Lockdowns gave financial inclusion a new face

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    Diokno

    “We see (digital) banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services, bringing us closer to the realization of our target that at least 50 percent of total retail payment transactions have shifted to digital, and 70 percent of adult Filipinos have transaction accounts by year 2023.”

    The Bangko Sentral ng Pilipinas said that comparing data from March 01 to 16 March, 2020 and during the ECQ from March 17 to May 31, 2020, a significant decline in the volume and value of check payments and automated teller machine withdrawals was observed.

    This suggests that consumers are wary of the risk of exposure brought about by face-to-face transactions in the bank.

    Aside from making sure that one doesn’t get infected by the coronavirus disease, or COVID-19, ensuring the continuous flow of money remains on top of the list.

    With the Philippines predominantly relying on consumer spending, the lack of money to spend dragged the economy to a slump.

    While almost everything went back to normal once the strictest lockdown measure was lifted in June, both the central bank and the private sector started looking for ways to guarantee that such an event will not happen again.

    The solution? A digital payment transformation led by the BSP which aims to successfully transform the cash-heavy Philippine economy into a cash-lite one.

    Financial inclusion

    The BSP believes that a rise in digital payments will lead to the decline in the number of unbanked Filipinos.

    The 2019 Financial Inclusion Report, which was released last July, showed that account penetration grew to 28.6 percent in 2019 from 22.6 percent in 2017, equivalent to an additional 5.1 million Filipinos opening an account within that period.

    This 2-year jump is significantly higher than the 0.6 percentage point increase in 2017 from 2015.

    With the lockdowns and the digital transformation, the BSP expects the number to grow at a much faster rate.

    Benjamin Diokno, BSP Governor, believes that digital transformation and financial inclusion “go hand in hand” as each one enables the other.

    “Our thrust to promote digitalization of payments is also strategically geared towards furthering financial inclusion as we view the two to be mutually reinforcing,” Diokno said.

    “With the launch of the Digital Payments Transformation Roadmap, we aim to hit two birds with one stone. We are securing the digitalization of payments, and increasing the number of Filipinos with access to financial services,” Diokno said.

    Approved by the Monetary Board in the third quarter of last year, the BSP’s 3-year Digital Payments Transformation Roadmap charts the central bank’s current initiatives and strategy in advancing an “efficient, inclusive, safe and secure digital payments ecosystem.”

    First, thru the strengthening of customer preference for digital payments by converting 50 percent of the total volume of retail payments into digital form and expanding the number of the financially included to 70 percent of Filipino adults by on-boarding them to the formal financial system through the use of payment or transaction accounts.

    The second is the availability of more innovative digital financial products and services designed to be responsive to the needs of consumers, enabled by a digital ID (Philippine Identification System or PhilSys), and supported by the availability of a next generation payment and settlement system to facilitate real-time processing of financial transactions.

    Diokno said the roadmap also recognized the broader challenges to the development of a digital payment ecosystem and financial inclusion, key among which is the state of access to and quality of internet connectivity.

    “Now is the Filipino’s chance to shine in tech, not just fintech. As this more than 7,100-island archipelago gets connected by ICT and the digital highway, not only will cities prosper and economies improve—but a new national consciousness will take root and emerge: a confidence in what the Filipino can do, individually and collectively. It is a movement that we call Brand Digital Pilipinas”

    Going digital

    Among all types of account, the report showed e-money account penetration posted the highest growth.

    Electronic money, or e-money, accounts increased to 8 percent in 2019 from 1.3 percent in 2017. But still, growth is small. A huge portion of Filipino adults are still untapped.

    The same BSP report showed 69 percent of Filipino adults have a mobile phone. Three-fourths, or 75 percent of mobile phone owners own a smartphone, a major requirement for going digital.

    This is equivalent to 52 percent of total adult population with a smartphone, which is significantly higher than 38 percent in 2017.

    However, only 12 percent of smartphone owners use their mobile phones to perform financial transactions.

    Moreover, BSP reported that 53 percent of adults are using the internet, 89 percent of whom are accessing the internet through mobile data.

    Still, only 9 percent of those with internet access are using the internet for financial transactions.

    BSP said that lack of awareness is the main reason for not using mobile phone or the internet for financial transactions, followed by lack of trust, weak signal or slow internet connection, and preference to transact at the bank or ATM.

    BSP’s response is the approval of digital bank as a new bank category that is separate and distinct from the existing bank classifications.

    The central bank defines a digital bank as a bank that offers financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches.

    “Digital banks w ill play an important role in the digital financial ecosystem. We see these banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services, bringing us closer to the realization of our target that at least 50 percent of total retail payment transactions have shifted to digital, and 70 percent of adult Filipinos have transaction accounts by year 2023. This is seen to remove sticky points and leapfrog our financial inclusiveness agenda,” Diokno said.

    Since digital banks are exposed to the same risks as other types of banks, they will be required to adhere to the same corporate governance and risk management standards commensurate to their business model and risk profile.

    Digital banking applicants are also expected to have robust, secure, and resilient technology infrastructure, effective data management strategy and practices, and sound digital governance.

    “In transitioning to the New Economy, digital transformation plays a significant role in reshaping the banking system’s overall landscape into a more efficient, technology-driven and inclusive financial ecosystem,” Diokno said.

    “Our thrust to promote digitalization of payments is also strategically geared towards furthering financial inclusion as we view the two to be mutually reinforcing…With the launch of the Digital Payments Transformation Roadmap, we aim to hit two birds with one stone. We are securing the digitalization of payments, and increasing the number of Filipinos with
    access to financial services”

    The future of finance

    “[The pandemic] allowed us to realize all the transformations that we wanted to do or were holding back to do. The transition towards the better normal helped move the banking industry forward,” said Sharoakh Charna, Industry Lead for FSI of Cisco APJC, in an episode of Cisco’s webinar series.

    Charna looks at technologies that made business continuity possible in 2020, and innovations to provide seamless financial services to Filipinos in the pandemic and beyond.

    “A recent study of Southeast Asia showed that 40 million new users in the region connected to the internet in 2020 – four times of that in 2019. With half coming from rural locations,” Charna said, adding that they expect the figure to grow 10 times or more by 2024.

    BSP also said these developments indicate that there is a growing consumer sentiment to shift towards more digital payments.

    PESONet and InstaPay transactions remarkably increased by 74 percent, from 18.4 million prior to the COVID-19 lockdown to 32.1 million during the enhanced community quarantine.

    Actual figures showed that as of end-December, 2020, transactions thru InstaPay reached 30.6 million amounting to P176.5 billion, almost 4 times bigger that the P40.1 billion from 5.4 million transactions posted in December, 2019.

    PESONet transactions also increased to 5.548 million from 1.166 million. Total value has reached P366.6 billion from P127.2 billion the previous year.

    BSP also said e-money providers have also reported record-high increases in their number of transactions and account users during the quarantine period.

    During the week-long World Fintech Festival (WFF)-Philippines last December, Globe CEO Ernest Cu shared that GCash usage has been at an all time high, with its 96 million customers even hitting P1 trillion at the beginning of December 2020 following a spike in cashless transactions.

    “It has grown from an app into a platform necessary for your daily tasks,” Cu explained.
    “GCash can unlock more digital avenues to make Pinoy’s lives better. In 2021, opportunities await for the Philippines to become the innovation hub of Asia,” Cu added.

    Paymaya, meanwhile, reported that it ended 2020 with more than 28 million customers across its platforms who can conveniently pay, add money, cash out, or remit in over 200,000 touchpoints nationwide.

    Through its app and wallet, PayMaya provides over 28 million Filipinos with access to financial services.

    “This radical shift to cashless for the Philippines will only continue accelerating in 2021 as we offer more services and forge more enterprise partnerships that are relevant for many consumers,” Shailesh Baidwan, Paymaya President, said.

    During the WFF, Dr. Justo Ortiz, Unionbank Chairman, said, 70 percent of Filipinos are unbanked and digital transactions are just at 10 percent.

    “That is a great opportunity in trying to lift up and bring people into a financially inclusive community which is not just about making profit but about living a higher purpose. Digital transformation makes that possible,” Ortiz said.

    “Now is the Filipino’s chance to shine in tech, not just fintech. As this more than 7,100-island archipelago gets connected by ICT and the digital highway, not only will cities prosper and economies improve—but a new national consciousness will take root and emerge: a confidence in what the Filipino can do, individually and collectively. It is a movement that we call Brand Digital Pilipinas,” said WFF-Philippines Convener Amor Maclang.

    King no more?

    With the whole country still combatting the pandemic, Filipinos have turned to e-wallets for everyday transactions, making cashless payments increasingly the preferred mode over cash.

    Insiders have observed the change in consumer behavior from cash being king to finally seeing the ease of online transactions.

    “Right now, we have over 27 million registered users and that is so much more than it was before the pandemic,” Vice President for Key Merchants and Acquirers of GCash Ana Pascual said.

    “Everyone learned how to buy their essentials online, pay their bills online, and all of those shifts. Thankfully, we have developed these products for the convenience of people not leaving their homes to do things, and in this particular situation, that’s exactly what was called for.”

    “We have around 600,000 informal and formal merchants utilizing both QR and P2P payments of GCash,” Pascual said.

    “We want the economy of the Philippines to grow and recover quickly, so we’re developing tools that will make us relevant and useful for our merchant partners moving forward.”

    Baidwan noted that cashless transactions made by Filipinos through the PayMaya app have consistently registered triple-digit growth rates throughout 2020, peaking sometime around May at the height of the enhanced community quarantine to register over 1000 percent year-on-year growth compared with the same month in 2019.

    The top use cases among PayMaya users in 2020, according to Baidwan, were sending money to friends and family, paying bills, and purchasing mobile prepaid load, all of which have formed part of Filipinos’ everyday financial transactions.

    The government has also tapped PayMaya to help disburse financial aid through the various COVID-19 mitigating programs of the government, with over P4.5 billion in aid disbursed to PayMaya accounts of hundreds of thousands of beneficiaries nationwide.

    But Charna said the finance industry has several concerns — from building the right tools and technologies to ensure productivity of teams, to creating customer service in a consistent manner despite pulling large data from various sources, to providing comfort to customers by ensuring safety and security.

    “That’s what we need to look at. We need to make sure that we created the right foundation so that we enable application experiences not just to move us from a functional one to a joyful one, but to actually raise the bar to a more meaningful one,” Charna said.

    “And if you are able to do that, we’d be able to set the right tone for not just beating the pandemic, but growing in it and beyond.”