The Philippines is home to one of Southeast Asia’s most ambitious digital banking experiments. Six players have entered the market since 2021, promising to bring financial access to millions.
But three years in, the real question is no longer about inclusion, it’s about survival. Can these lenders finally chart a path to profitability or will they join the long list of neobanks worldwide that never made it past the burn phase?
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Growth vs. Profit: Walking the tightrope
2024 and are expected to stay unprofitable for at least the next five years. The root causes? High customer-acquisition costs, chunky start-up and tech expenses and a sluggish rollout of lending products, their loan-to-deposit ratio stands at a low 36%.
Yet, on the growth side, these banks are succeeding at one thing: scaling fast. Deposits surged to nearly ₱87.39 billion (US $1.49 billion) by Sep 2024 and crossed ₱100 billion (US $1.70 billion) by the end of March 2025 for the six digital banks combined, a jump of more than 34% year-on-year, showing that Filipinos are warming up to mobile-first banking. Customer accounts continue to climb into the millions, driven by aggressive sign-up promos and partnerships with e-wallets and payment apps.
Fitch Ratings adds another layer: most of this growth is concentrated in underserved retail clients and SMEs, segments long overlooked by traditional banks. While this positions digital banks as inclusion drivers, it also exposes them to higher risk. Many of these borrowers lack solid credit histories, which has weighed heavily on asset quality. Non-performing loans climbed from 5.9% in December 2022 to a peak of about 14.1% by mid-2024, nearly wiping out any returns from interest income. Since then, the ratio has eased in 2025 as lenders sharpen underwriting and collections, though asset quality remains the sector’s biggest profitability challenge.
That said, there are signs of adaptation. Digital lenders are testing more profitable paths, from SME lending to payroll-linked loan products, often in partnership with traditional banks. Analysts note that these moves don’t just spread risk but also allow challengers to lean on established underwriting systems rather than reinvent the wheel.
In other parts of APAC, some digital banks have already begun reallocating assets toward safer loans like residential mortgages or corporate credit to protect margins. The Philippine market hasn’t fully followed suit, but the trend hints at a playbook that may eventually spill over.
Technology is reshaping operations, too. Automated credit scoring with alternative data, AI-powered onboarding and cloud infrastructure are helping banks cut costs and reach underserved groups. Still, with greater digitalisation comes greater exposure, forcing institutions to ramp up cybersecurity spending. That’s a huge cost to bear that drags on short-term profitability, even though it is much needed to build the trust needed for long-term survival.
Challenges ahead
- Costly customer acquisition: Promotional rates and flashy onboarding perks can draw sign-ups, but retention is another story. Without sticky services, customers drift as soon as the offers run out. Fitch has already flagged that high-rate deposit campaigns aren’t built to last.
- Compliance and regulatory cost: The BSP’s cautious stance means digital banks can’t skimp on AML and KYC systems. That satisfies regulators, but it also piles on recurring expenses that eat into margins, especially for smaller players.
- Limited financial literacy: A sizable share of Filipinos remain unbanked or underbanked, with thin or nonexistent credit histories. That makes responsible lending at scale a tall order. Some banks are experimenting with financial education, which may not move the revenue needle today but could prove a long-term differentiator.
- Asset quality risks: With NPLs topping 14%, asset quality remains the biggest weight on profitability. Unless underwriting sharpens, digital banks risk getting stuck in a cycle of growing their loan books only to write off losses just as quickly.
The turn is within reach (if it is done right)
Philippine digital banks are still bleeding red ink, but that isn’t irreversible. Those that double down on strategic partnerships, sharpen their risk models and carve out niches (particularly among SMEs and underserved consumers) stand the best chance of breaking even.
Their trajectory carries regional weight too. A win in the Philippines could validate Southeast Asia’s broader digital banking experiment, showing that sustainable profitability is possible even in high-risk markets. But if missteps pile up, the sector could face tighter regulation and a wave of consolidation.
Growth alone won’t cut it in the next chapter. Digital banks will need tighter controls, better models and clearer execution. For investors, the real test is simple: which players are closest to crossing into the black.