Technology is reshaping PH banking and payments business
Technology and banks’ use of it as fintech, or technology-driven innovations, will continue to influence how the domestic banking system will grow and develop over time.
The Bangko Sentral ng Pilipinas (BSP) is a proactive regulator when it comes to fintech, particularly on how it can promote and expand financial inclusion in the country, and based on studies and surveys, the banking sector supports technology-enabled solutions and “exhibits strong interest in participating in the digital finance ecosystem.”
Based on the BSP’s latest Banking Sector Outlook Survey (BSOS) which covered the first six months of 2019, banks’ fintech and cybersecurity plans are extensive. The survey said technology and operating models are “useful in expanding client base and enhancing customer experience.” These operating models are any cost-efficient programs such as decentralizing operations or improving delivery of value to customers including self-service channels ATMs and online and/or mobile banking.
About 93 percent of banks surveyed – which includes all big banks, thrift and rural banks — have plans to use technology in banking transactions.
“What better way can we accelerate financial inclusion than by promoting a more extensive use of financial technologies or fintech,” according to BSP Governor Benjamin E. Diokno. “With the high penetration rate of mobile phones in the country, where even low-income earners own cell phones—the ability of fintech to accelerate financial inclusion is well recognized.”
The BSP is proactive in a major way because of its cybersecurity roadmap and since 2018, it has improved its supervisory responses and other rules on cyber-resilience, especially on information sharing and collaboration among banks to battle cyber threats.
In the area of e-payments for example, technology-risks include money laundering. To put more teeth on how it could prevent threats from escalating, the BSP in 2019 issued the guidelines on the streamlining of licensing requirements for all banks and supervised financial companies that offer e-payments or planning to offer it.
The National Payment Systems Act (Republic Act No. 11127) signed into law this year, has also tasked the BSP as supervisor of the country’s payments and settlements system through the National Retail Payments System or NRPS. This year, it issued the rules and regulations on the registration of payment systems operators.
More banks using digital technology
The country’s large lenders are investing big to expand digital financial services and expand e-payments. They would need to, to get to the central bank target of achieving a cash-lite economy. By 2020, the BSP wants this level at 30 percent of all payments transactions.
Big banks such as Bank of the Philippine Islands (BPI) have a ₱5-billion budget for its total IT and cybersecurity, which is about six to seven percent of its revenues.
During the launch of its green finance initiative, BPI President and CEO Cezar P. Consing said that digitalization is part of the “greening” of the financial system because it is more costeffective and efficient, and less resources will be used. “We’ve been doing this for some time and we see digitalization as key (to improve banking business),” said Consing.
“All you need is a smartphone, a banking app or a wallet, and Internet that works, and it’s done,” said Union Bank of the Philippines Chairman of the Board, Justo A. Ortiz, when describing the way they do e-payments.
Ortiz, also head of the Philippine Payments Management, Inc. (PAMI), said since the BSP has a 30 percent e-payment transactions target by 2020 – recently revised from 20 percent – they will have to adopt the infrastructure as soon as possible.
“We’ll try our best to make it happen. Our job is to build the infrastructure,” said Ortiz. “Clearly there’s a precondition to that, such as banking the unbanked which is 70 percent of our population or less, and then within the banking community, (we have to) raise the digital payments.” PAMI is working with the BSP for the automated clearing houses as well as the adoption of the QR Code, now QR Ph.
Based on the BSOS, for the first semester of 2019, 37.5 percent of commercial banks surveyed said they plan to use technology and that about 21 percent to 40 percent of their banking transactions will be using digital technology in the next two years.
The survey also noted that 40 percent of foreign big banks in the country already have 80 percent of their banking transactions digitized.
The banks that have plans to use digital technology were also asked on the most important application of technology in their respective organizations. In general, data security and privacy were considered as the most important applications of technology, followed by know your customer or KYC procedures and loan scoring, said the BSP.
How secure are e-payments, digital banking
The BSOS noted that 65.1 percent of banks surveyed said they are “prepared” to handle and manage cyberthreats and 15.1 percent said they are “very prepared.” Foreign banks said they are 47.4 percent “very prepared” to deal with cyberthreats.
“In general, cyberattacks (to disrupt, to steal money, to steal IP) topped the list of cybersecurity threats that respondent banks were most worried about.
Moreover, 70.9 percent of surveyed banks indicated breaches on customer data as the most worrisome in terms of the impact of cybercrime events followed by reputational risk and financial losses,” according to the report.
BSP Financial Technology Subsector Managing Director Vicente De Villa III assured the public that e-payments will have top class security.
“All of those who will be transacting (in the NRPS rails/e-payments) are all supervised entities that go through our rigorous IT examination and will have to qualify in terms of having the (required) license,” sa De Villa. “From that alone there is an entry and exit points that are secured as imposed by our rigorous IT information technology requirement.”
The BSP is a pioneer in digital and technology-related policies. Its IT security rules is a first in the region. In 2018, the central bank approved an enhanced IT security rules that encourage a “strong security culture” in banking networks.
“No financial institution or fintech player can come into the field of the NRPS rails if they are not licensed or supervised by the BSP,” said De Villa.
The BSP has long since recognized the importance of banks’ cybersecurity amid the growing threat in digital, mobile and internet banking from hackers-for-hire and cyber syndicates.
Diokno said more people go online to do banking transactions, as well as pay bills and to buy goods. Right now, there are 48 banks with Internet-based financial services and 26 with mobile banking.
Since 2014, the BSP has been building up the transition from a cash-heavy society to a cash-lite financial system.
Today, with interoperable payments systems, transferring funds from one bank to another bank account is more convenient now through InstaPay, for low-value and real-time fund transfers, and PESONet, for bigger-value fund transfers. Presently, 43 financial institutions tap InstaPay and 51 are in PESONet. Both InstaPay and PESONet are realtime, automated clearing houses that were made possible under the NRPS.
While technology has revolutionized banking in that access to financial services is now easier and convenient, it came with the unavoidable risks. If criminals gain access to sensitive and critical information, they could trigger financial losses, business disruptions, damaged reputation, and even threaten the viability of the institution itself.
Banks with Internet-based services and mobile phone banking have increased significantly in past years. There are more than 24 million users of e-banking services and channels in the Philippines, plus a growing e-money transactions.