Philippines tightens digital bank rules as payments evolve

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TL;DR: Banks are adapting to a more digital financial system as regulators and financial institutions strengthen infrastructure, risk controls, and payment connectivity. The Philippines ‘ central bank is applying stricter capital and prudential requirements to banks adopting digital-bank models, while IBM and SWIFT are advancing tokenized deposit infrastructure, and BNY is enabling cross-border payments directly to digital wallets.

Key Takeaways:

The BSP requires banks adopting digital-bank models to meet the $15 million minimum capital requirement and applicable digital-bank prudential standards. BSP Circular No. 1240 allows additional safeguards, including stronger reporting, risk management, and internal controls for banks with expanding digital operations. IBM is integrating SWIFT’s shared ledger with Digital Asset Haven to support tokenized deposits and digital asset operations. BNY’s Pay-to-Wallet enables participating banks to send cross-border payments directly to retail digital wallets through existing SWIFT infrastructure. Digital wallets account for about half of point-of-sale transactions in Asia-Pacific, with the share projected to exceed 60% by next year. The Philippine central bank tightens rules on banks shifting to digital banking models

The Bangko Sentral ng Pilipinas—the Philippines’ central bank—is tightening the screws in capital and prudential requirements for thrift, rural, and cooperative banks that are transitioning toward digital banking models, the Philippine News Agency reported on September 23.

Following Circular No. 1240, dated September 21, thrift, rural, and cooperative banks that the central bank determines are operating under a business model similar to that of a digital bank must meet the PHP 1 billion ($15 million) minimum capital requirement for digital banks, among other prudential standards.

For a proposed acquisition to transform a thrift, rural, or cooperative bank into a tech-driven business model, the same PHP 1 billion minimum capital requirement will apply. On top of that, these banks must also meet the prudential standards applied to digital banks.

“The requirements aim to ensure that these banks can adequately manage risks arising from the nature, scale, complexity, and risk profile of their operations,” the BSP said.

Under stricter policies, the BSP may impose additional safeguards, such as enhanced supervisory reporting restrictions on particular activities or new digital products and services, as well as stronger risk-management and internal-control systems.

According to the BSP circular, the rules may apply to banks that meet either of two sets of conditions:

The first one covers banks operating under a business model similar to that of a digital bank, and those whose capital and risk-management systems no longer correspond to their stated business model and/or risk profile.

Second covers banks that use digital platforms to deliver financial services and record a significant increase in their loan and/or deposit balances.

The BSP explained that the updated rules are intended to ensure that these banks adequately manage risks coming from the nature, scale, complexity, and risk profile of their operations.

The circular also allows the central bank to issue additional licenses, including through the conversion of existing thrift, rural, and cooperative banks which subjects to the applicable licensing framework. Having an additional digital banking license would enable these banks to market their digital services to a broader consumer base, potentially including customers outside their usual geographic areas of operation.

In another development in banking, the global technology and consulting company IBM (NASDAQ: IBM) is reportedly expanding its digital banking infrastructure with SWIFT integration.

IBM advances cross-border payments with SWIFT’s ledger IBM is tapping SWIFT’s blockchain-based share ledger for its Digital Asset Haven platform, the tech giant announced on September 24.

“The financial services industry is entering a new era where tokenized and traditional assets will need to move side by side,” said Tom McPherson, General Manager of IBM Z and LinuxONE.

“As institutions modernize payments and prepare for a future of always-on transactions, they need infrastructure that combines innovation with the security, resiliency, and regulatory compliance requirements of regulated banking. By connecting to Swift’s shared ledger and extending IBM Digital Asset Haven to on-premises environments, IBM is helping clients participate in emerging digital asset networks while prioritizing control of their most critical financial operations.”

IBM revealed two beta updates: the first is the ISO 20022 Messaging Adapter feature, which allows financial institutions to tokenize deposit transactions using the ISO 20022 messaging standard via shared-ledger infrastructure. With this feature, users can move funds 24/7, including weekends, while final settlement runs through current systems.

The feature was first announced at Sibos 202 and was built in collaboration with over 40 financial institutions worldwide. The SWIFT‘s ledger moved from concept to activation within 9 months and is now being implemented by 17 first-mover institutions piloting tokenized deposit transactions.

The second update is an on-premises version that is designed to run on a client’s own IBM Z or LinuxONE hardware. Organizations can use compatible systems that they already have or expand their IBM infrastructure to meet their operational needs.

The deployment is designed to provide financial institutions greater control over their digital asset operations while also supporting performance, scalability, and enterprise-level security.

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BNY brings cross-border bank payments to digital wallets In more recent banking news, the Bank of New York (NYSE: BNY) now allows banks to send cross-border payments to retail digital wallets via its new “Pay-to-Wallet” capability, according to a press release on September 28.

Pay-to-Wallet combines BNY’s global payments capabilities to enable cross-border bank-to-wallet payments in approved markets, leveraging the existing SWIFT payment banking infrastructure.

“Digital wallets are becoming central to the cross-border payments landscape particularly in wallet-led markets across Asia Pacific and other high-growth corridors,” said Fabian Khoshbakht, Head of Global Payments & Trade, APAC at BNY.

“To meet this growing demand, banks need capabilities they can deploy without having to build layers of integration with wallet providers. BNY’s enablement of a Pay-to-Wallet capability provides a practical and scalable way to support payments from bank accounts to participating digital wallets through trusted existing infrastructure, making it faster and easier for participating banks to access digital wallet payment flows.”

Banks in the Asia-Pacific region will be among the first users of the new payment feature, BNY said, noting that retail digital wallets in APAC account for half of all point-of-sale transactions and are projected to exceed 60% by next year.

“We see strong potential for Pay-to-Wallet capabilities to support the continued modernization of cross-border payments and expand customer choice,” said Cynthia Hsu, Head of Wholesale Banking Product Division at Taishin Bank. “This is an exciting opportunity for us to collaborate with BNY and its global network to see how we can further meet customer needs.”

Currently, BNY’s Pay-To-Wallet capability is available only to selected participants in APAC, but the bank plans to expand it globally.

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FAQs:

What is a digital wallet?

A digital wallet is an app or online service that lets users store payment information and make digital transactions using a phone, computer, or other device. Examples include wallets used for online purchases, in-store payments, and money transfers.

Why is the BSP tightening digital banking rules?

The BSP wants banks adopting digital models to maintain capital, risk controls, and safeguards that match the scale and complexity of their operations.

What is the BSP’s new capital requirement?

Banks operating like digital banks must meet the PHP 1 billion (or $15 million) minimum capital requirement and comply with applicable digital-bank prudential standards.

What is IBM’s SWIFT integration?

IBM is integrating SWIFT’s shared ledger with Digital Asset Haven to support tokenized deposits and 24/7 fund movement using ISO 20022 messaging.

How many institutions are testing SWIFT’s tokenized deposit system?

17 first-mover institutions are piloting SWIFT’s ledger, which was developed with more than 40 financial institutions worldwide.

What is BNY’s Pay-to-Wallet service?

BNY’s Pay-to-Wallet allows participating banks to send cross-border payments directly to retail digital wallets through existing SWIFT infrastructure.

Why are digital wallets important in the Asia Pacific?

BNY said digital wallets account for about half of point-of-sale transactions in Asia-Pacific, with the share projected to exceed 60% by next year.

Where is BNY’s Pay-to-Wallet available?

The service is initially available to selected participants in the Asia-Pacific region, with BNY planning to expand it globally.

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Philippines tightens digital bank rules as payments evolve

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