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Onboarding the un(der)banked

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With the emergence of the Internet in the 1990s and the improvement in broadband in the early 2000s, online banking has started becoming the norm.

Fast forward a decade later, the adoption of smartphones has further accelerated the use of doing financial transactions online. This decade saw the development of financial technology (fintech) companies and other online-based platforms as they offer alternatives to doing business over the counter.

Authorities such as the Bangko Sentral ng Pilipinas (BSP) are aware of this as they incorporate the trend of digitalization in their financial inclusion efforts, recognizing that there are more people that have mobile phones than they are with bank accounts.

The BSP’s latest Financial Inclusion Survey published in July 2018 found that as of 2017, 52.8 million or around 77.4% of Filipinos do not have formal bank accounts, with 60% having insufficient money to maintain one.

“Over the past three years, the BSP issued key regulations that form the foundational elements of digital financial inclusion: democratized access to a transactional account; ubiquitous cash-in and cash-out points; and an account-to-any account electronic fund transfer schemes,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail to BusinessWorld.




According to the BSP’s “Financial Inclusion in the Philippines” (FIP) publication (Issue No. 8, series of 2018), digital financial inclusion — which is the “digital access to and use of formal financial services by the underserved population” — has five key components: the presence of new providers and new combination of providers; digital technology; the use of third-party agents that will offer financial services on a provider’s behalf; new products and services; and the presence of financially unserved and underserved customers.

“An account is a first step into digital financial inclusion [as it is] a gateway to access the whole range of welfare-enhancing financial products and services,” Ms. Fonacier said.

“To promote ownership of account, we need to address two key things: (1) make it easy and affordable for anyone to open an account; and (2) make an account useful not only as a store of value but also as a practical tool for various financial transactions, particularly payments and remittances which are most relevant to the low-income segment,” she added.

Ms. Fonacier cited some of the BSP’s initiatives in fostering digital inclusion, among them Circular No. 992, which provides “no-frill, low-cost, and easy to open” basic deposit accounts that enable the unbanked population to make payments via an electronic device; Circular No. 940 that enables banks to tap third-party cash agents; and Circular No. 987 that allows banks to set up “branch-lite” offices geared towards extending full banking services to the underbanked and underserved areas.

“These regulatory initiatives facilitate both accessibility and utility of a financial account — which can significantly boost account penetration. As we move forward, the BSP will intensify coordination with various stakeholders to further promote compelling use cases for transaction accounts and digital payments. These include electronic bills and government payments platforms, and a wide base of merchant accepting QR-code enabled payments,” Ms. Fonacier said.

Ms. Fonacier likewise cited the passage of Republic Act No. 11127 or the National Payments Systems Act wherein it gave the BSP oversight power over payment systems. For regulatory purposes, payment system operators such as banks and electronic money issuers are required by law to register with the BSP.

The central bank official also mentioned the BSP’s support of the government’s Philippine Identification System (PhilSys) ID, which is seen to “boost account ownership and further enable innovations in digital finance.”

Under the national ID system, each resident will be assigned a 12-digit PhilSys Number that can serve as their digital identity across multiple platforms. This reform is expected to help improve access to credit especially for the unbanked as many are currently not able to open accounts due to lack of valid IDs.

The government is hoping to start registrations soon for the national ID, targeting to sign up at least seven million Filipinos this year. By 2023, authorities are expected to complete the registration of Filipinos and resident aliens to accelerate authentication procedures in delivering access to government and financial services.

‘FOOT IN THE DOOR’
According to the BSP’s FIP publication, digital financial inclusion is “closely associated” with being “cash-lite,” a state where electronic fund transfers and payments dominate cash transfers.

However, Ms. Fonacier said that even though having an enabling regulatory environment is critical and necessary in digital financial inclusion, it is not sufficient.

“Concerted and deliberate effort from the various government agencies and the private sector is needed to implement programs to develop compelling use cases for digital payments and transaction accounts. This is the focus of our digitization advocacy,” she said.

The private sector has taken note of the BSP’s initiatives.

“The BSP… has been very receptive of fintech developments, so much so that they have even led the charge in automating our clearing houses through InstaPay and PESONet (Philippine Electronic Fund Transfers System and Operations Network). We are positive that with developments such as this, we will be able to migrate most of financial transactions in the country to digital in the next several years,” said Orlando B. Vea, founder and chief executive officer (CEO) of Voyager Innovations, Inc. as well as president and CEO of PayMaya Philippines, in an e-mail.

Mr. Vea, who is also chairman of the Philippine eMoney Association, was referring to the two automated clearing houses already in operation. A third one (“PhPay”) that looks to process for government services and even the state’s fund releases to individuals is slated to be out within the year.

“PayMaya, as an e-wallet, has become the foot in the door for many unbanked and underserved Filipinos to be part of the financial mainstream. For local governments… our PayMaya Super ID has become their way to disburse cash benefits to their citizens and at the same time served as an identification card of their citizens. This move helped them make government services more efficient for LGUs (local government units) and convenient and transparent for citizens,” Mr. Vea said.

PayMaya, formerly known as Smart eMoney, is an online application that serves as a virtual prepaid card for online markets, bills payments, and money remittance.

Justin Leow, head of Business Operations at Coins.ph, noted an “accelerating adoption” in using the platform as they roll out more products and services.

“Coins.ph has found success in leveraging the widespread adoption of smartphones to enable millions to have access to financial services in a cheaper and more convenient manner that wasn’t possible before. Similarly, we have also been able to leverage blockchain technologies to lower the costs of remittances, and data to deliver more personalized services,” Mr. Leow said.

“Coins.ph and the BSP have shared a collaborative relationship over the last number of years as we work to promote financial inclusion in the Philippines. While we can’t speak directly for the BSP, our missions in this regard have been quite aligned and we have had productive discussions on how platforms like ours are working to improve financial access in the country,” he added.

WHAT ABOUT THE BANKS?
With their established presence in the financial system, banks are also looking to cash in on the digitalization game.

“Digitalization enables banks to efficiently and effectively reach out to and financially include the unbanked through products and initiatives such as mobile banking, cash cards, eKYC (“Know Your Customer” processes using digital channels),” Security Bank Corp. said in an e-mail.

“Security Bank’s main target market is the ‘mass affluent’ segment. Most of the banked only have one financial product so our approach to this segment in terms of digital financial inclusion is to address their pain points when it comes to availing bank products and services. For example, through the eKYC project, we were able to ease the process of opening a bank account. Customers can open a bank account anytime and anywhere just by using a smartphone,” according to Security Bank’s e-mail response that is attributed to its Vice President and Head of e-Commerce Mark Joseph A. Bantigue.

Security Bank also mentioned the introduction of its mobile-based Salary Advance (SALAD) loan facility. Launched in 2017, the lending scheme allowed employees of accredited companies to avail of short-term loans with affordable installments.

“SALAD has continued to allow us to close payroll arrangements with the top BPOs in the country and offer affordable financing solutions than the informal lenders,” said Security Bank Senior Vice-President and Head of Consumer Business and Operations Abigail Marie D. Casanova.

For Union Bank of the Philippines, Inc. (UnionBank) Executive Vice-President and Chief Mass Market and Financial Inclusion Executive Manuel G. Santiago, Jr., the bank has been a “solid and consistent proponent of digital financial inclusion,” citing its digital banking platform EON where customers can open accounts online instantly without any need for a maintaining balance or paying for fees and penalties.

“When we talk about financial inclusion, we mean access to financial services and access to credit. Our digital bank addresses both concerns. We are also creating synergy with the rural banks that we have purchased by providing the EON platform to these banks,” Mr. Santiago said.

He said that EON has partnered with PeraHub to bring financial services to rural areas.

Meanwhile, CitySavings Bank, Inc., UnionBank’s thift banking arm and known for its teachers’ loans, is expanding its offerings to include overseas workers and pensioners.

“With its acquisition and merger with [Philippine Resources Savings Banking Corp.], CitySavings has further diversified its business and has entered the motorcycle loan market,” he said.

For Bank of the Philippine Islands (BPI) President and CEO Cezar P. Consing, BPI’s programs of financial inclusion in the countryside is being addressed through building out their BPI and BPI Family Bank branches at “between 10-20 branches a year” as well as building out branches of BPI Direct BanKo, their microfinance arm that provides financing to self-employed micro-entrepreneurs.

“We are building out 100 BanKo branches a year. By the end of this year, we expect to have 300 BanKo branches,” he said.

Mr. Consing explained that with BanKo being fitted with full digital capabilities, it will serve as a “good example of two marriages” — that of between branch and digital and between digitalization and financial inclusion.

For Mr. Consing, BPI’s goals of being a leader in digital banking and being one of the most “financially inclusive” are tied.

“Digitalization will reduce our cost to serve. A digital transaction is much cheaper to execute than a transaction done over the counter. So digitalization will allow us to serve a much greater proportion of the population, including people who may not have the means to leave a lot of money in their deposit accounts,” Mr. Consing said.

“Digitalization will make financial inclusion truly sustainable,” he added. — Marissa Mae M. Ramos

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