Digital banks are all the rage nowadays, especially with the dramatic rise of GoTyme and Maya. But the head of Southeast Asia’s oldest bank, the Bank of the Philippine Islands (BPI), isn’t too impressed.

Asked by Rappler whether BPI has any intention of setting up its own separate digital bank, BPI president and chief executive officer Jose Teodoro “TG” Limcaoco asserted that his bank has no need for it.

“We are a digital bank,” Limcaoco said on the sidelines of BPI’s 173rd anniversary on Thursday, August 1. “If you’re asking if we intend to set up a virtual bank, no.”

The Bangko Sentral ng Pilipinas (BSP) first began handing out licenses for digital banks in December 2020, allowing them to “offer financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branch/sub-branch or branch-lite unit offering financial products and services.” (READ: As digital banks gain popularity, will the big banks follow too?)

But Limcaoco doesn’t fully agree with the BSP definition of a digital bank. In fact, he has his own definition, distinguishing digital banks from what he called “virtual banks.”

“In my book, a digital bank is a bank that uses digitalization. I would say BPI is a bank that uses digitalization,” the veteran banker said. “BPI is a digital bank, BDO is a digital bank, UnionBank is a very digital bank, but we are not virtual banks because we have physical presence.”

Limcaoco is also confident that his bank, which reported record earnings for the first half of 2024, could beat any of the six digital banks in the Philippines. (READ: [Finterest] Is a digital bank safe, and how can you best use it?)

“Do we intend to get a digital banking license? No, because anything they can do, we can do better,” he told reporters.

So why do some well-established banks, like UnionBank with its UnionDigital subsidiary, still start their own separate digital bank? When Rappler asked UnionDigital’s leaders that question, they explained it had to do with the flexibility that comes with lower capital requirements and operating costs, and more agile bank systems built from the ground up.

“[Traditional] banks have the branch, the vault, the reserve requirements, the this, the that…20-year-old tech systems trying to work together. Agility is limited,” said Mike Singh, UnionDigital’s chief commercial and revenue officer. “We’re cloud-based. We’re fully digital. No branches. Paperless, faceless. We can profitably serve a P1,000 loan.”

In any case, it seems that the Ayala-led BPI is keeping its money where its mouth is, as the bank earlier sold off the minority stake it held in GoTyme, the fast-rising digital bank of the Gokongwei Group.

BPI got the ownership stake after its merger with Robinsons Bank, another Gokongwei Group company. BPI’s official reason for the sale was to “address any potential conflict of interest created by the significant overlap in, and similarity of, product offerings of GoTyme Bank and BPI.”

Still, the BPI president admitted that digital banks and even e-wallet competitors have their place in the market, since they are “helping with financial inclusion.”

‘Phygital’ all the way

Instead of leaning further into the virtual space, BPI is fully embracing its “phygital” — physical and digital — approach to banking.

BPI’s executives said the bank’s branches remain the primary selling channel for its business banking segment. The bank also values its brick-and-mortar presence because it is where people can learn finance.

“Most people are not [comfortable with finance]. You can read about it and all that, but making that last decision where you sign, or you borrow, or you make the big placement, the first time you do it, you want the comfort of someone you trust. And that comes with a physical presence,” Limcaoco said.

Marie Josephine Ocampo, BPI’s head of mass retail products and chairperson of the bank’s microfinance subsidiary BPI Direct BanKo, also believes that physical branches are important in reaching the underserved.

“What we see actually is that Filipinos, especially the lower socioeconomic class, really still need the hand-holding, and therefore the ‘phygital’ strategy of BPI is very critical,” Ocampo said on Thursday.

“They might do small transactions via GCash, but bigger transactions, they’re still wary of the digital nature. They would rather speak to a person face-to-face and hence, the agency banking, where you can still talk to a person, our branches outside in rural areas, those still are important, and I think those will still be there in the medium term,” she added. – Rappler.com