Regulators tackle challenge of reaching the unbanked, raising inclusiveness

By Reicelene Joy N. Ignacio
Reporter

LOWERING the hurdles for opening a bank account and collaborating with other agencies to increase online connectivity are the key first steps identified by the Bangko Sentral ng Pilipinas (BSP) on the road to what it hopes will be a cash-lite economy.

“We recognize that one pressing barrier to promoting digitalization in the country is the absence of effective infrastructure, particularly internet connectivity, to allow seamless electronic transactions. It is therefore crucial to take a whole-of-government approach to ensure that the reform initiatives among relevant government agencies/stakeholders are harmonized,” BSP Deputy Governor Chuchi G. Fonacier said in an e-mail interview.

“Hence, the Bangko Sentral assumes an active role in communicating to other government institutions the digital transformation that it envisions for the country. The efforts of the Bangko Sentral are expected to yield positive outcomes in terms of aligning the moves of these institutions in pursuit of the optimal benefits of digitalization at a national scale,” Ms. Fonacier added.

For the unbanked population, the BSP through a regulation has made it easy to open an account which BSP Supervised Financial Institutions (BSFIs) are required to make available even for those who cannot provide standard identification documents, Ms. Fonacier said.

The minimum features of these accounts are: simplified know-your-customer (KYC) requirements; an opening amount of less than P100; no maintaining balance; and no dormancy charges.

“The availability of the basic deposit account certainly contributes to advancing financial inclusion which translates to more account ownership and possibly higher utilization of digital financial services,” Ms. Fonacier said.

According to BSP data, there are 51 BSFIs with electronic payment and financial services which include mobile and internet banking and other mobile and online financial services as of December 2018.

FinTech Alliance Philippines Chairman Angelito M. Villanueva, meanwhile, said digitalization is a pathway to financial inclusivity.

“Technology must be utilized to level the playing field. With over 70% of the population exposed to digital and the growing number of digital natives, financial transactions can be carried out mobile devices,” Mr. Villanueva said in an e-mail.

“(Before) going cashless is a transition period from cash to cash-lite. For a developing country like the Philippines, going cash-lite is becoming more attainable in the next five years. With BSP’s initiatives such as PESONet and Instapay, and its openness to supporting digital currencies, we can see an accelerated pace to a cashless economy. In this digital age in the context of the Fourth Industrial Revolution, digitalization is exponential, not linear,” according to Mr. Villanueva.

Mr. Villanueva said the government’s role is crucial in making the Philippines a cash-lite society, and added that the push for the entry of a third telco would be beneficial.

“One of the key imperatives of digitalization is connectivity, especially in the remotest areas of the country. Government’s push for the entry of the third telco was primarily meant to address this concern. The enabling infrastructure has to be present,” he said.

One financial technology given a license by the BSP as electronic money issuer (EMI) is GrabPay. GrabPay is the e-wallet arm of transport network company Grab, and is mainly used to pay for rides but has also now expanded as a payment mode for merchants in other industries.

Grab is the largest transport network company in Southeast Asia, headquartered in Singapore.

In an e-mail interview, Grab Philippines Country Head Brian P. Cu said, “GrabPay’s vision for financial inclusion is to serve the underserved middle class in the Philippines and in Southeast Asia. We want to not just help drivers but to support millions of micro-entrepreneurs but also empower them to be in more control of their ability to earn.”

“With this vision in mind, we have created ‘Grow with Grab,’ the most comprehensive suite of financial services for small businesses all across Southeast Asia. We want to level the playing field for our simple microentrepreneurs by giving them access to the best financial services products — helping them to earn more and making sure their businesses are well-protected. These financial services will soon be coming to the Philippines,” Mr. Cu said.

Customers using GrabPay for Grab services earn twice the GrabReward points compared with paying in cash. These points can later on be used to claim food, services, and discounts on Grab rides.

For Grab, “this is the best time to push the cashless society” given the number of smartphone and internet users in the region.

“Smartphone penetration and internet adoption are rapidly growing. There are more smartphones than bank accounts in Southeast Asia. Cashless is one of the key agenda of the government. We also have a strong support from the BSP which targets to migrate 20% of all transactions to non-cash by 2020,” Mr. Cu said.

Orlando B. Vea, founder and CEO of Voyager Innovations and PayMaya Philippine and Chairman of Philippine eMoney Association, also said the fintech industry’s facing huge opportunities, and is bullish on expanding the SmartPadala network.

“To be truly financially inclusive we must also address the needs of those who have little to no access to these technologies. We understand these data access challenges still exist particularly in far-flung provinces of the Philippines. That is why we have been bullish in expanding and transforming our network of more than 27,000 Smart Padala agents all around the country into digital payment and financial services centers. This complements our fully digital consumer push for customers in urban areas around the country,” Mr. Vea said.

Mr. Vea said technology is necessary to bring about financial inclusivity especially in areas where banks do not have much of a presence.

He added that it is also a must for fintech companies to invest heavily in making their services secure from cyber threats while also educating consumers on cybersecurity.

“We see technology as an effective and efficient ‘last-mile’ solution that can reach the millions of Filipinos who still lack access to financial services. We believe technology also makes it fast and convenient to access such financial services, especially in far-flung areas without a bank presence,” Mr. Vea said.

“Security is at the top of agenda of the financial services industry — be it the banking or fintech sectors. At the core, we are all in the business of moving money so security and building trust are paramount. That’s why institutions have to invest in next-generation digital architecture and build the necessary capabilities to strengthen information security. On end-user side, continuing customer education on cybersecurity practices is also very important.”

“In the intermediate future, we will be more cash-lite, rather than cashless altogether. It requires also a certain confluence of factors such as internet and mobile penetration, digital literacy, and economic growth. Right now, the opportunities are so huge, and this can be further accelerated with the cooperation of industry players like PayMaya, the government, as well as business all around the country,” he added.

Meanwhile, cryptocurrencies have also become available in various forms traded across many platforms. It has also become a mode of payment for some services via e-wallet and can be converted to cash at the current market value.

According to Eric van Miltenburg, senior vice-president of global operations, at money transfer solutions company Ripple, the use of cryptocurrency may help facilitate faster remittances to the Philippines.

Currently, Ripple uses XRP, a type of cryptocurrency which the company claims as cost-efficient for cross border transactions.

According to Mr. Miltenburg, there would only be minimal risk in using XRP for remittances as it would only take a few seconds to complete the transaction.

“Volatility exists across all the coins. The volatility is relatively modest. XRP to peso, the amount of exposure is seconds, very minimal. There’s much more volatility in PHP to USD in three days than XRP,” Mr. Miltenburg said.

“We’re quite bullish on how cryptocurrency can play a great role here,” he said.

BSP’s Ms. Fonacier said the central bank’s role is assuring protection against cyber threats amid the digitalization of the financial industry.

“BSFIs are expected to adopt the Bangko Sentral-prescribed measures aimed at strengthening risk management which covers continued compliance with the Bangko Sentral rules and regulations on anti-money laundering/combating the financing of terrorism (AML/CFT), consumer protection, information technology, among other relevant areas of concerns,” Ms. Fonacier said.

She also said that turning the Philippines into a cash-lite economy would allow the central bank to produce fewer paper bills and coins in the future.

“In the event that the Philippines indeed becomes a cash-lite economy, it is possible that the Bangko Sentral will produce less physical money. It is because the Bangko Sentral, when determining the volume/value of currency to be issued, considers not only the currency demand that is estimated from a set of economic indicators but also the potential unfit notes and coins for replacement, among other factors,” Ms. Fonacier said.

“Notes and coins become more vulnerable to wear and tear if these physically change hands as opposed to when the movement of physical money is minimized with the use of electronic currencies,” Ms. Fonacier added.