Philippines firming up plans to introduce open banking

The central bank of the country, the Bangko Sentral ng Pilipinas (BSP), is taking concrete initiatives to introduce open banking in the country:

The central bank of the Philippines, the Bangko Sentral ng Pilipinas (BSP), has come out with the BSP Digital Payments Transformation Road map for 2020-2023, which essentially is a proposal to stakeholders about an open banking framework as part of the regulator’s 3-year digital payments transformation program. The proposal is seen as an effort to boost financial inclusion and transform the Philippines from a cashheavy economy to a cash-lite economy.

The central bank, in making the proposal public and seeking comments from stakeholders, is actually moving ahead with fintech ecosystems that support consent-driven data portability, interoperability and collaborative partnerships with formidable financial institutions and fintech players. This, the regulator believes, will significantly benefit the country.

COVID SPURS OPEN BANKING

Open banking is still in its formative stages in the Philippines. Some observers believe the covid pandemic has stimulated financial institutions and regulators to launch new digital banking products, especially open banking AP Is. In September 2020, Brankas, a global team of professionals who are passionate about improving financial access and operating in 13 countries, including the Philippines, and the Fund Managers Association of the Philippines hosted a first-of-itskind event to educate financial services professionals on the opportunity of open banking. Titled ‘The State of Open Banking in the Philippines and Lessons from the Global Market’, the event saw Mark Perez, Director/ Department Head, Department of Supervisory Analytics, BSP, outlining the crucial role that technological innovations have to enhance the delivery of financial services and how the BSP is envisioning an open banking ecosystem for the country. He said an open banking policy needs to be developed to lay down technical, security and governance standards to be adopted by BSFIs that intend to publish APIs.

Banking experts also believe that open banking is an ideal solution for a country like the Philippines where 7 out of 10 Filipinos remain unbanked, where customers pay P100 or more for a bank transfer, and overseas Filipino workers often pay more than 10% of their salary in remittance fees.

HELPING SME SEGMENT

In the Philippines, SMEs is one particular segment of the economy that stands to benefit from open banking. SMEs make up 99.6% of all registered businesses in the country and employs over 70% of the working population. However, traditional banks struggle to offer affordable and efficient financial solutions to them, mainly due to lack of verifiable data and slow, paper-based processing that often takes between nine to 12 months to finish. As a result, SMEs rely on middlemen and manual effort for payments and data reconciliation, adding significant costs, time and risk to their operations, while applying for loans remain a slow and cumbersome process. When there is a right infrastructure in place, it will enable banks and fintech companies to create more economical, personalized and seamless solutions for SMEs with much ease and speed and create an environment of increased competition, instant access to information and transparency that opens up a world of options for them.

Implementation of open banking in the country is primarily market driven under the supervision of BSP with multiple banks having established partnerships with fintech companies. Even though there are no de facto open banking regulations, the country has several initiatives like the central banksponsored National Retail Payment System, which are indirectly helping to shape an open banking environment. The country is also a participant in the API Exchange project launched by ASEAN Financial Innovation Network.

2 MAJOR INITIATIVES

At least 2 initiatives in the country are noteworthy in creating an environment for open banking:

Union Bank of the Philippines, as part of its digital transformation, has created the largest API Developer Portal among Philippine banks, with over 600 APIs. The portal is also one of the biggest in Southeast Asia. The bank was also the first local bank in the country to expose its APIs externally in 2016, when it organized its first Hackathon. The bank’s APIs cover various capabilities like bills payment, funds transfer, inquiries, authentication and other functions that are exposed for public consumption. The constantly expanding API portal has already generated P3 Billion worth of transactions to date, from both corporate and individual customers.

Rizal Commercial Banking Corporation, or RCBC, is the first Philippine bank to advocate and implement open banking. The bank wants to lead the way to open banking to become the Filipinos’ prime financial inclusion partner. The bank believes with open banking, it can power the transactions of rural banks, cooperatives, micro-financial institutions and other small players, giving their customers access to a wide array of financial services using RCBC open APIs. The bank has partnerships with leading fintech companies, local payment networks PESONet and Instapay and IBM Blockchain World Wire remittance.