By Elijah Joseph C. Tubayan
IT WAS IN 2015, when online marketplaces began offering exclusive discounts for electronic wallet users, that Arjan Salvanera, a college student then, saw a shoe advertisement on social media. It was purveying a pair of shoes for a third cheaper than the regular mall price, with (he claims) even higher discounts for users of electronic wallets (e-wallets) such as PayMaya and GCash — a strategy to bring more users into the fold.
A student with a blank credit score, Salvanera opted for the lowest hanging fruit: running to the nearest convenience store to access a self-service kiosk with hopes of loading up his e-wallet. He was thus dismayed to find that the server was down.
“I had to avail the cash-on-delivery option. It was a waste of time and effort,” he recalled, noting that it was not the first time it has happened. “I went to malls instead to look for these items, even though there’s no assurance I can find them there.”
It was the same case for Jeffrey Hernandez, who started using e-wallets three years ago as a college student. He used them as a substitute for credit cards to pay for app-based ride-hailing services.
“I load up in convenience stores but sometimes their kiosk is offline, and I cannot do anything but wait until the next morning, as I don’t have access to other loading centers,” Hernandez said.
Such instances discouraged them from using e-wallets altogether, even if they would have made their transactions a whole lot easier.
Add to that the fact that remitting online payments to e-commerce merchants and paying for app-based transportation were the only reasons they even needed an e-wallet.
So if even Salvanera and Hernandez — who both have the privilege to go to college in the country’s capital, shop for clothes, use ride-hailing apps (or let alone own a smartphone with data) — are hindered from using financial technologies, imagine the long road ahead for financial inclusion considering those Filipinos living in far-flung areas.
A 2014 survey conducted by McKinsey and Company revealed that only 12% of Filipinos have tried internet banking. Separate Bangko Sentral ng Pilipinas (BSP) data meanwhile said that electronic modes of payment had a 1% percent share of all transactions in 2013, and is targeted to grow by 20% by 2020.
But fast forward to 2018, FinTechAlliance.Ph chairperson and FINTQ managing director Angelito “Lito” M. Villanueva said that such technology is already part of the mainstream.
“The idea of financial technology enabling financial institutions is already accepted as fact. It is happening right now,” Mr. Villanueva said in a June 22 e-mail interview.
But what will it really take before such innovation be well-established, not just in urban areas, but also in the rural setting?
The challenge moving forward, he says, is not anymore about introducing new technology but finding ways to localize them.
“It is not about mainstreaming financial technology,” Mr. Villanueva said, “but ‘indigenizing’ fintech solutions fit for the needs of the unbanked and underserved market.”
“What needs to be done is scale fintech-enabled interventions, especially in far-flung communities where majority of unbanked and underserved Filipinos live. We can scale these solutions if the consumers demand for better, more convenience, and more affordable financial services,” he said.
Citing FINTQ’s Inclusive Digital Finance Report, Mr. Villanueva said that the unbanked and undeserved can still afford of banks’ financial services if the kind of amount involved are within their means of around P50 to P1,000 a month.
“Thus, fintech and banks would be able to better serve the market if they ‘retailize’ or ‘sachetize’ digital-enabled financial services,” he said. “After all, Filipinos have grown accustomed to sachet or ‘tingi’ culture.”
The “sachet banking” concept could be introduced to rural areas where sari-sari stores can be tapped to access basic banking services, such as one-stop electronic payment and remittance channels, and even access to microfinance and investment products for as low as P20 through mobile phones.
OPEN TO DISRUPTION
“What is crucial in the coming years is sustainability and scalability of fintech-enabled interventions that meet the peculiarities of emerging markets like the Philippines where the people more often own a mobile device than a deposit account,” he said, adding that such solutions would be possible with a regulator that’s open to “disruption.”
“Fintech indeed thrives in an enabling environment where digital-enabled innovations are at the core of the business. What is very inspiring in our current regulatory environment is that it is actually the Bangko Sentral ng Pilipinas that’s openly encouraging, even pushing, financial institutions and fintechs to do game-changing innovations,” Mr. Villanueva said.
He noted a BSP circular that allowed low-income Filipinos to open deposit accounts with no maintaining balance, only requiring an initial deposit of less than P100 through “agent banking,” which kick-started the development of digital banking solutions. The BSP has also launched an automated clearing house allowing seamless electronic fund transfers and payments between and among accounts.
Due to this, numerous fintech start-ups have entered the market with similar functions in electronic payments and remittances, such as Ayannah, PesoPay, Tagcash, TrueMoney, Payswitch, among a handful, aside from the telecommunication giants’ GCash and PayMaya.
But fintech is no longer just about electronic payment platforms. New businesses have come in to also fill in specific niches. There are already lending platforms such as FINTQ’s Lendr, Cashalo, Lendme.ph and Loansolutions.ph, Cropital, to bridge borrowers and creditors; a peer-to-peer marketplace for turning receivables to cash such as Acudeen; startups using blockchain technology in digital transactions such as Coins.ph, Rebit, Coinage.ph; and startups facilitating firms’ payroll and tax payment transactions such as Salarium, and Taxumo.
“Technology is there, the demographic is just waiting for all this new technology to come in, for disruptors to come in. The currently served market is still your market to improve products, but then, the game will be on the transformation, will be on the unserved market,” said Pia Bernadette Roman-Tayag, BSP managing director of inclusive finance advocacy office and concurrent head of financial consumer protection, during the BusinessWorld Economic Forum on May 18.
Mr. Villanueva said that FINTQ has launched its “KasamaKa” grassroots movement last year to boost the awareness of common Filipinos such as farmers, street vendors, and drivers, to emerging financial technology, and help them veer away from informal and expensive alternatives in the underground market.
He said that they have already inked partnerships with the Liga ng mga Barangay sa Pilipinas and the League of the Provinces of the Philippines, where residents can earn incentives by referring their families, friends, and community members to avail of digital-enabled financial services.
“Effectively, every resident across the more than 41,000 barangays can now sign up and access financial services such as loans and microinsurance through the KasamaKA program,” said Mr. Villanueva.
“There is no question that financial technology can address the fundamental barriers faced by traditional banks: high cost to serve risky markets, high cost to provide service in low-density communities, the inadequacy of financial infrastructure (e.g. credit bureaus),” he added.
And with what Villanueva calls “foreseen improvements in internet speed by local telco players, adoption of smart phones and growth of e-commerce,” things can only get better for fintech.
Mr. Villanueva said that fintech won’t leave traditional banks obsolete, but would actually complement each other. Still, Union Bank of the Philippines Senior Vice-President Paolo Eugenio J. Baltao said that banks have the upper hand in leading the charge for financial inclusion compared to other traditional e-payment providers.
“We realized if it will be just that, it’s not gonna grow that much. We figured maybe we need to reposition more as a digital bank. We’re talking about a bank that offers services with a wonderful experience using technology. As a bank, I can give out loans at lower interest rates,” he said in a June 22 interview.
Fintech took the spotlight during the 51st Asian Development Bank (ADB) Annual Meeting hosted by the Philippines on May 3-5, where the Board of Governors agreed that they will include the push for digital solutions in its operations in developing countries.
THE ROLE OF BLOCKCHAIN
Eric Jing, Chief Executive Officer of Ant Financial Services Group said during a seminar on the sidelines of the meetings, said that economies should focus on developing “very small, and very simple solutions that people can use on a daily basis” to kick-start the shift from traditional platforms to digital modes such as mobile payments via the internet.
Ant Financial’s Mr. Jing added that fintech developers should prioritize addressing cybersecurity and data privacy concerns to encourage consumers shift from traditional modes of transacting — an issue which blockchain technology could solve.
“We have to solve safeguarding the consumer interest, to protect transactions. You should put a very high standard on that. Trust is the fundamental thing in digital service platforms. You build trust, them you can develop. If you are trustworthy, then you can sustain it,” Mr. Jing said.
With blockchain technology, innovations can spillover outside financial services, that doesn’t require a high bandwidth internet connection.
Blockchain is a distributed data ledger which involves a large network of entities where data is stored in “blocks.” The storage units are continuously updated and being secured using cryptography, making data management and data-driven processes decentralized, tamper-proof and more transparent.
Union Bank of the Philippines meanwhile is using blockchain to localize electronic transfers and link rural banks, where costs of connecting “goes practically to zero,” versus traditional platforms such as BancNet and SWIFT.
Henry R. Aguda, UnionBank’s chief transformation officer, touted the bank being one of the first local banks to have cryptocurrency mining equipment. However, he noted that they don’t seek to make profits out of trading, but rather on looking at the big picture in tapping blockchain technology and harness it for business processes.
“Whoever wants to join doesn’t need to run something like this. They just need to have internet connection to connect to our app where they can process their transaction. They can serve the community around them, as long as you have a cellphone, we can provide banking terms,” said Mr. Aguda in a June 22 interview.
He said that aside from millennials, the other extreme of the age bracket are also on board with their digital products. “Our customers are also delighted because it makes transactions easier. There was one customer that we have he’s about 68 years old but he’s using our app and he’s very happy.”
Mr. Aguda agreed that there were “misconceptions” about blockchain technology’s security as it is not regulated by any entity in itself, which had kept some consumers on the sidelines. “We just need time. Give us time and all of this will come down to financial inclusion.”
Their team communicates the blockchain to the common folk by talking about it the way they talk about the internet, where there is pretty much no regulation until it gets in contact with the real world — similar to how the central bank regulates virtual currency exchanges.
Aside from banking services, blockchain technology could actually bleed into adjacent sectors such as insurance and health care according to Winston Damarillo, Chairman of fintech Amihan Global Strategies.
“We’re gonna see a massive and fast adaption of blockchain in the financial sector. But I can envision one day that my passport is on my phone, my drivers license on my phone, my land titles on my phone, my medical records on my phone, a representation of my deposits in my banks in my phone, and I can transact freely with that,” he said in a May 28 interview with Cignal TV’s One News.
He explained that it is because blockchain decentralizes know-your-customer (KYC) data, making the value owned by the user instead of the bank.
He said that with blockchain, transactions involving the transfer of value can be done peer to peer, and would not need to go through institutions like banks or middlemen — which seen to be a “far safer way” as institutions are “super susceptible to cybercrimes.”
But for now, Salvanera and Hernandez will have to cash on their pockets until such time that electronic payments can be transacted with other than online promos. “I won’t be using it that much, at least for now, as the coverage isn’t as widespread, unlike other countries. It’s not yet a necessity. I’ll still use cash,” Salvanera said.
But they do believe in fintech and how it will make people’s lives easier.
The goal for the BSP anyway to totally shift to entirely digital, but from a “cash-heavy” to a “cash-lite” society.
But how long do they really need to wait? UnionBank’s Mr. Aguda said: “probably next year.” Although UnionBank was the first bank to introduce blockchain in their operations, he welcomed other banks’ move to ride on the trend.
“Everybody claims now that they have a blockchain. But as we become successful, and the other banks will adopt it, it’s okay for us. It all helps everybody anyway,” he said. “We just have to continue going into newer technologies.”
By Elijah Joseph C. Tubayan