Financial Inclusion in the Philippines: public initiatives and the role of fintech
Financial inclusion is a critical issue in the Philippines, with millions of people lacking access to basic financial services.
The Bangko Sentral ng Pilipinas (BSP, the Central Bank of the Philippines) wants the 70% of people in the country to have a formal bank account, or an electronic wallet, by the end of 2023.
This objective is pretty ambitious, if we consider that in 2019, 71% of the population was financially excluded. The percentage quickly fell to 44% by 2021, mainly thanks to the forced transformation ignited by the Covid pandemic.
To reach the 30% financial exclusion target, the Government and the PSB are deploying a National Strategy for Financial Inclusion, that includes different initiatives.
The Philippines’ National Retail Payment System
The National Retail Payment System (NRPS) is a payment system that allows people to send and receive digital payments using their mobile phones, so that they can access basic financial services, even if they do not have a bank account.
During the Covid pandemic, due to social distancing and the need for contactless, electronic mean of payment, the number of e-money account grew esponentially. In 2019, only 0.8% of the population had an e-money account: the percentage was 36% by 2021.
Paleng-QR is a QR-based systems that allows wet markets, drivers, or pedicabs to receive payments. The name comes from “Palengke”, a Mexican term for “market”. The Project is ongoing with 11 local governments and authorities report a very good feedback in terms of consumer acceptance of a digital mean of payment.
The limits of technology
Unfortunately, some structural issues limit the future growth of financial inclusion and require for new and different solutions.
Only 73% of the population has access to the internet, whereas some areas lack a simple cellphone signal. Satellite internect connection may provide an alternative in some territories.
Digital accessibility is a much wider problem that goes beyond connectivity. Even if the internet is available in a region, some people may not be able to afford a connection, or a mobile device, not to mention a personal computer.
Some other citizens may afford the technology, but could be unable to operate it properly, or to recognize potential frauds and scams.
AML is not a hurdle to e-money accounts
Despite the accessibility issue, mobile money can still be seen as an instrument for financial inclusion for the majority of the population.
The Philippines made headways in this direction with the approval of a new law that requires people to provide a verified ID in order to activate a prepaid SIM card.
Once you buy a SIM card in the Philippines, you have to upload an ID and take a selfie. In a few day, you receive an approval message. It is then possible to open an e-wallet account associated to that SIM card.
This verification procedure guarantees compliance with anti-money laundering requirements, securing the e-money ecosystem.
A limitation on Digital Banks
In 2020, the Government approved the creation of digital banking licence. It allows for full foreign ownership and imposes a capital requirement of about 19 million USD. The digital bank must have its headquarters, or at least a principal office, in the country.
So far, only six digital banks have been authorized, and no new applications are accepted until 2024.
A foreign player may still enter the Philippine market, acquiring a small rural bank (the country counts about 400) and transforming it into a digital bank. This was the case of Seabank investment in Banco Laguna, back in 2020.
The fintech ecosystem in the Philippines
GCash is a fintech that distributes first- and third-party consumer-finance loans. It qualifies itself as a "financial super app" that allows customers to make payments and transfers, affordable investments, subscribe insurance products, empower a green and digital lifestyle. GCash boasts more than 76 million registered users. The Net Promoter Score of the platform is at 83.9%.
Maya has a digital banking licence. Founded in 2000, it offers a variety of services, including a digital wallet, payments and transfers, some insurance products (personal health, purchases, and mobile devices), and some crypto trading and custody services. Maya has 50 million customers in the country and is thus the second biggest e-wallet in the country.
The BSP has also launched programs to promote financial literacy and education. The objective is to support people in understanding concepts like financial planning and management.
But also how to access and use financial services. As we have seen, digital literacy is also an issue, especially among the elderly.
Great efforts are being put in consumer protection, with the creation of the BSP's Consumer Protection and Market Conduct Office (CPMCO), and in the improvement of the Regulatory Environment.
The new CPMCO office, for example, has broad powers that allow for a very fast mediation
Open Finance in the Philippines
The country is also working on an Open Finance Framework. It will state that “the consumer owns the data”, and only the consumer decides whom to share it with.
This Open Finance approach may promote a greater competition among banks, since the best customers will be willing to share their data in order to find a better offer.