Digital banks face profitability concerns with new players to intensify competition

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.

- By Katherine K. Chan Reporter

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 email.

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 email.

“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.”