Opening bank doors to the poor

In the Philippines, one of the biggest impacts of the digital age on finance is how low-income groups are being encouraged to use non-traditional money exchange systems, therefore becoming an all-important first stepping stone to financial inclusion.

In many studies, financial inclusion has proven to be a great enabler for the poor to improve their lives. When a person is able to access a wide range of financial services, the chances for rising up the ladder of social and economic standing becomes higher. A country’s affluence has also been associated with financial inclusion. The higher incidence, as with Singapore, which boasts of almost a 100 percent rate of its nationals using a bank, the better is the economic standing.

Currently, the Philippines is still a long way off. Based on the 2017 Financial Inclusion Survey (FIS) conducted by the Bangko Sentral ng Pilipinas (BSP), only 15.8 million of Filipino adults have a deposit account. Some 47 million remain unbanked or outside the banking system.

The use of more digital tools towards creating financial inclusion will help raise economic output or the gross domestic product by two to three percent, according to a study done by the Asian Development Bank. Fortunately, the BSP is regarded as being one of the more progressive central banks in Asia in terms of encouraging and introducing digital technologies to the financial system, as well as promoting the safety of financial transactions through digital means.

As a digital technology warrior, the BSP had launched in the recent past key measures that would help bring the level of digital financial transactions to 20 percent by 2020, a meteoric rise from the one percent level polled in 2013.

The National Retail Payments System (NRPS) and the National Strategy for Financial Inclusion (NSFI), two of the more important initiatives by the BSP, have been instrumental in creating for the Philippines the best environment for financial inclusiveness in Asia, according to the Economic Intelligence Unit, the research unit of The Economist Group.

Many of the declarations in the NRPS and NSFI gained valuable inputs from earlier “experimentations” by the BSP in informal financial instrumentations that were started by non-banking institutions.

Digital technology warrior Electronic wallets

In 2000, Smart Communications received approval to operationalize Smart Money, which linked monetary transactions with a wireless phone. In 2004, rival Globe Telecom came up with GCash, which offered similar services, but was linked to G-Xchange Inc., a non-bank subsidiary of the telecommunications company.

Such electronic money exchanges grew favor with a population that was enamored with mobile phones and short messaging services, and simple features that allowed users to buy and send “load” to be able to communicate with family and friends.

As smartphones gained popularity, and telecommunications services improved to 4G levels, GCash and Smart Money were able to expand their services with more financial transactions, like paying bills, sending and receiving money, and buying goods and services. The virtual wallet fit for consumer needs of the 21st century was born.

The growing preference of Filipinos also for sending and receiving money through electronic transfers spawned remittance centers which was able to transmit money from sender to receiver real time to almost any part of the country.

Last year, the BSP introduced InstaPay, a digital-based payment system that targets the replacement of check issuance. The central bank considers this an another innovation that will fit in its goal of financial inclusion for the Philippines in the coming decade.

Rise of more fintechs

We are definitely going to see more market changes in our financial system with the introduction of new financial technologies, including in improvements in existing ones in the remittance and e-payment systems.

This would help introduce more Filipinos to financial systems and resources, even if these are not strictly a part of the formal banking system. Studies have shown that majority of Filipinos may be averse to traditional banks, but are more receptive to remittance centers and electronic wallets.

PayMaya, GCash and Coin.ph are a few of home-grown fintechs that have shown a deeper understanding of the Filipino’s psyche, and have adapted by introducing systems that fit the needs of those unbanked.

Traditional banks are noticing the way fintechs are bridging the gap in the delivery of financial services to people who avoid entering a brick-and-mortar bank building, and they are trying to find ways of not being left out.

We can definitely expect more collaboration in the future, and this will only bode well for the goal of improved financial inclusion for the country.

More challenges ahead

New financial technologies, however, will not be enough to create the financially inclusive system that we aspire for.

Until we can incorporate financial literacy in our education system, not just at the tertiary level, but also in the primary and secondary levels, we will be seeing more of our youngsters maturing to not being able to appreciate the value of economic growth and their role in it.

Regulators have to come up with more initiatives that will encourage further the modernization of country’s financial system.

The basic deposit account, which allows Filipinos to easily open accounts, save money, and receive payments, is a step in the right direction to enable more Filipinos to enter the formal banking system. So is the concept of the “branch lite,” a modified traditional bank that is “friendlier” for the countryside population.

On top of all these, the BSP must always be one step ahead to safeguard consumer interest, and keep the integrity of the whole financial system intact. Tough challenges, but have to be minded as the economy moves forward.

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