By Melissa Luz T. Lopez, Reporter

Client identity cited in widening financial services

Posted on May 25, 2016

THE LACK of a national ID system in the Philippines has hampered efforts to broaden access to financial services, industry experts said, with banks pressed to shoulder additional costs in establishing a potential client’s identity before they can be integrated into the banking system.

Both industry and financial regulators pointed out the need to create an enabling environment to widen financial inclusion -- which includes a system to better identify banking customers -- at a two-day conference of the Asian Development Bank (ADB) on Financial Inclusion and the Digital Economy in Mandaluyong.

“It is recognized under the NSFI (National Strategy for Financial Inclusion) as a key barrier, and the industry has accurately identified that it is one of the major costs of onboarding financially-excluded markets,” bank officer Rochelle D. Tomas said of the Bangko Sentral ng Pilipinas’ (BSP) Inclusive Finance Advocacy Staff, citing the standing requirement for at least one photo identification card for any person to open a bank account.

The House of Representatives worked on passing a bill to mandate the creation of a national ID system, but this has not seen enactment into law during the 16th Congress with barely a month of sessions left.

Apart from a national identification system, US-based financial technology entrepreneur Carol L. Realini also pointed out other key conditions for an enabling environment for wider access to financial services: a rapid interbank settlements system, and the entry of non-bank actors in offering such services, taking off from the success in Kenya, India, and the United Kingdom.

Banks spend as much as $15 per client just for its usual know-your-customer protocol, a cost which could be trimmed through a national database for profiling depositors and lenders.

In particular, Ms. Realini said simplifying regulations that can accommodate non-bank entities would allow a wider coverage at a much faster rate.

She noted that the Philippines had a good start, with local telecommunication firms Globe Telecom, Inc. and Smart Communications having pioneered mobile payment systems through Smart Padala and GCash way back in the early 2000s.

“The work we are doing must complement these changes that are happening. We need to bring people not only access to the Internet, but also good access to affordable banking,” Ms. Realini said during the panel discussions.

Formally launched in July 2015, the BSP financial inclusion strategy aims to provide diverse financial products and services that would allow the underserved and unbanked sectors to tap formal services under the local financial system.

The latest National Baseline Survey on Financial Inclusion published by the central bank last year showed that only 43% of Filipino adults hold savings, with 68% of them keeping their money at home rather than in financial entities. Only five in every 10 adults surveyed have experienced transacting with banks, the survey also bared.

Ms. Realini said regulators and banks should view financial inclusion with a “trickle-up” approach, focusing on getting the unbanked residents aboard and applying the system to the rest of the system.

“I think we are going to see solutions focused on the bottom of the pyramid that will create breakthroughs. These breakthroughs are gonna make so much sense that we are going to start adopting them in the banking system,” she said.

Another approach would be to craft more “consumer-centric” systems to attract more people to enter the formal financial system by offering payment methods in the vernacular and veering away from “Western-centric” concepts, according to Christine Duhaime of the Canada-based group Digital Finance Institute.