Complement, not compete: Fintech and the road to a cash-lite Philippines

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By Melissa Luz T. Lopez, Senior Reporter

For decades, banks have been the kings of the financial system.

And they remain dominant to this day.

After all, deposits and assets held by lenders account for over 80% of industry resources in 2017, serving as the main source of funding, payments, and credit.

But that’s about to change.


Financial technology (fintech) firms have sneaked in, offering alternatives to the traditional banking model. These players cater to a new breed of consumers, particularly digitally adept millennials which make up a sizeable chunk of the Philippine population.

Despite their financial strength, banks have been shaken up by these online-based platforms, which have been catapulted to popularity in just a matter of years. Growth in this space has been exponential, enough for some traditional players to perceive them as a threat.

But these tech start-ups aren’t the ones to blame, Angelito M. Villanueva, chairman of the newly formed, said.

“The ones disrupting the landscape are not the fintech players. The disruptors are the consumers themselves, because they will be the ones to dictate what they want,” Mr. Villanueva said in an interview with BusinessWorld.

The Bangko Sentral ng Pilipinas (BSP) was quick to recognize the potential of digital platforms — particularly those using mobile channels — in attracting more Filipinos to join the formal financial system and away from predatory lending.

The central bank rounded up banks and fintechs to work together for a common goal: financial inclusion. Simply put, the monetary authority wants industry players to get as many Filipinos into their platforms and out of the underground economy.

To this end, the BSP unveiled the National Retail Payment System (NRPS) initiative in 2015.

The move aims to steer financial transactions gradually away from cash and checks towards electronic fund transfers (EFT).

It also entails setting up automated clearing houses to allow same-day and even real-time fund transfers across accounts and e-wallets maintained under different banks and mobile money agents.

As a result, sellers and suppliers will be able to collect payments quickly (thereby allowing them to bolster their working capital faster) and employees will receive their salaries either through their automated teller machines or mobile wallets on their phones.

Easier access to money is seen to spur increased economic activity, which will further lift local prospects.

In November last year, industry players gathered to roll out the Philippine EFT System and Operations Network (PESONet), which serves as a clearing house that will conduct daily batch processing for online transactions.

The PESONet now stands as the litmus test for the push towards e-payments. The road has been long and rough but the players are inching closer towards the goal.

Of the 42 signatories to the PESONet agreement, more than half — at 38 — already offer same-day interbank fund transfers as of Feb. 15, John Cary L. Ong, head of the PESONet steering committee, said.

The PESONet is the industry’s first attempt at rapid interbank transfers, which leapfrogs from the Philippine Clearing House Corp. (PCHC)’s system for bank checks to now include e-wallets.

The PCHC has already trimmed the check clearing process to just one day from three, but the NRPS is pushing for an even faster process. In fact, the PESONet is envisioned to wipe out checks for good.

Currently, players do one batch run per day. As transaction volumes grow, the firms are looking at multiple clearing and settlement sessions to keep up with demand.

It wasn’t smooth-sailing at first, but moral suasion from the regulator convinced players to finally sit down and talk.

“We have to give credit where credit is due: I think the one who really marshalled everyone to a single beat is really the BSP,” Mr. Villanueva said, even as he admitted that several industry meetings became tension conventions.

“Of course there were some birth pains along the way because you are setting up one system. Some banks would flex its own muscle. Some would question: ‘why reinvent the wheel?’” he recalled. “I think the issue here is really more on how we can leverage on each other’s strengths and how we can, at the end of the day, provide better services and better efficiencies to our customers.”

Despite these issues, several banks have started offering the interbank transfer service since the platform was unveiled late last year, PESONet’s Mr. Ong said.

Players, however, are bound by two standards: they have to credit the money on the same day they receive it, and transaction fees can only be imposed on senders.

“The first thing we wanted to make sure is that everyone understands the rule. Not everyone can offer it through all their channels in terms of sending, but the important thing is that every bank does its job in terms of receiving,” the bank official said.

Whether the players want to charge transaction fees for money senders is fully their decision. Mr. Ong, who also serves as senior vice president at the Union Bank of the Philippines, said interbank transfers made through their channels are free. Fees imposed by other banks vary, with some charging as much as P100 per transfer.

Mr. Ong, however, said e-money issuers are still outside this loop pending some technical kinks which need to be resolved. This is because these players do not maintain deposit accounts with the central bank and the Philippine Payments and Settlements System (PhilPASS) which hosts the electronic clearing house.

“They have to be sponsored in the settlement by one of the participant banks. That agreement is still being finalized by the PPMI (Philippine Payment Management, Inc.), by lawyers, and by the BSP,” Mr. Ong said.

By now, the central bank and financial players have accepted that going digital is inevitable with the race now shifting away from speed towards efficiency and convenience.

Business rivalry has also taken a back seat as banks and fintechs have come to realize that there’s more than enough to go around for all of them.

“The approach of the universal and commercial banks is they (fintechs) are going to eat all our lunch — no. There’s enough business, you just need to make sure that everything is lubricated so that money flows freely and then electronic payments will be ubiquitous,” Mr. Ong said.

In fact, some banks have set up their own units focusing on digital services. UnionBank launched their EON online debit card, while the Rizal Commercial Banking Corp. tied up with eCurrency Mint Ltd. for its own digital money product, to name a few.

The BSP has set an ambitious goal to bring the share of e-payments to 20% of all financial transactions by 2020, coming from a measly one percent share back in 2013.

“There’s always something for each player,”’s Mr. Villanueva added. “We don’t want to compete, we complement.”

“In a country like the Philippines which is archipelagic, having a brick and mortar set-up won’t work because covering the entire 7,107 islands will not happen in the next two to five years.”

Mr. Villanueva also sits as managing director of FINTQnologies, Inc., which operates the online Lendr platform for consumer credit. Their firm also set its own financial inclusion goal to get 30 million Filipinos into using formal financial channels.

Both industry officials perceive these inclusion goals as challenging but doable, while admitting that the country has a long way ahead.

There is strong potential for digital platforms with e-money accounts numbering 11.4 million as of end-2017. This compares to the 44.8 million Filipinos with bank deposit accounts as of end-September, according to latest available central bank data.

FINTQnologies Corp. forms part of Voyager Innovations, which is PLDT, Inc.’s digital innovations unit. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls.