Digibanks are revolutionizing financial inclusion
The high food prices, inflation, and slowing economy hurt the poor the most. The series of crises have caused inequitable opportunities further aggravated by the almost three years of economic uncertainties caused by the Covid-19 pandemic.
On the reverse side, the pandemic also accelerated an unprecedented change, particularly in digitizing everything we do and the adoption of the digital lifestyle. The changes are particularly evident in the banking sector, which has shifted to digital banking to better serve the underprivileged and unserved population segments.
During Daily Tribune’s Omnimedia show Gising Na!, Uno Digital Bank’s co-founder and CEO Manish Bhai noted that many underserved communities still have no access to banking, digital finance, fintech, and the internet.
The Bangko Sentral ng Pilipinas reported in 2019 that 51.2 million adult Filipinos, or 71 percent of the population, still need their transaction account.
However, 10 million Filipinos still need to have their bank account, according to data from the World Bank as of July 2022.
“The opportunity the size of the market is huge in terms of if we look at the Philippines, again, in 2022, (the country) was the second highest growing economy in the region,” Bhai said, adding that only 10 percent of the people borrow from the organized sector.
“So, if you look at these opportunities around the landscape, and what we are trying to do, there is only one direction: the direction is to go kind of go up,” Bhai said.
He also mentioned that Unobank is “so positive” about the Filipino market’s growth potential in the digital banking sector.
Bhai added that a few banks could coexist with this focus because there are many unmet needs in digital inclusion.
Digital banks could lower the cost, wave fees and other ancillary charges.
Digitalization advantages
Bhai said the digital banking sector continues to thrive for several reasons.
“Let’s start with convenience: you can access the bank from your smartphone or your farm,” Bhai mentioned.
He said that traditional banks nowadays have struggled to lower the cost due to the number of branches and “infrastructure baggage.”
Bhai said digital banks could lower the cost, wave fees and other ancillary charges.
He added that several digital banks offer a 6.5 percent interest rate compared to traditional banks, which can provide only two to three percent interest rates per annum.
“(Almost everyone is) so comfortable with technology and with the explosion of smartphones, digital payments, everything which we are witnessing in the country, there’s only one direction for digital banks to go up,” Bhai said.
However, he said that a significant explosion or boom in digital banking here in the country would only happen after a while.
One of the critical reasons Bhai pointed out is financial education, which is a challenge for both traditional and digital banking.
Apart from that, Bhai laid down other factors like the ability to “scale up” and manage through quick dispersion of documentation requirements needed for the person trying to open a bank account.
“Interest rates (from the banks) are also very high, but if you look at it, most of the interest rates in the country were under one person. So there was no real incentive for people to go and save that is changing,” Bhai said.
“(The situation is also) similar on the credit side because the credit bureau is not fully effective and functioning right now. Everyone has stayed away from lending. It’s challenging to lend in a country when you don’t know when you don’t have a very established credit bureau, or you don’t have a single identification card, you are unable to identify the person effectively,” Bhai added.