Financial Inclusion: Work in Progress

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By Christine Joyce S. Castañeda, Senior Researcher

THINKING of saving the monetary gifts her son gets — and will receive in the future — Lampell, 37, decided to open an account for her then six-month-old child, Nathan.

Lahat ng money na bigay sa kanya, doon nakalagay (We deposit to the bank all the money given to him),” Lampell said.

Pang-aral nya sa college ang perang naipon doon (We will use the money to finance his college education),” she added, noting that she would rather have the money for safekeeping on one of the country’s largest banks rather than use it in availing educational plans.

Meanwhile, Nenett was encouraged by her sister, Roselle, who’s been working in the US since 2001 — to open a bank account. For Roselle, banks are safer channels for sending remittances to Nenett and their family in the Philippines. Nenett now uses the account not only to receive the money sent by her sister, but also for her savings.


Doon kasi naba-budget ’yung kuha ko ng pera, hindi lahat wini-withdraw kosaka pwede ko ring gamitin na savings account ’pag may extra akong pera, ide-deposit ko rin kaya hindi lang pang-remittance lang… (I don’t need to withdraw all the money sent and I can also use it as savings account. Whenever I have extra money, I deposit it into the account),” Nenett said.

The 43-year-old housewife also added that since she can withdraw the money from automated teller machines (ATMs), she need not to bring valid IDs whenever she makes a transaction.

While Lampell, the now seven-year-old Nathan, and Nenett serve as examples of those who are on board the formal financial system, many are still considered to be excluded from it. Results of the latest central bank’s Financial Inclusion survey showed only around 15.8 million Filipinos, or 22.6% of the population having formal accounts.

A formal account includes any account at formal institutions such as banks, cooperatives, and microfinance nongovernment organizations (MF NGOs) as well as “transactional accounts” that include electronic money (e-money) wallets or cards provided by e-money issuers.

Among those with formal accounts, 11.5% said they own bank accounts, lower than 2015’s 14.1%. Meanwhile, the share of adults who held accounts with MF NGOs surged to 8.1% from 1.8% previously. Those who were part of cooperatives stood at 2.9% while those who held e-money accounts reached 1.3%.

Filipinos who have a bank account

Meanwhile, the percentage of adults with savings rose to 48%, up from 43% in 2015. Formal savings — or savings at formal financial institutions — stood at 18.8%, up from 17.5% in 2015. However, the share of adults who are saving at home was still at 68%.

The results also showed “marked disparities” especially in terms of income and education with half of the adults in the middle- to upper-class having formal accounts, higher than those belonging to the income classes D (24%) and E (14%).

While the 2017 result marked an improvement from 22% in the 2015 maiden survey, this meant that 52.8 million adults still did not have accounts with any formal institution. Around 60% of those who did not own a formal account cited not having enough money as the primary reason with other reasons including the “lack of need,” the absence of documentary requirements, the lack of knowledge in opening an account, and lack of awareness.

Results also show that many still prefer cash-based transactions due to fears of hacking and other cyber-security breaches.

In order to encourage more Filipinos to open up accounts in formal institutions, the BSP aims to eliminate these barriers by issuing a package of policies to create an expansive, more accessible, and simplified banking network.

Among those in the package was BSP Circular No. 992, which provided a framework for basic deposit accounts (BDA). With an initial deposit requirement of not more than P100, no minimum maintaining balance, no dormancy charges and simplified know-your-customer (KYC) requirements, BDAs address the issues that usually discourage Filipino adults from opening bank accounts.

“These features meet the need of the unbanked for a low-cost, no-frills deposit account which they can open even if they do not have the standard identification documents,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail interview.

Ms. Fonacier added that as an incentive for banks, BDA products have a zero reserve requirement. On the flip side, a maximum balance of P50,000 is set to prevent its misuse.

The Deputy Governor also noted that the recently signed Philippine Identification System (PhilSys) Act will serve as a “big boost” to financial inclusion and digitalization efforts.

“As envisioned, the PhilSys will give every Filipino the ability to provide verifiable identity online and remotely through their biometrics,” Ms. Fonacier said.

“This will facilitate an even more streamlined KYC and CDD [customer due diligence] process, and address key onboarding pain points,” she added.

To recall, President Rodrigo R. Duterte on Aug. 6, signed the PhilSys Act, which aims to create a streamlined and unified national identification system and interconnect redundant government IDs.

Another measure is the offering of digital payments through the National Retail Payment System, which renders the central bank’s goal of raising the share of e-payments to at least 20% of the total transactions by 2020 from just one percent in 2013. Part of this aim was the launch of the Philippine Electronic Fund Transfer System and Operations Network (PESONet) and InstaPay platforms, which support electronic transactions such as payment for salaries, utilities, taxes and fees, and domestic remittances.

To reach those in the rural areas, the BSP issued regulations on cash agents and branch-lite units (BLUs) through Circulars 940 and 987, respectively. Circular 940 outlined new regulatory guidelines of allowing banks to provide service to their clients outside banking premises or through cash agents while Circular 987 allowed banks to set up “lite” versions of a regular bank branch (See “Going lite with branch-lites” on page S3/3 for a more detailed discussion on BLUs).

Through Circular 940, banks can tap third party entities — grocery stores, pharmacies and other retail outlets — as cash agents that will accept and disburse cash on the lender’s behalf, facilitate online self-service deposits, withdrawals and fund transfers, remittances, and bills payment.

“Cash agents and BLUs build an expansive network of accessible and low-cost touch points that enables countryside clients to conduct banking transactions conveniently,” Ms. Fonacier said.

The BSP also educates the public on the importance of opening formal accounts.

“Recently, the BSP, together with partners, worked to incorporate financial literacy in the K-12 school curriculum as well as developed learning materials for teachers,” Ms. Fonacier said.

According to BSP’s Ms. Fonacier, around 24 million students and 700,000 teachers benefited from this ongoing program.

The central bank also conducts financial education expo with partner institutions annually.

Aiming to target the millennials, the BSP also maintains “PisoLit,” using Facebook as its primary platform. The page delivers personal finance advice and financial literacy messages.

“To encourage people to open an account, they must understand and see the value of an account in their day-to-day life. BSP has been working towards democratizing access to a transaction account, and making every transaction useful not only as a store of value but also as a convenient and affordable means to pay, remit and receive funds,” BSP’s Ms. Fonacier said.

Apart from the BSP, private banks have been doing their fair share of reaching out to the unbanked population.

Bank of the Philippine Islands’ (BPI) Retail Banking Head Joseph Albert L. Gotuaco, said that clients — or potential clients — think the hurdles of opening an account are too high either in terms of documentary or minimum balance requirements. Adding to these hurdles is the distrust of technology.

“To counter this, we in BPI are trying to lower the cost of experiencing financial services,” said Mr. Gotuaco.

He added that the Bank created a team of BanKoMares and BanKoPares who are focused on reaching out to self-employed micro-entrepreneurs (SEMEs).

“These entrepreneurs don’t have to come to us at our branches, [w]e go to them [s]o that we can bank them as they go about their day-to-day business, uninterrupted,” Mr. Gotuaco explained.

Security Bank Corp. also offers a similar strategy: “We identified that the pain point potential customers might have is time to go to bank, [t]herefore, through our ‘Human Switch Kit,’ potential clients can go to our website and schedule a bank officer to go to them to process their account opening,” said Patricia N. Tan, Security Bank’s senior vice- president and retail marketing division head.

“Clients do not need to go to the branch to open an account,” she added.

On the other hand, Sy-led BDO Unibank, Inc. said they make banking convenient for their clients as well as encouraging the unbanked to do business with them through simplified documentary requirements and by offering products tailored for the unbanked and underserved segments such as salary and consumer loans, agricultural small-, and medium-sized enterprise loans, and micro-, small-, and medium-sized enterprise loans.

BDO also said that they rolled out field teller deposit pick-up services in 97 branches of its rural bank subsidiary — One Network Bank, Inc. (ONB) — and tapped convenience stores, pawnshops and retailers in accepting deposits and disbursing cash.

Aside from these, lenders also offer products that would cater to different ages and clients’ varying needs.

Under BDO’s “Junior Savers” (designed for children 0-12 years old) and BPI’s “Jumpstart” (for ages 10 to 17) products, one can already open a bank account and start saving at a young age. Security Bank also has its own version through its “Junior One Account” that is designed for children 18 years old and below.

For those 60 years old and above, BDO offers “Prime Savers.”

For Filipinos working overseas, BDO has “Kabayan Savings Account” while BPI offers “Padala Moneyger” and “Pamana Padala.”

To further reach the rural areas, banks plan on expanding their networks.

“For BPI and BPI Family Savings Bank, we’re also building more branches in the provinces to support growing industries such as agriculture,” said BPI’s Mr. Gotuaco.

“Most of our BanKo (BPI Direct BanKo, Inc.) branches and branch-lite units are located in the provinces. To date, we have a total of 132 banking offices, 30 of which are in Visayas and 20 in Mindanao,” he added.

Mr. Gotuaco added that the bank is targeting to have 200 BPI Direct BanKo — the microfinance unit of BPI — branches by the end of the year.

For BDO: “Aside from sustained branch expansion especially in areas outside Metro Manila in line with our provincial thrust, we will continue with the mass rollout of the ONB MSME lending model to extend our MSME footprint nationwide.”