Most mid-sized, small banks not ready for digital shift

A survey conducted by FINTQnologies Corp. (FINTQ) showed only two of 10 mid- and small-sized banks in the Philippines are ready to embrace digital transactions (DX).

FINTQ said in its latest inclusive digital finance report titled “Are Philippine financial institutions ready for DX?” that there is a long way to go for DX for financial institutions in the country.

The survey among members of the Chamber of Thrift Banks (CTB), Rural Bankers Association of the Philippines (RBAP) and the Microfinance Council of the Philippines (MCPI) conducted from Aug. 23 to Sept. 25 revealed 80 percent of the financial institution respondents show “limited” or “minimal” capacity to digitalize their systems and processes.

The respondents got a score of 61 and below out of the perfect 100 in the Commitment, Awareness, Readiness and Adaptability (CARA) index.

The report showed 57 percent of the respondents are so-called “digital laggards” who show limited or scant capacity at this point, scoring 40 and below out of the perfect 100 in FINTQ’s CARA Index, while 24 percent are “pack followers” who scored 41 and 60, translating to “minimal” capacity for DX.

Only 18 percent of the respondents scored 61 and above, thus making them “path breakers” who show extensive or substantial readiness.

“The biggest barrier to their adoption is their willingness to invest in digital technologies. This has profound consequences because as our report shows, the ‘readiness quotient’ heavily influences the bank’s level of ‘commitment quotient’ to bring its business towards a digital economy,” FINTQ managing director Lito Villanueva said.

This is a challenging pattern that could impact the progress in expanding access to financial services to the 77 percent of Filipino adults who are presently unbanked. About 54 million Filipino adults currently lack a formal bank account.

This means that a typical respondent lacks a concrete DX roadmap and does not operate an e-banking platform. The average financial institution remains undecided in migrating to a new core banking system and has not made thorough research on what solutions best fit their needs.

The biggest barrier to DX is low readiness quotient of financial institutions as 90 percent of respondents do not have a digital or e-banking platform.

The report also showed 91 percent of the respondents want bills payment as one of the e-banking functionalities, while 88 percent say their platforms should be able to do digital payments.

Moreover, 75 percent of respondents want to have a loans management system and 63 percent see the need for loans origination system. About nine percent want blockchain, eight percent are interested in machine learning, five percent want to go for open API, and four percent are open to cryptocurrency.

“Digital laggards and pack followers prioritize the basic electronic banking products and service requirements of their customers should they undertake their digital transformation,” FINTQ managing director Lito Villanueva said.

Villanueva and Bangko Sentral ng Pilipinas Deputy Governor Ma. Almasara Cyd Tuaño-Amador yesterday led the launch of the Road to 20 by 2020 to boost the central bank’s efforts in leapfrogging digital financial transactions to 20 percent by 2020 from the previous level of one percent through the National Retail Payment System (NRPS).

The digital transformation accelerator program (DTAP) also aims to reduce unbanked local government units to 20 percent from 35 percent, and bring 20 million unbanked and underserved Filipinos to formal financial system.

“To expand access to financial services throughout the country, we need to focus on enabling banks and financial institutions that require massive modernization of their legacy systems,” Villanueva added.