Using fintech to benefit the unbanked

Without doubt, new and improved financial technologies (fintech) many spawned by the pandemic-induced quarantine restrictions are bringing more unbanked Filipinos into the realm of digital banking, and more importantly, digital payment transactions.

Whether from traditional banks or mobile payment wallets, there is now a lively discussion on what facility gives the best service, not just in terms of cost, but also operability. This does not just help hone user preferences, but also emboldens the unbanked to try out these new fintech innovations.

Chat boxes are the best sources of feedback on the best pay wallets, especially now with new features growing in number faster than you can imagine offering loyalty points, rebates, promos, discounts, and extended uses, like bill payments and remittance facilities.

A number of bloggers also provide information, but often refrain from giving first- or second-hand feedback to avoid getting on the wrong side of potential advertisers. Still, they are useful aggregators of information on the key offerings of these pay wallets.

Once in awhile, you can dig up a fearless comparative review of these e-wallets, but because new features are introduced, or improvements are made quite often, these could become outdated quickly. Otherwise, just keep up with press releases.

Best link

E-wallet providers are one of the fastest growing sectors of digital banking, with GCash (for Globe users), PayMaya (for Smart users), and GrabPay (doesn’t matter what network you use) now leading the pack. With smartphones becoming more affordable, e-wallets are the best link for the government’s goal of getting the unbanked to enter the financial system.

In the last global financial inclusiveness list, the Philippines stands among the lowest in rank in the world, as well as in Asia. While ownership of a smartphone and access to the internet play a big role in this dismal standing, distrust in the banking system ranks higher.

The Bangko Sentral ng Pilipinas has set a goal of bringing the number of unbanked to 70 percent of Filipino adults by 2023, but is hoping that a number of bills if passed this year, as well as other initiatives to improve the national payment systems, could achieve the goal even earlier.

The moves are expected to boost confidence of consumers and micro enterprises in the banking system by strengthening policies for operators of payment systems and making them more resilient to financial crises and participant defaults.

Digital banking

The BSP is also developing the regulatory framework for the operation of digital banks that have no brick-and-mortar branches, with tellers that allow traditional banking transactions to be done over the counter, face to face.

There are now a number of digital-only banks operating in the country, including CIMB Bank Philippines, a member of the Malaysian CIMB Group, and ING Philippines, which launched its all-digital bank in 2019.

There are other digital banking innovations of existing traditional banks like UnionBank and RCBC, all of which have received international acclaim for their innovativeness. Having physical branches gives their digital banking consumers a bit of confidence and explains their rising popularity.

Digital banks are the surprise package of the financial system, allowing one to open an account by submitting just one government ID online. Some even allow clients to deposit checks by simply sending its scanned or captured image.

Still, digital banks are a new product that will require its clients to put in more trust in their systems, given the fact that the BSP is still fine-tuning its overarching regulatory environment for their operation.

Role of MSMEs

Winning over micro, small and medium enterprises (MSMEs) to digital banking will also greatly expand financial inclusiveness in the country. A specific area will be in enabling banks and even e-wallet operators to facilitate salary disbursement.

Most MSMEs still rely on cash or check payments for their workers’ weekly or bi-monthly salaries, which does not encourage interaction with the banking system, even if through the use of debit cards or electronic wallets.

On the other hand, MSMEs also find themselves alienated from the banking system particularly when it comes to borrowing funds to finance expansion plans. On this end, the need to establish a workable credit risk database (CRD) is now in the works.

The BSP is now working with the Japanese International Cooperation Agency (JICA) to generate credit scores for SME borrowers and is expected to launch a new CRD scoring service by 2022. This initiative is part of legislative and administrative reforms to make credit more accessible to MSMEs.

Bringing MSMEs to digital banking will also help in achieving another BSP goal: moving 50 percent of retail payment transactions to digital. The Philippines has a traditionally cash-heavy financial transactional system despite having more than half of its population with smartphones connected to the internet.

There is, indeed, scope for popularizing mobile banking and electronic payments, thus bringing more Filipinos into the financial system and providing them with better tools to create more wealth.

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