MANILA, Philippines — After receiving $93.9 million in fresh capital from Japan’s Sumitomo Mitsui Banking Corp., Philippine lender Rizal Commercial Banking Corp. aims to establish a digital banking unit and increase tech investments. Traditional lenders, such as RCBC, are facing increasing competition from nimble, digital-savvy startups that are providing mobile-based financial services with Philippine authorities’ approval. President and CEO Eugene Acevedo told reporters on Tuesday that RCBC is incubating “at least one” startup that might be spun off to qualify for a digital bank license with the central bank. According to him, one of those units is DiskarTech, which operates a banking app that was released last year. RCBC’s foray into digital banking comes after SMBC, Japan’s second-largest megabank, announced it would buy a 4.99 percent interest in the Philippine lender. Nikkei was the first to report on the deal on Monday. The additional funds will be used to fund technology projects as more individuals resort to their mobile phones for financial services, particularly during the coronavirus pandemic. According to Acevedo, RCBC closed 70 of its 500 or so branches last year, and not just due of COVID-19. “What occurred was that customer behavior led us to follow them,” the CEO explained, citing a similar trend in Europe as an example. Low interest rates, which have strained lenders’ profitability, have prompted banks to make drastic cost cuts, according to the RCBC CEO. “We can only survive if we slash operating expenses by a large proportion, if not radically,” Acevedo added. “One approach to achieve it is to use mobile apps as our main factory for servicing [and] engaging clients, because the cost of a mobile app is far lower than the cost of a brick-and-mortar store.” The Philippines’ central bank intends to use fintech to get more Filipinos into the official banking sector. Around two-thirds of the Philippine population lacks a bank account, and a third of towns lack banking services. Since late last year, when the new category was introduced, the central bank has awarded licenses to three digital banks, each of which must have at least 1 billion pesos ($20 million) in capital but are not allowed to build physical branches. Voyager Innovations, a local fintech company that raised $167 million on Monday from KKR, Tencent, and telecom PLDT for its entry into digital banking, and Tyme, a South African digital bank founded in partnership with local conglomerate JG Summit Holdings, have both said they will apply for licenses. Union Bank, a Philippine institution, has expressed interest in obtaining a license. RCBC, the Philippines’ sixth-largest private bank by assets, plans to establish synergies with SMBC in areas such as consumer and business banking, in addition to strengthening its capital basis. RCBC is one of the few Philippine banks with a large percentage of Japanese customers. SMBC has increased its interests in Vietnamese and Indonesian financial institutions as the bank looks to diversify its portfolio in the face of sluggish development in Japan. RCBC, which is 22 percent owned by Taiwan’s Cathay Financial Holdings and controlled by the Yuchengco Group, said it might contact its new Japanese partner for future funding requirements. “For the time being, both parties are satisfied with the 5% ownership, but… what is significant about this deal is that if we need additional funds in the future, we now have an additional shareholder with whom we can speak,” says the CEO. Jomi De Veras, Senior Executive Vice President, stated. Continue reading