Digital Bank License Philippines: Requirements, Capital and How to Apply

A digital bank in the Philippines is a distinct bank classification that offers financial products and services processed end-to-end through a digital platform or electronic channels, with no physical branch, sub-branch, or branch-lite unit. Under Bangko Sentral ng Pilipinas (BSP) Circular No. 1105, a digital bank needs at least P1.0 billion in minimum capital, a principal or head office in the Philippines, and Monetary Board approval. The application process runs in three stages: pre-approval, the Certificate of Authority to Register, and the Certificate of Authority to Operate. Note that the BSP's application window for new digital bank licenses has been closed since 31 August 2021.

What counts as a digital bank under BSP rules

Circular No. 1105 added "Digital Banks" as a distinct classification of banks and set out the corresponding guidelines for their establishment. Under that Circular, a digital bank offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels, with no physical branch, sub-branch, or branch-lite unit offering financial products and services.

This is a separate classification from universal banks, commercial banks, thrift banks, rural banks, cooperative banks, and Islamic banks. Only a bank that is granted a digital banking license may represent itself to the public as a digital bank in connection with its business name. Under Circular No. 1154, only a bank granted a digital bank license shall market itself as a digital bank; a bank belonging to another classification is prohibited from representing itself as one, though any bank may market itself as offering "digital banking products or services" if it has secured the requisite BSP license on electronic payment and financial services.

Capital, fees, and what a digital bank may do

Minimum capitalization. The minimum capitalization of digital banks is P1.0 billion. Under Circular No. 1154, this minimum capitalization must be complied with at all times. Thrift banks, rural banks, and cooperative banks that primarily offer financial products and services processed end-to-end through a digital platform and/or electronic channels under an Advanced Electronic Payments and Financial Services (EPFS) license, as determined by the appropriate supervising department, must also maintain a minimum capital of P1.0 billion.

Application and license fees. The application fee for digital banks is P0.250 million, and the license fee is P12.500 million.

Permitted services. A digital bank may grant loans, whether secured or unsecured; accept savings and time deposits, including basic deposit accounts; accept foreign currency deposits as defined under R.A. No. 6426, as amended; invest in readily marketable bonds and other debt securities, commercial papers and accounts receivable, drafts, bills of exchange, acceptances or notes arising out of commercial transactions; act as correspondent for other financial institutions; act as collection agent for non-government entities; issue electronic money products; issue credit cards; buy and sell foreign exchange; and present, market, sell and service microinsurance products. With prior Monetary Board approval and subject to such guidelines as may be established, a digital bank may perform other activities not covered by that enumeration.

The licensing process, stage by stage

The application for authority to establish a bank is signed by a representative authorized by the incorporators or subscribers and submitted to the appropriate supervising department of the BSP. It is processed on a first-come, first-served basis, provided all required documents and information are complete; incomplete application documents are returned and the application is considered closed, without prejudice to a new application.

Stage I — Pre-approval. The applicant submits the agreement to organize a bank, biographical data and clearances for each incorporator, subscriber, proposed director, and principal officer, corporate documents for corporate subscribers, a comprehensive corporate plan, and a feasibility study with projected monthly financial statements for the first year and projected yearly statements for the first five years. An applicant seeking a digital banking license must also submit an independent third-party assessment of its IT systems and infrastructure, covering design, security controls, scalability, and resilience, and must submit the applicable requirements for offering Electronic Payments and Financial Services (EPFS). The applicant then makes a presentation to the BSP's Financial Supervision Sector. The non-refundable application fee is paid upon filing of complete documents.

Stage II — Certificate of Authority to Register. Within 30 calendar days from receipt of the advice of Monetary Board approval, the organizers submit the proposed articles of incorporation, by-laws, and treasurer's sworn statement, deposit the initial paid-up capital with an authorized bank, pay the applicable license fee net of the previously paid application fee, and submit proof of inward remittance of capital for foreign subscribers. The articles of incorporation and by-laws must be filed with the Securities and Exchange Commission within 60 calendar days after the BSP issues the Certificate of Authority to Register.

Stage III — Certificate of Authority to Operate. Within one year from receipt of the advice of Monetary Board approval, the organizers must complete the establishment of the bank. The authority to establish is automatically revoked if the bank is not organized and opened for business within one year from receipt by the organizers of the notice of Monetary Board approval.

Who may own and run a digital bank

Ownership limits. A foreign individual or foreign non-bank corporation may own or control up to 40% of the voting stock of a digital bank, and aggregate foreign-owned voting stock may not exceed 40%. The same 40% ceiling applies to a Filipino individual or domestic non-bank corporation, to an individual and corporations wholly owned or majority-owned by that individual, and to family groups or related interests. A qualified foreign bank may hold up to 100% of the voting stock.

Board and management. At least one member of the board of directors must have a minimum of three years of experience and technical knowledge in operating a business in the field of technology or e-commerce. At least one senior management officer must meet the same three-year requirement. A bank may be organized with not less than five and not more than fifteen incorporators.

Prudential treatment. Digital banks are subject to the same standards on corporate governance, risk management, compliance, internal control and audit, and reporting governance as other bank categories. Under Circular No. 1154, they are covered by the Basel III risk-based capital, leverage ratio, liquidity coverage ratio, and net stable funding ratio frameworks, and their IT profile is classified as "Complex."

Can an existing bank convert to a digital bank?

Yes. Existing banks may apply for conversion, and the BSP may require banks that already meet the definition of a digital bank to convert their existing banking license. Converting banks are given three years from Monetary Board approval to meet the minimum capital requirement and implement the transition plan, including divestment or closure of branches, sub-branches, or branch-lite units. Upon receipt of the notice of approval of conversion, the bank may no longer engage in or renew transactions under authorities not associated with those allowed for a digital bank, and within six months it must phase out inherent powers and activities under special authorities and submit amended articles of incorporation and by-laws registered with the SEC. Operations as a digital bank begin only after SEC approval of the amended articles and by-laws, compliance with all conditions of approval, and issuance by the BSP of a Certificate of Authority to Operate.

Is the BSP still accepting digital bank applications?

No. The application window for new digital bank licenses, including conversion of an existing bank's license to a digital bank license, was closed starting 31 August 2021 under BSP Memorandum No. M-2021-046 dated 19 August 2021. That moratorium also covers applications for the establishment of other types of banks that will primarily offer financial products and services processed end-to-end through a digital platform and/or electronic channel. The Monetary Board may limit the total number of digital banks that may be established, taking into account the total number of applications received and the assessment of the overall banking situation.

Frequently asked questions

How much capital do I need for a digital bank in the Philippines? The minimum capitalization of a digital bank is P1.0 billion, which must be complied with at all times. The application fee is P0.250 million and the license fee is P12.500 million.

Can foreigners own a digital bank in the Philippines? A foreign individual or foreign non-bank corporation may own or control up to 40% of the voting stock of a digital bank, and aggregate foreign-owned voting stock is capped at 40%. A qualified foreign bank may own up to 100%.

Can I still apply for a new digital bank license? The application window for new digital bank licenses has been closed since 31 August 2021 under BSP Memorandum No. M-2021-046. The moratorium also covers applications for other bank types that primarily offer financial products and services processed end-to-end through digital platforms or electronic channels.

Practical takeaways

• A digital bank is a distinct BSP bank classification with no physical branch, sub-branch, or branch-lite unit, and only a licensed digital bank may market itself as one.
• Minimum capital is P1.0 billion, complied with at all times; application and license fees are P0.250 million and P12.500 million respectively.
• The three-stage licensing process requires a corporate plan, feasibility study, and an independent third-party IT assessment, and the authority to establish is automatically revoked if the bank is not organized and opened within one year of the Monetary Board's approval.
• At least one director and one senior management officer must each have three years of technology or e-commerce experience.
• Foreign ownership of voting stock in a digital bank is capped at 40%, except for a qualified foreign bank, which may hold up to 100%.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

Prudential Requirements Applicable to Digital Banks, and Amendments to Relevant Provisions of the Manual of Regulations for Banks and Non-Bank Financial Institutions and Manual of Regulations on Foreign Exchange TransactionsOpen in Law LibraryDownload PDF

Guidelines on the Establishment of Digital BanksOpen in Law LibraryDownload PDF

• REPUBLIC ACT NO. 8791 - AN ACT PROVIDING FOR THE REGULATION OF THE ORGANIZATION AND OPERATIONS OF BANKS, QUASI-BANKS, TRUST ENTITIES AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.