[Finterest] Is a digital bank safe, and how can you best use it?
Rappler talks about digital banking with GoTyme, the fastest-growing digital bank in the Philippines
MANILA, Philippines – Digital banks often promise convenience and higher interest rates, but how do you know if it’s for you?
Most of us are more familiar with the traditional brick-and-mortar banks that have existed for decades – the likes of BDO, BPI, and Metrobank. But ever since digital banking began in 2021, digital banks have taken a techie new generation by storm.
Currently, the Philippines has six licensed digital banks – UNObank, UnionDigital Bank, GoTyme, Overseas Filipino Bank, Tonik Bank, and Maya Bank. GoTyme is the fastest-growing among these banks.
To help answer some of the common questions surrounding digital banks, Rappler spoke with GoTyme chief executive officers Nathaniel Clarke and Albert Tinio.
Is it safe?
Given that it hasn’t even been five years since the Bangko Sentral ng Pilipinas (BSP) first issued licenses for digital banks, some customers may have concerns about entrusting their life savings to them. Banking is, after all, built on trust. But for GoTyme, digital banking isn’t really all that different.
“Personally, I think the only difference is the word ‘digital.’ For all intents and purposes, in the eyes of the BSP, we are a bank,” GoTyme CEO Tinio told Rappler.
GoTyme co-CEO Clarke pointed out that not only are they supervised by the BSP, but they’re also even under “enhanced oversight.” All bank deposits are insured by the Philippines Deposit Insurance Company or PDIC up to P500,000 per depositor.
“Everyone’s looking at us. We get all the same audits, cybersecurity, all the deposits are insured,” Clarke told Rappler.
The physical presence of bank branches can also provide a sense of security for depositors, which is partly why traditional banks often have a network of hundreds or thousands of branches all over the country. Digital banks instead rely on technology and their powerful apps to fill that need.
In the case of the Gokongwei-backed GoTyme, it has partnered with Robinsons Retail to have thousands of Robinsons supermarket and department stores across the country act like bank branches. (READ: GoTyme: How a South African digital bank found a ‘match made in heaven’ in the Gokongweis)
“At the end of the day, you can do both deposit and withdrawal in a supermarket cashier,” Tinio said. “You can talk to our ambassador. You can pick up a phone and chat immediately.”
Some customers might also worry about the stability of digital banks, considering that only two out of the country’s six digital banks are currently profitable. However, GoTyme – which finished 2023 with P2.47 billion in net losses – clarified that this is to be expected, as it takes time for digital banks to turn a profit.
“Most banks around the world take about, on average, seven years to break even. It took us five in South Africa. We think we can do it in three years – towards the end of next year,” Clarke told Rappler.
Since GoTyme is established as a joint venture with the Gokongwei Group, Clarke said that this should give customers the assurance that the mega-conglomerate will continue to fund the bank until it becomes profitable.
High interest rates, lower fees
Digital banks can also save on the enormous operating costs of having a physical network of branches. A digital bank’s cost to acquire can be just one-tenth that of a traditional bank, with a similarly low cost to serve.
That allows for one of the biggest benefits that digital banks offer: higher interest rates. They’re often much higher than the interest rates for basic savings accounts offered by other banking giants, which often doesn’t even reach 1% per annum.
“Just on that cost [advantage], we can then give you 4% interest on savings. We can make fees lower. But we can actually still be net profitable,” Clarke said.
For instance, UnionDigital Bank – a subsidiary of Union Bank of the Philippines – offers 3% interest rate per annum for balances below P5 million and as high as 4% for those above P5 million. Tonik also gives depositors a 4% interest rate per annum.
Maya and GoTyme, in particular, have used their high interest rates to reel in new customers. Maya claims that depositors can enjoy interest rates as high as 14% per annum. Take note, however, that the base rate is only 3.5%, and that much of these rate “boosts” are locked behind “missions” requiring you to spend certain amounts or refer new customers.
GoTyme’s Go Save account originally boasted a 5% interest rate per annum, although the bank has brought this down to 4% starting March 2024. Still, these high rates are a big reason why digital banks are growing so quickly, as young professionals hunt for a better place to park their savings.
“We went up in the middle of last year for April from 3% to 5%. We saw a spike in onboarding. But when we went down from 5% to 4%, we didn’t see any real changes,” Clarke told Rappler. “We’re keeping the rate of growth.”
In general, digital banks also charge lower transaction fees and are more generous in granting free bank transfers. Traditional giants such as BDO, BPI, and Metrobank charge customers up to P25 every time they send money using InstaPay. (READ: Bangko Sentral hopes to ‘shame’ banks into removing fees on small transfers)
Meanwhile, Tonik and UNOBank both don’t charge any fees for InstaPay transfers, while GoTyme offers up to three free transfers every week. Both UnionDigital and Maya charge customers for InstaPay transfers, although the fees are still lower than most of the largest traditional banks. – Rappler.com
Finterest is Rappler’s series that demystifies the world of money and gives practical advice on how to manage your personal finance.