Study: Digital banking growth puts traditional banks at risk

CEBU, Philippines — As more consumers embrace digital banking, conventional or brick-and-mortar banks' revenues will be at risk by 2025 across Asia Pacific region, including the Philippines.

A study conducted by IDC and Backbase revealed that 60 percent of more than 1,000 surveyed individuals in the Asia-Pacific are likely to switch to a more digital bank. In fact, in the Philippines, it’s also the same.  

It puts traditional banks in a difficult position as they find innovative, creative, and fresh offerings so they can compete in the current situation to retain and attract customers, the study indicated.

According to a 2021 survey by Fico, 61 percent of 1,000 Filipino adults now prefer digital platforms compared to the last year.

More than two years into the pandemic, digital transactions are now considered the new norm to ensure safety. As a result, it prompted financial institutions to fast-track their digital transformation.

To support and improve the digital shift in the country, it paved the way for the Bangko Sentral ng Pilipinas (BSP) to establish a new category for banks, digital banking. Through this, BSP aims to convert 50 percent of transactions to digital services and achieve its 70 percent goal of Filipinos with bank accounts in 2023.

Recently, the BSP has given licenses to six banks, whether new or existing financial institutions in PH, to shift towards digital banking.

And as several banks emerge due to digitalization, IDC and Backbase remarked in their same report same report that the Asia-Pacific will have at least 100 new financial institutions by 2025.

One of the solutions that will keep the convention banking institutions alive and relevant is to offer innovative services, such as the  Earned Wage Access (EWA), a solution that started in the United States but is now seen around the world. 

EWA enables employees to access their salary before payday and release their already earned wage with just a click of a button. It can be integrated and offered by banks to their corporate accounts so employers can incorporate it as an employment benefit for their employees.

Through the EWA app, employees can easily see their current earned salaries. Then, if they want to have an advance on their wages, they can request it via the platform. The requested amount will be transferred to the employee’s bank account as soon as it's approved.

Offered by PayKey, a fintech company based in Israel, this white-labeled solution will now be available in the Philippines this year. As it is not a loan, EWA will have no interest rate because employees will access and withdraw their own money. However, it has a fixed transaction fee at every withdrawal.

“Integrating EWA is a great way for banks to elevate their service offerings. This solution is not just innovative, but it will also help address the financial needs of employees in the Philippines. At PayKey, we hope we can aid banks to attract and retain customers as competition in the market gets tougher with the emergence of new financial institutions,” said Roy Gabriel, chief innovation officer and general manager of PayKey.