Updated: September 8, 2022
“Digital banking is the future of savings accounts,” claims a friend working in Singapore.
I’m not surprised by his statement, for Singapore has the highest penetration rate for digital banks in ASEAN. That’s according to a study published by the global consulting firm, McKinsey & Company in 2015.
From that same study of 13 Asian markets, the Philippines ranked lowest, with only 12 percent of Filipino respondents saying that they’ve tried Internet banking. This is low compared to 28 percent in developing countries in the region.
But times are changing and digital banking has been growing in the Philippines in recent years.
I was invited to a couple of press launches for these digital banks and have opened one myself early in 2019. And so far, my experience has been satisfying.
What exactly is digital banking? What’s the difference between a digital bank and a traditional bank? Is it the same as Internet banking? What are the advantages and disadvantages?
Today, we’ll answer these questions.
What is a Digital Bank?
Search for the meaning of digital banking and you’ll see many definitions. But to put it in layman’s terms, it’s a bank that has no physical branches, where all transactions can be done through the Internet via an app, website, ATM, or 3rd party provider.
Digital banks in the Philippines, like traditional banks, are required to have a license from the Bangko Sentral ng Pilipinas (BSP). And the Philippine Deposit Insurance Corporation (PDIC) likewise provides coverage or protection for your money.
It’s similar to Internet banking, which is what traditional banks offer. You can do international money transfers in both and some digital banks already offer bills payment. For instance, you can transfer money from the Philippines to India quickly by online money transfer providers. However, there are still many significant differences between a digital bank and a traditional bank that offers online banking.
We’ll go through them as we discuss the pros and cons of digital banking.
Advantages and Best Features of Digital Banks
Open an account in minutes
To open a digital bank savings account, you simply need to download their app or go to their website and sign up. Most applications can be finished within 10 minutes, anytime and anywhere.
No need to visit a branch to accomplish forms and submit documents. You just do this online by sending a selfie along with photos of your IDs and/or other required documents.
Initial deposit required
Most if not all digital banks don’t require an initial cash deposit to open an account. Unlike in traditional banks where you need to bring money for the initial deposit to your newly-opened savings account.
Another great feature of digital banks is that they don’t require a maintaining balance. No need to be afraid of fees and penalties if your account balance is low.
High interest rates
Digital banks don’t have physical branches. They don’t pay for a lease, utilities, or salaries for bank tellers. So, they have less operating costs than traditional banks.
Because of this, they can afford to offer three times or even higher interest rates for your savings account than most commercial banks. For example, at present, my digital bank is offering 4% p.a. on interest rates vs the 0.5% p.a. that my commercial bank is giving.
Convenience on check deposits
This is the main reason why I opened a digital bank savings account. It removed the need for me to go to the bank just to deposit checks. Now, all I have to do is take a photo of the check through the app and the money gets deposited to my account automatically after clearing.
Disadvantages of Digital Banks
Transfer and withdrawal
Aside from depositing checks, the only other way to fund your digital bank savings account is to transfer money from another bank or a digital wallet, which could incur fees.
Unfortunately, it’s also the same for cash withdrawal. Without physical branches, you’ll need to transfer your money to a traditional bank, a digital wallet, or visit their partner facility to get your money, which could again incur fees.
In traditional banks, you can go to a branch, chat online with an account specialist, or call a hotline number to interact with a person for customer support.
Digital banks lack in-person support. In most cases, all you can do is send an email through their mobile app or online support ticket system.
Data integrity and security
Like traditional banks that offer online banking, digital banks also face security threats from hackers, malware, and cyberattacks. But unlike traditional banks, they don’t have physical files that can serve as a backup such as your submitted written forms and your bank passbook.
Is it safe and okay to open a digital bank account?
My answer is YES because the advantages far outweigh the disadvantages that digital banks have.
The transfer and withdrawal fees are a small amount compared to the costs you save with the convenience of having one. I save time and money because I don’t need to go to the bank anymore just to deposit checks.
Also, ever since I opened an account, I’ve never needed customer support. So, I consider the lack of in-person contact a very minor inconvenience.
Lastly, I made it a habit to take screenshots of my bank transactions and regularly request digital statements of accounts, so I can have my own backup of my data in the unlikely case their database gets compromised.
Digital Banks in the Philippines
When I first opened my account, there were only three digital banks in the Philippines. More than a year has passed and there are now several digital banks that have acquired an operating license from the BSP.
Digital banks in the Philippines (alphabetical order) – launched and operating:
- CIMB Bank Philippines (also offered through GSave inside GCash app)
- DiskarTech by Rizal Commercial Banking Corporation (RCBC)
- GoTyme Bank
- Komo by EastWest Bank
- iSave by Maybank Philippines
- Overseas Filipino Bank (OFBank) by Land Bank of the Philippines
- Tonik Bank
- UnionBank Online (UnionBank of the Philippines rebranded as a digital bank)
- UNO Digital Bank
I will update this list as often as I can. Or perhaps, I’ll write another blog post to do a comparison of these digital banks in the near future.
Sept 8, 2022 Update: Currently, ING Philippines is closing its retail banking operations in the country and has been removed from the list.
According to the 2017 Financial Inclusion Survey of the Bangko Sentral ng Pilipinas (BSP), 52.8 million or 77.4 percent of the total Philippine population remain unbanked. Digital banking will definitely help in decreasing these numbers.
I predict that more digital banks from other countries will come into the Philippines. And more traditional banks will create their own online-only savings accounts, which as you can see above, has already started.
As the world moves towards a more environment-friendly, paperless, and cashless society, it looks like that indeed, digital banking is the future.
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Digital banks have fast-tracked to be a necessity. Great read as always!
The banking arm of my US brokerage firm has no brick & mortar locations. One of the greatest befits they offer is full rebate of all ATM fees anywhere in the world. Many folks may not know this but any foreign credit or debit card used to withdraw money from ATMs here in the Philippines is charged a P250 per transaction fee. Most machines allow only up to P10,000 / withdrawl. A few older machines from one of our banks will still dispense up to P20,000/transaction. We have a daily limit of P40,000.
I think we could agree the bank fees are legalized highway robbery? While building our business ventures here in the Philippines, my wife ventured out day after day to withdraw the maximum allowed of P40K. If our bank that allowed P20K /transaction was out of cash, we were tagged with four P250 fees (total P1000 every day for days on end) to get the P 40K /day we are allowed!!! Outrageous. I guess it is clear what a super benefit having all those fees rebated is. A breakage representative explained to me that they could offer this great rebate befit because of the savings from not having “hard” locations.
Another benefit my bank informed me about was that if ever I needed cash, I could walk into any bank in the world, offer my bank VISA card and my passport and I could get emergency cash. Sadly, only one local branch of the bank we use to hold our local business accounts has the machine in house to do those transactions. I was able to withdraw this way only one time prior to a vacation trip we took off-shore. For several years after that, I have been repeatedly told “the machine is broken.” Maybe the bank felt they could not milk enough fees out of us?
I totally agree, that with all risks considered, digital banking will be the future of banking. I can honestly say that money transfer has become much easier for me over my eight years here in the Philippines. In my early days, I tied up some US dollars in a dollar account (at low interest rates) with my local bank. My US bank sent me fresh checks imprinted with my permanent Philippine address and I used those to write a check to my US dollar account at my local bank. That money would replace what I withdrew. Doing it this way, you have to keep the budget on track and know your expenses because the checks I wrote took “up to” 30 days to clear although it was often a couple weeks only. Inconvenient, but it worked. Still I had to take my US dollars to a pawn-shop to get the best exchange rates.
It was humorous to us when in Cambodia a couple of years ago. They want US dollars for everything but the smallest of purchases. We loaded up on bargains and paid with a US bank note. The stack of local currency we received back as change was amazing!!! I was able to use my brokerage VISA card with no problems on that trip also.
I agree with you wholeheartedly that digital banking is the future. It just makes sense.
Interesting. Might shift some emergency funds into a CIMB account or other digital bank. Been hesitant because of the security issues. But the advantages listed here seem to outweigh that.
Finally, we’re catching up with our neighbors when it comes to digital banking. It’s a very opportune time for banks to go digital right now because of the pandemic: fewer people outside, lower chances of contracting coronavirus. Hopefully, universal banks will keep up with the times because despite their size, they’re the ones who are slow to innovate.
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