Digital banks face profitability concerns with new players to intensify competition

By Katherine K. Chan, Reporter

THE EXPANSION of the Philippine digital banking sector is expected to lead to increased innovation and improved financial services that would benefit consumers, the Bangko Sentral ng Pilipinas (BSP) said.

However, profitability could remain elusive for most existing players as industry competition heats up, analysts said.

“Beyond short-term profitability effects, the entry of new players is expected to deliver significant long-term benefits to the digital banking landscape. Increased competition can drive improvements in pricing, product innovation, and service quality,” the central bank told BusinessWorld in an e-mail.

New players can also bring fresh ideas about product development and emerging technologies that incumbent digital banks can draw insights from, it said.

“Most importantly, customers stand to benefit from wider choices, more convenient digital solutions, and more inclusive financial services.”

But the battle for market share could mean higher costs for digital banks that could keep the sector in the red, analysts said.

“The entry of four new digital banks will likely keep the industry in investment mode through 2026, with profitability remaining elusive as players scale up and absorb high operating costs,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“Over time, however, this expansion could accelerate innovation and broaden revenue streams — particularly in lending and wealth management — laying the groundwork for stronger financial performance beyond 2026.”

Mr. Asuncion said increased competition from new players and existing digital banks’ pursuit of growth will bring benefits and risks to both the industry and customers.

“The main risk is prolonged margin pressure if competition stays focused on pricing rather than differentiated services,” he said. “Expect sharper competition in deposits and credit products as new entrants pursue aggressive pricing and partnerships to gain traction.”

Robert Dan J. Roces, group economist at SM Investments Corp., also said the industry may continue to post losses as digital banks continue to refine their business models.

“The entry of four new digital banks in 2026 will likely extend near-term losses for the sector, as new players add start-up costs and competition intensifies, but this should be seen as investment rather than structural weakness — expanding scale, deposits, and use cases is essential before profitability can meaningfully improve,” he said in a Viber message.

The digital banking sector has been in the red since March 2023, which was when the BSP began publishing data on the industry.

As of September 2025, the sector booked a combined net loss of P3.971 billion, narrowing from the P5.785-billion loss a year prior.

In December 2020, the BSP released guidelines on the establishment of digital banks and granted six licenses in 2021 to GoTyme Bank, Maya Bank, Inc., Overseas Filipino Bank, Inc. (OFBank), Tonik Digital Bank, Inc., UnionDigital Bank, Inc., and UNObank, Inc.

Of these six, only Maya Bank and OFBank were in the black in 2024. Maya Bank booked a P72.78-million net profit, a turnaround from the P826.83-million net loss it logged the previous year, while OFBank’s net income was at P86.28 million, 71.4% higher than the P50.34 million recorded in 2023.

“Despite sustained losses since 2022, digital banks have continued to post strong growth in assets and transaction volumes, supported by the broader shift toward digitalization… Thus, the early red ink should be interpreted primarily as a reflection of the industry’s growth and transformation cycle rather than a sign of structural weakness,” the central bank said.

“The impact of new digital banks on the industry’s financial performance will be largely shaped by the maturity, expertise, and business proposition of the new players.”

It said the new entrants will likely need to make heavy investments as they set up shop, including costs related to technology buildout, talent acquisition, intensive marketing and ecosystem integration efforts, and customer onboarding.

In January 2025, the BSP lifted a three-year freeze on digital bank licensing to welcome four entrants to the sector, which could be both new players and existing banks seeking to convert to digital operations.

To spur industry growth, the regulator set a higher bar for the new applicants, such as having a unique value proposition, capacity to develop new or innovative business models and reach untapped and underserved market segments, as well as readiness to deploy digital solutions and sustainably grow business in the Philippines.

The application window was closed anew effective on Dec. 1, with the Monetary Board approving a new indefinite licensing moratorium in September.   

The BSP said they received three digital bank applications within the deadline, which they are still evaluating. The results of the candidates’ assessment will be elevated to the Monetary Board.

Meanwhile, UnionDigital Bank President and Chief Executive Officer Danilo “Bong” J. Mojica II also said the sector is unlikely to achieve industry-wide profitability this year as players’ aggressive lending push could lead to more bad loans.

“So, my feeling is, and I know this for a fact, that other digital banks are going to get into… more lending. So, what will happen to NPLs (nonperforming loans)?” he said on the sidelines of an event in December. “The more people get into lending, people will have to watch out.”

UnionDigital Bank posted a net loss of P3.13 billion in 2024 versus the P155.31-million profit it booked in 2023. Mr. Mojica said they hope to breakeven this year as they have managed asset quality risks by becoming more “disciplined” in lending.

Mr. Mojica took the helm of the digital bank in August, which marked its shift to a “low and grow” strategy that prioritizes shorter-tenor payroll loans and gradually scaling high-performing accounts.

UNO Digital Bank President and Chief Executive Officer Manish Bhai said in October that they target to hit operating breakeven by the first half of 2026 and full breakeven within next year. Its net loss widened to P1.04 billion in 2024 from P653.5 million in 2023

Tonik Digital Bank also said in its 2024 annual report that it wants to achieve “sustainable profitability” by 2026. Its net loss widened to P1.126 billion in 2024 from P744.92 million in the previous year.

For its part, GoTyme Bank is eyeing profitability by 2027. It booked a net loss of P3.44 billion in 2024, wider than the P2.47 billion posted a year earlier.

GoTyme Bank President and Chief Executive Officer Nathaniel D. Clarke has said that their phygital or physical and digital model gives them an advantage, with its affiliation with the Gokongwei group boosting its reach.

GROWTH OPPORTUNITIES
Mr. Asuncion said the six operating digital banks must ensure that they can remain competitive as they secure their foothold in the market.

“Incumbents will need to pivot toward ecosystem integration, embedded finance, and data-driven personalization to defend market share,” he said.

“By 2026, success will hinge on balancing growth with sound risk management and delivering superior customer experience, not just low-cost offerings.”

Mr. Roces added that digital banks must continue to improve their products and services to stay relevant.

“Competition will sharpen around ecosystems and distribution rather than just rates, pushing banks to innovate in payments, lending, and merchant services while improving customer experience and financial inclusion,” he said.   

The potential new digital banking players could also bring more solid business models that would bode well for the sector’s growth as a whole, the BSP said.

“With the criteria for new digital banks, we expect that they will commence operations with established capabilities — such as expertise in digital financial services, advanced technology platforms, or existing customer ecosystems. These will enable them to scale more quickly and create a broader revenue base,” it said.

“In terms of pricing, these players are expected to implement a market-based, equitable framework with sufficient flexibility to encourage customer acquisition, transaction volume growth, and ecosystem expansion.”

The digital banking industry’s growth will support the central bank’s goal to bring more Filipinos into the formal financial system and have more transactions done online, Mr. Roces said.

“More players mean faster onboarding, wider merchant acceptance, and deeper penetration into cash-heavy segments, helping convert everyday transactions to digital. With digital payments already nearing the BSP’s 2028 target, new entrants can help close the remaining gap and make digital usage more pervasive, durable, and economically viable over the medium term.”

The BSP wants digital payments to have a 60%-70% share in the total volume of retail payments by 2028, in line with the Philippine Development Plan.

New digital banks can become “structural accelerators that can exponentially grow digital transactions,” the central bank said.

“Their expected contribution lies in expanding user bases, transaction pathways, and payments innovation which are critical to pushing the share of retail digital payments toward the 2028 goal,” it added.

Latest BSP data showed digital payments accounted for 57.4% of total monthly retail payments in 2024, up from 52.8% in 2023. 

The central bank also targets to onboard at least 70% of adult Filipinos into the formal financial system. The share of Filipinos with bank accounts reached 65% of the adult population in 2022, BSP data showed.

Meanwhile, the World Bank’s Global Findex Database 2025 report showed that 50.2% of approximately 82 million Filipinos aged 15 years old and above had financial accounts in 2024, lower than the 51.4% recorded in 2021 but higher than 26.6% in 2011.

The data showed that 33.5% of Filipino adults had accounts with banks or similar formal financial institutions, while 28.8% had mobile money accounts. Some 32.7% said they had digitally enabled accounts, or those used with a card or phone.

Mr. Asuncion added that in their quest for growth, digital banks must also target to reach more underbanked and unbanked Filipinos.

“The opportunity lies in expanding beyond urban centers into underserved areas, where digital penetration remains low. The challenge will be ensuring interoperability and trust, which will require sustained collaboration among banks, fintechs, and regulators.”