Digital banks posted a record high of deposits, according to a report by Bangko Sentral ng Pilipinas last May, growing from 130 million pesos last year to 153 billion pesos. Most of these deposits are stored in digital banks that offer financial services akin to traditional banks—loans, credit, and bill payments, among others. The key value proposition that has likely spurred the wave of popularity of these banks is the attractive interest rates not offered by traditional banking institutions. Multiple outlets cite 4-6% interest rate per annum for top digital banks like Maya and GoTyme. This is in addition to the accessibility afforded by them, where most outlets accept retail transactions using cards issued by said digital banks.
Traditional Banking
Institutions like Bank of the Philippines Islands, Metrobank, and BDO have existed long before the advent of digital banking. The oldest of the three, BPI, has been around for 174 years. Together, this “big three” amass 11.35 trillion pesos in assets, representing around half of all deposits in the Philippine banking system.
Customers have long relied on the stability of these institutions. Besides their age, these banks have weathered the ebbs and flows of the local and global market—such as the 1990s Asian financial crisis, the and the 2008 financial crisis. Although this could be attributed to the Philippines’ limited exposure to the subprime mortgage crisis in 2008, for example, the point remains: stability is key in choosing where to park one’s funds.
The changing tide
However, the tide—small as it is currently—is buoying the newcomers to the banking sphere. To compete in the space of the traditional giants in banking, the newcomers rely on innovation and revolution to win over customers that have historically tied all their liquidity to traditional institutions. Promises like high interest earnings, same accessibility as the big three, and other novel features have garnered the attention of customers; so much so that digital banks now account for 153 billion pesos in deposits. There was a 67 percent jump in customers compared to last year. Now there are 38 million depositors, accounting for a whole third of the Filipino population.
Stability vs. Innovation
All banks—digital or otherwise—have to be regulated by the Bangko Sentral ng Pilipinas, and banking institutions all have to insure 500,000 pesos in deposits per customer. However, the unseen caveat is that BSP regulation does not necessarily make for a stable bank. The point remains that, even with low innovation, traditional banks have a lower risk profile if they are to be historically judged. This is why there remains to be skepticism among new entrants—that their stability is unproven by time. Some even argue that the very things making the new entrants appealing to most—the high interest earnings, among others—might signal a sense of novelty not rooted in security. For the other tens of millions who deposit in traditional banks, they value parking their money in a reliable, time-proven institution, regardless of growth possibility. That is, the general risk appetite of the banked people is low.
The upbringing of Digital Banks in the country
The lower risk appetite of Filipinos for digital banking or digital asset platforms is backed by a 2024 report from S&P, where S&P observed that digital banks in the country are struggling. At the time, S&P further stated from observations that digital banks are unlikely to generate income and revenue any time soon due to acquisition of bad loans and high operating costs. Bringing change and innovation to the country, the digital banking sector took a leap, offering services to customers with untested credit profiles and acquired soured loans overtime. These bad debts then added to the digital bank’s elevated operating costs.
Zooming out, while regulators are concerned about the longevity and revenue of the digital banking industry, the losses incurred can now be seen as a part of the expected loss phase.
Bridging the gap
The gap between the consumer’s desire for stability reaped benefits when digital banking platforms refused to remain stagnant and ventured into providing more services – bill payments, lending, savings, crypto, and furthermore, with market-enticing promises such as higher interest rates for savings and variants of buy-now-pay-later programs. And as digital platforms add more services, investors continue to push in, driving more consumers to try digital banking.
Historically, the daily errand of ordinary working sector has always consisted of allocated schedules for physical visitation for traditional banks just to deposit and withdraw. The trust for traditional banks has always been in the perception that money, which is deposited and withdrawn from a physical location, is safe and secure. Now, with innovation and technology, regulators have kept up to provide structural frameworks for digital banks, enforcing consumer and digital asset protection laws.
Data from NielsenIQ Philippines shows that 99% of Filipinos have shopped online during the past 6 months, and 7 out of 10 (total of 71%) used digital wallets for settling payments. With normalized usage of internet and mobile technologies, the digital world continues to settle in. Filipinos use mobile digital banking applications to pay, shop, and transfer.
While stability of traditional banks continues to be the financial refuge of Filipinos, ease, convenience, speed, and continuous innovative evolution remain to be a driving factor for this surge of change.
What DOPAY offers
DOPAY is an application licensed by Bangko Sentral ng Pilipinas (BSP) as an Electronic Money Issuer (EMI) and Virtual Assets Service Provider (VASP). With DOPAY, advocates for financial innovation change can enjoy the benefits of ease and convenience for money transactions via DOPAY’s trading platform. Remittance, payment, and crypto trading are a few features of the application which can be done with affordable and low rates, easing financial burdens of consumers.
Further, as a financial institution which is regulated by Bangko Sentral ng Pilipinas (BSP), DOPAY ensures that the consumer’s money is secure and protected by strict implementation of security and regulatory compliance controls.
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