Supporting impactful financial inclusion
Panel session at the 14th Philippine Forum examines the country’s drive to help the unbanked
ACHIEVING sustainable growth through financial inclusion. That has been one of the key focuses of the current Philippine government, and more specifically the Bangko Sentral ng Pilipinas (BSP), as the country tries to remove hurdles for everyday Filipinos in accessing the financial system.
Already, the Philippines has made significant strides in reaching out to unbanked communities across the archipelago with the BSP data revealing that the physical presence of branches has expanded from 9,375 in 2012 to 12,378 as of Q1 2019. Moreover, microfinance loans in the Philippines grew 33.3% or 22.6 billion Philippine pesos (US$450 million) in Q1 2019 compared to the same period in 2018. However, despite the recent milestones, the Philippines still has a long road ahead of it when it comes to financial inclusion.
At a panel session at The Asset’s 14th Philippine Forum, various stakeholders within the Philippine’s financial inclusion drive shared their insights on what needs to be done to bring people into the financial system. For Pia Bernadette Roman Tayag, managing director, Center for Learning and Inclusion Advocacy at the BSP, the introduction of the Philippine identity card in 2020 will go a long way in lowering the cost of opening a basic bank account by addressing KYC (know-your-customer) issues.
In addition, Tayag is also optimistic about the Philippines’ National Retail Payment System via PESONet and InstaPay which allows users to execute instant electronic funds transfers between banks, making it easier to manage and track finances. The BSP expects e-payments to account for 20% of total financial transactions in the country by 2020.
“It’s not financial inclusion for the sake of just having an account, but rather making sure that people have access to meaningful services that they need,” explains Tayag. “It’s about getting the financial services they need to improve their financial well-being.”
Key to removing the current hurdles of financial inclusion is technology with speakers on the panel agreeing that banks and financial technology (fintech) companies are playing a role in improving financial services efficiency. “If you want to bring down your cost to serve and increase your customer reach, you need to apply technology,” shares Henry Aguda, CTO and CTOO at UnionBank. “For example, with our app you can open an account without going to our branches.”
It’s a similar story for fintechs in the Philippines. Finscore, for instance, uses big data analysis to make it easier for financial institutions to offer financing by using telecom data to analyze the creditworthiness of borrowers. “The issue is that formal financial institutions don’t know if potential borrowers have a steady source of income. We try to combine different data from private sector institutions in the Philippines, mostly telecom data,” says Diana Krumov, president and CEO of FinScore.
Other institutions have focused on sharing the best technology practices in an effort to develop an ecosystem supporting the financial inclusion of companies and not only individuals. UBX, the fintech unit of UnionBank, has been doing just that by working with partners such as PingAn Group in making it more seamless for SMEs (small and medium enterprises) to gain financing.
“The biggest pain point for SMEs is access to credit because credit is important for small and medium businesses to grow. However, it’s not only access to credit but also access to affordable credit,” highlights John Januszczak, president & CEO of UBX Philippines.
While all these initiatives are a step in the right direction in enhancing financial inclusion, the experts on the panel believe that having reliable financial data is key for institutions and companies to work with the unbanked segments of society.
“The lack of financial information is the cost to the financial service provider. The cost and effort needed to get information on a particular potential client could make them not want to serve a certain market,” says Tayag.
The development of e-payments in the country, according to Tayag, could be a reliable source of data for financial firms as payment behaviour could determine the creditworthiness of businesses or individuals. “We see that [e-payments] is a possible gateway to a broader set of financial services that can really improve lives,” she says.
Though there is optimism about encouraging financial inclusion, there are still several areas that need to be addressed when adopting additional technological processes namely connectivity and cyber-security issues.
While the Philippines has been ranked highly when it comes to mobile penetration and social media usage, the country often suffers from faulty connectivity particularly in the rural areas. Any efforts to further financial inclusion would have to address this. “I see a lot of the fintechs in the Philippines using technology which works over 2G and that allows for connectivity to exist even in the remotest of places or they are building offline capabilities into their technology,” notes Januszczak.Cyber-security likewise is a concern for companies and individuals unsure about technology. To offset these concerns, there has been a regulatory push for transparency in working with fintechs and how to monitor the data they collect from users.