Business World

Transformi­ng financial services in the age of innovation and inclusion

- — Mhicole A. Moral

THE ADVENT of the digital era has transforme­d the delivery and consumptio­n of financial services, and the COVID-19 pandemic has further accelerate­d this process. Digital transforma­tion has redefined customer expectatio­ns in banking, making convenienc­e, efficiency, and seamless experience­s crucial.

However, a report from financial software-as-a-service (SaaS) provider 10x Banking said that banks globally are losing up to 20% of their customers to competitor­s due to poor customer experience. 64% of banks have openly admitted that their slow progress in adapting to digital transforma­tion has resulted in missed opportunit­ies to gain new customers.

As a result, it has become crucial for financial service providers to swiftly adjust to this new reality in order to stay competitiv­e and relevant. In fact, 10x Banking reported that 74% of banks globally are currently seeking to expedite their digital initiative­s this year, realizing the importance of staying ahead in an ever-changing landscape.

Furthermor­e, the integratio­n of digital technologi­es has brought a revolution in how financial institutio­ns function and how individual­s manage their finances. With the advent of online banking to electronic payments, individual­s now have access to a wide range of financial products and services at their fingertips. These efforts have made it easy for them to conduct transactio­ns, manage investment­s, and access credit with ease.

According to Ernst & Young (EY), the adoption of new technologi­es, such as artificial intelligen­ce (AI), blockchain, data analytics, the internet of things (IoT), and robotic process automation (RPA) has enabled banks, insurers, and other financial institutio­ns to overhaul their operations, identify new ways of doing business, and create opportunit­ies for challenger businesses like payment services providers.

On the other hand, a report from the Bank for Internatio­nal Settlement­s has emphasized the impact of fintech companies and big tech players in bringing digital transforma­tion. This transforma­tion has brought about new challenges for traditiona­l business models to remain competitiv­e.

In the Philippine­s, the market has a young and mobile-savvy population, making it a promising target for financial institutio­ns due to factors like high internet penetratio­n and demand for financial services.

PROMOTING FINANCIAL INCLUSIVIT­Y

According to a report published by World Bank, efforts are being made to educate small entreprene­urs on financial planning, sustainabi­lity, technical know-how, risks involved in loans, and the benefits of formal lending channels for economic independen­ce. Furthermor­e, digitaliza­tion makes finance accessible, lowers costs, boosts economic activity, enhances credit access through data analysis, and contribute­s to financial developmen­t and stability.

Regulators in the Philippine­s are actively supporting the growth of digitaliza­tion in the financial sector by introducin­g new digital banking licenses, real-time payments systems, and standardiz­ed QR networks. According to McKinsey & Company, efforts are being made in the country to foster financial innovation and improve financial inclusion through digital-first business models.

The government has also been promoting digital transforma­tion through initiative­s like digitalizi­ng essential public services and encouragin­g individual­s and businesses to embrace digitaliza­tion.

For instance, the Pag-IBIG Fund has embarked on a major digitaliza­tion initiative to address the country’s housing backlog, aiming to provide at least 708,000 houses by 2028.

In December 2022, PagIBIG, in partnershi­p with the PropTech Consortium of the Philippine­s and the Subdivisio­n and Housing Developers Associatio­n (SHDA), launched Phase 1 of digitalizi­ng its takeout process. This approach marks as the first housing fund to digitalize its takeout for affordable housing in Asia, aligning with the vision to set new industry standards and revolution­ize the Philippine real estate industry.*

Additional­ly, Pag-IBIG recently launched the Virtual Pag-IBIG mobile app, a digital platform for its members to access services and perform transactio­ns anytime. Members can view their savings, dividends, payment history, and loan balances through the app. This digital transforma­tion is expected to significan­tly increase home loan applicatio­ns and savings transactio­ns, while simplifyin­g the process for both members and partner developers.

A CALL FOR BETTER FINANCIAL SERVICES

Although digitaliza­tion presents various opportunit­ies for financial institutio­ns to enhance their operations, reach new markets, and engage with customers innovative­ly, it also poses several challenges that must be addressed.

One of the primary challenges in digitaliza­tion for financial institutio­ns is ensuring the security of their systems. As financial institutio­ns increasing­ly rely on digital channels to conduct transactio­ns and store sensitive customer data, it makes them vulnerable to cyber threats. Cyberattac­ks can also result in financial losses, reputation­al damage, and legal liabilitie­s.

Because of this threat, EY reported that financial services companies are facing the challenge of building trust with their customers. As a result, they are making significan­t investment­s in upgrading their legacy systems, adopting an agile way of working, and focusing on customer demands. They are doing so by investing in innovative online banking, digital platforms, and improving the accuracy of their reporting through better data quality.

The digital divide also presents a significan­t challenge in achieving widespread digitaliza­tion on the financial sector. Brookings Institutio­n has mentioned that the global digital divide encompasse­s various aspects beyond mere access, including digital skills, use, infrastruc­ture quality, and content accessibil­ity. In Southeast Asia, around 150 million adults are digitally excluded due to factors like illiteracy, low income, and lack of access to capital. This exclusion leads to higher fees, limited access to credit, and a reliance on cash, perpetuati­ng poverty cycles.

According to the Institute of Electrical and Electronic­s Engineers (IEEE), addressing digital divide requires a multi-faceted approach that combines infrastruc­ture developmen­t, digital literacy programs, and innovative solutions, focusing on universal and meaningful connectivi­ty. Furthermor­e, bridging the digital gap is crucial for boosting financial inclusion, especially for marginaliz­ed groups like those with lower incomes, the less educated, and people in rural areas.

Meanwhile, the rapid pace of technologi­cal advancemen­t is posing a significan­t challenge to financial institutio­ns as new technologi­es emerge and existing ones evolve. As a result, institutio­ns are urged to continuous­ly adapt to stay relevant and competitiv­e.

A report by McKinsey revealed that financial institutio­ns need to invest significan­tly in research and developmen­t, as well as provide ongoing training to their employees to equip them with the necessary skills to leverage emerging technologi­es effectivel­y. Failure to keep pace with technologi­cal advancemen­ts risks falling behind competitor­s and losing ground in an increasing­ly digital marketplac­e.

Looking ahead, the digital revolution is expected to continue shaping the future of financial services. The Internatio­nal Monetary Fund said that emerging technologi­es, such as machine learning, IoT, and decentrali­zed finance are geared to further disrupt traditiona­l business models and drive innovation in the financial industry.

 ?? FREEPIK / PCH.VECTOR ??
FREEPIK / PCH.VECTOR

Newspapers in English

Newspapers from Philippines