it. If one intends to operate at a national scale, they must also be prepared to accept the national level of accountability & responsibility.
For companies, this fosters a more stable, but demanding financial environment. With this new landscape, indeed, those who move first will have the advantage.
Navigating the proposed digital banking regulation can be difficult, but as we always imply — you do not have to figure it out alone. With Babylon2k, we are ready to help you out on your business needs, wherever you are in the country.
Get matched with the right financial expert today, and let us make sure that your company stay compliant, scalable, and prepared for what is upcoming.
