Going digital ‘critical’ for banks’ financial inclusion push

THE DIGITAL transformation of financial institutions in the country is “critical” in the industry-wide push to include more Filipinos into the formal financial system amid an opportunity in its large population connected to the internet, a partner from McKinsey & Co. said.

On the sidelines of a forum organized by human capital solutions provider Viventis, McKinsey partner Mayven Naicker said it is “critically” important for banks and other financial firms in the country to digitally transform to tap more potential clients who are unbanked or underserved.

“There’s a huge gap in bringing millions and millions of people into the formal financial services. And we know from what we see elsewhere in the world that there’s a huge benefit in the economy and also to the individuals when you bring them into the formal financial system,” Mr. Naicker said in an interview following his speech during the “Banking 4.0: Developing the New Innovation Blueprint for Success” forum held yesterday.

Through technology, financial firms will be able to access people in remote parts of the country as well offer banking services at par with those offered to lenders’ usual clients, he said.

“There’s less room to be exploited by payday lenders or informal financial service providers. People become more savvy in how they manage their own finances.”

According to the latest Financial Inclusion Survey conducted by the Bangko Sentral ng Pilipinas in 2017, only 22.6%, or some 15.8 million Filipino adults, maintain a formal bank accounts. The unbanked cited lack of money and lack of need to have an account as the main reasons.

Mr. Naicker said there is a big opportunity for banks to expand their digital footprint given the huge number of Filipinos connected to the internet versus the small banking penetration in the country.

Currently, he said, banks have already launched some form of digital transformation as some lenders started to offer services through mobile and online platforms, while international players have entered the country as all-digital banks.

However, the McKinsey partner said local financial firms are still dealing with a learning curve in their digital transformation journeys.

“A lot of activities are happening, but I don’t think it translating into very clear and tangible outcomes for the banks themselves,” Mr. Naicker said.

“I don’t think anyone can say they have improved cost efficiency by X amount... I don’t see the customer experience dramatically improved. But I think it’s part of the learning curve.”

To address pain points, Mr. Naicker said industry players must develop a clear road map with explicit link to business outcomes and be obsessive about the customer journey among others.

“It’s a fundamental question of how do you re-scale existing workforce and also upscale young people to play these different roles. Data science, customer experience design — there’s a huge demand for these skills,” he added.