First pure-play digital bank in SEA receives bank licence approval to operate in the Philippines

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Annual Thanksgiving procession in Manila.
JANUARY 09, 2020 - 10:25 AM

TONIK Financial's subsidiary in the Philippines, TONIK Digital Bank, has received approval for a new banking licence from the Central Bank of the Philippines that will allow it to provide a full range of retail banking services, focused primarily on retail deposits and consumer loans, through the first digital-only branchless bank licensed platform in the Philippines.

Greg Krasnov, Founder & CEO of TONIK, said that the digital banking opportunity is "significantly more compelling" in the emerging parts of South-East Asia, such as Indonesia, Philippines and Vietnam. 

This is in large part due to their huge populations and the fact that they are "massively underbanked". He also noted that there is "very weak digital offering by incumbents, including no functional innovation, massive onboarding challenges (and) low deposit rates". 

"I think incumbents in the emerging SEA countries are not well prepared for digital competition.  For example, we can see especially in Indonesia and Philippines the digital lenders are penetrating much more heavily into the previously unbanked segments then the banks," Mr Krasnov told BT in an email interview. 

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"To lend to such clients you need to use financial technology to minimise costs and analyse credit risk using alternative data sources, and these are things that banks are historically not very good at, so fintechs will continue eating the banks’ lunch on it for a while."

The Philippines represents a US$140B retail deposit market, and a US$100B unsecured consumer lending opportunity, said TONIK in a statement. In addition, while native Filipino clients are digital natives and constitute the number one market globally in terms of daily internet and social media usage, over 70 per cent of the adult population remains unbanked, and market research indicates that over 50 per cent of existing bank clients would be keen to switch their deposits to a pure-play digital contender.

He noted meanwhile that Singapore is already well penetrated and has sophisticated competition. 

"Also, Singapore has very low net interest margin, so you need very high volume for a bank to be profitable. But achieving high volume in a highly penetrated market that is small to begin with is going to be a challenge. That's why we are much more interested in Philippines, and will also continue to have our eye out for expansion into other emerging SEA countries."