By Aian Guanzon
Financial technology (“fintech”) is not only heard but is mostly felt as well in recent years in the Philippines. The marriage between finance and innovation have been so far fruitful and seemingly limitless. Data from a study done in 63 countries showed that fintech is positively and significantly correlated with financial stability (Daud et al., 2021). This simply tells us that the Philippines is on the right track when it comes to innovation in finance.
Prior to fintech being introduced in the Philippines, major banks relied heavily on fixed assets to operate and scale. Customers did so as well, only being able to complete financial transactions in person and within certain hours of the day. Without digital means, all transactions and inquiries had to be completed over the counter, at the nearest branch, mall, or kiosk with the help of a live agent.
Since there were no disruptors to their regular offerings, banks were not challenged to deliver game-changing services to consumers, which is why business opportunities were limited during those times,” said UnionBank Head of Data Science Solutions Josh Bosiños. “Consumers were boxed in doing traditional banking, which limited access to those who could afford to bank,” Mr. Bosiños added, describing the pre-fintech state of finance in the country.
“The problem was, most banks were not geographically accessible, which barred the majority of Filipino citizens — especially from rural areas — from opening their own bank accounts,” shared RCBC Executive Vice-President and Chief Innovations and Inclusion Officer Lito Villanueva. In 2019, it was reported that only 29% of Filipinos owned a basic deposit account. “It was difficult for Filipinos to rely on brick-and-mortar operations just to receive, withdraw, or send cash to pay for basic services and essential goods since that incurred extra costs of transportation, fuel, time, energy, distance, and offsetting work days,” Mr. Villanueva added.
With the continuous rise of technology since the late ’90s, we’ve seen the disruption of the traditional finance industry. Smartphone owners — which account for the majority of Filipinos — can now participate in the formal banking system without having to leave their homes, allowing convenience, safety, ease, and inclusion when it comes to financial transactions. Adapting to the changing trends, the finance industry has learned to be quick and agile as new innovations are introduced.
Non-banking financial institutions (NBFIs) were one of those which leaned hopeful to the beginning of the fintech revolution. Nontraditional ways to apply for or open bank and insurance accounts were encouraged to millions of Filipinos. This also triggered the development of regulatory sandbox by the government in support of the inevitably growing finance landscape. This meant that the marketplace started expanding for a very big consumer base, with gradually easing restrictions. Alternatives like credit cards and cashless payments were born.
Challenging the status quo
In photo (from left to right): Patricia Poco-Palacios (Global Dominion president & COO), Robert B. Jordan, Jr. (Global Dominion vice-chairman & CEO), and Ruben Y. Lugtu II (Global Dominion chairman of the Board)
But fintech was not without challenges as more and newer technologies unfold amidst socio-political and cultural changes in the Philippines. “Resistance is inevitable, but results always alleviate resistance,” said Global Dominion CEO and Vice-Chairman Robert B. Jordan, Jr., describing their early digital transformation journey as one the Philippines’ leading financing companies. “Innovation is not always about systems or machines; it can also be about new ways of doing things to achieve better results,” Mr. Jordan added.
There’s still no stopping fintech’s growth against all odds, including the wrath of the COVID-19 pandemic. In fact, the event has been a catalyst for innovation. The pandemic has paved the way to innovation for many finance firms in the country. Those with a ton of paperwork for transactions in the past had to develop digital ways to transmit documents and communicate with their colleagues and teams. Lockdowns drove significant increases in the adoption of finance-related mobile applications. And over the protracted period, fintech startups were able to accelerate the uptake of their digital services over-and-above traditional incumbents (Fu & Mishra, 2021).
Financial inclusion is also accelerated, as banks like RCBC and UnionBank, have learned to widen their reach and concentrate their efforts on banking the unbanked and underserved citizens from far, rural areas. Aside from a cash-lite society, fintech has also allowed the rise of “phygital” — the fusing of digital and physical features in services and adding a human touch to formal banking.
RCBC launched MoneyBela: Barangayan Banking, a financial solution banking more Filipinos in regional communities using e-tricycles and live agents in regional communities. “Technology has enabled the finance ecosystem to be a thriving ground for empathetic innovations, financial inclusion, and empowerment for all, regardless of class, gender, age, community, and background,” Mr. Villanueva uttered.
UnionBank went as far as initiating further artificial intelligence (AI) exploration to aid in improving the state of financial inclusion and improve risk management in the country, through AI-powered alternative credit scoring and risk models, to make it possible to offer loans and credit to a broader range of individuals and small businesses.
In Global Dominion, customer experience is at the core of digital transformation. “Even before the pandemic, we started servicing our borrowers online because many of them were reaching out through various social media sites. But that didn’t mean we stopped communicating with them offline; in fact, we have been adding more branches through the years,” said Global Dominion President and COO Patricia Poco-Palacios. “We intend to meet them wherever they want, and as much as possible, whenever they want, as well. This is where technology has been instrumental to our development,” Ms. Palacios added. The latest in Global Dominion’s digital transformation endeavor involves exploration of alternative credit scoring methods.
The future is now
When asked about the essence of innovation in the economy, University of Asia and the Pacific (UA&P) School of Economics Professor Jose Leo Lemuel Caparas, Jr. pointed to the economist Joseph Schumpeter’s description of innovation as part of process of technological change in a free market, “arranging the economic requirements for implementing an invention — and as such, for a nation to grow and develop, there must be a critical mass of businesses doing innovation.” However, he added that while exciting developments can be seen, like in the case of the rising Buy Now Pay Later (BNPL) scheme in the Philippines, there is still much improvement needed in other aspects of finance, e.g., credit card accessibility and market penetration.
In one of the many studies done in Asia, digitalization in finance is said to effectively promote the level of innovation. In cities with low levels of urban commercial attractiveness, digital finance plays a larger role in raising the level of urban innovation, due to its inclusiveness and balanced development impact (Li et al., 2022). This further pushes the need for countries to invest money, time, and effort in cultivating innovative ideas to continue revolutionizing finance in the years to come.
“It’s not a one-size-fits-all approach anymore. As a means to financially include everyone, banks are now multi-faceted organizations that offer not just finance solutions, but livelihood and lifestyle solutions — payments, savings, investments, insurance, loans, telemedicine, and the like,” Mr. Villanueva shared closing his interview.
“In a country where several areas are heavily dependent on cash transactions, I’ve seen how fintechs and banks revolutionized our day-to-day transactions. New technologies enabled us to do cashless transactions that introduced convenience, low-cost fees, and secure financial integration. And with the vast amount of data that FIs [financial institutions] have, it is fascinating how many firms have been leveraging their data to do data science and AI to discover new opportunities, improve products and services, and further strengthen their businesses and operations,” Mr. Bosiños uttered, surfacing how much UnionBank is investing in AI for the future of banking.
For UnionBank, Global Dominion, and RCBC, it is just a matter of time before technology becomes fully integrated to financial services, and it will be for the mutual benefit of the consumers and financial service providers. With Web 3.0, more advancements are expected to unfold.
Lito Villanueva, RCBC Executive Vice-President and Chief Innovations and Inclusion Officer (Co-authored “Embracing Change”)Patricia Poco-Palacios, Global Dominion President and Chief Operating OfficerRobert Jordan, Jr., Global Dominion Vice-Chairman and Chief Executive OfficerJosh Bosiños, UnionBank Head of Data Science SolutionsJose Leo Lemuel Caparas, Jr., University of Asia and the Pacific — School of Economics Professor
Daud, S. N. M., Ahmad, A. H., Khalid, A., W.N.W. Azman-Saini, & W. N. W. (2021). FinTech and financial stability: Threat or opportunity? Finance Research Letters 47 (2022) 102667
Fu, J. & Mishra, M. (2022). Fintech in the time of COVID-19: Technological adoption during crises. Journal of Financial Intermediation 50 (2022) 100945
Li, Z., Chen, H., & Mo, B. (2022). Can digital finance promote urban innovation? Evidence from China. Borsa Istanbul Review 2214-8450
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