Banks urged to strategize based on new technology

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is urging correspondent banks to embrace innovation and rethink strategies as the rapid evolution of digital technology continued to revolutionize financial product and banking service delivery.

In his keynote address at the annual convention of the Association of Philippine Correspondent Bank Officers, BSP Governor Nestor Espenilla Jr. said customers now have unprecedented access to a wide array of electronic platforms, allowing them to perform banking transactions and make payments anytime, anywhere, and at their own convenience.

Espenilla said emerging digital solutions, products and services, push banks to keep pace with increasing competition posed by even non-bank players that offer financial products and services with thoughtfully designed user interfaces.

According to Espenilla, one recent development with significant impact to correspondent banking is the rise of blockchain or distributed ledger technology (DLT).

“Hence, correspondent banks must embrace this wave of innovation and rethink strategies. To grow markets in the midst of competition, new customer solutions through efficient operations should be delivered,” he said.

Correspondent banking refers to the provision of banking services by one bank to another bank.

The BSP chief said technology-based solution providers suggest that blockchain or DLT could be harnessed to alleviate some correspondent banking issues.

“This can be achieved by enabling better risk management, reducing costs, and providing an alternative payment platform, especially in terms of transferring small-value payments,” he said.

Espenilla said the regulator is working closely with market innovators and industry players to explore tie-ups of correspondent banks with DLT providers.

“We believe that collaboration and strengthening partnerships with other fintech players is a way to boost digital capabilities of correspondent banks,” he said.

The BSP has approved a project to facilitate creation of a real-time domestic and overseas remittance corridor without the need to establish a central operator under the test-and-learn approach

“This will prove beneficial to our remittance sector which relies heavily on correspondent banking for the safe and efficient settlement of transactions,” he said.

Espenilla said the BSP is also vigilant while correspondent banks are digitalizing their services and leveraging on technology to facilitate cross-border trade, remittance flows and payment and settlement transactions

“As regulators, our primary goal is to provide an appropriate and enabling regulatory environment. We seek to encourage innovation while effectively managing ensuing risks,” he said.

Espenilla said the BSP would continue to design and implement a regulatory framework to support the market infrastructure and also promote market discipline.

He said the Bankers Association of the Philippines (BAP) is also spearheading a project to develop digital IDs powered by blockchain technology.

Payments had the largest market share of the financial technology landscape last year. About 45 percent of players offered innovative solutions to facilitate payments and settlement transactions.

Of the recorded 60 players, about 27 percent have direct interactions with the BSP or its supervised financial institutions either as a BSP registered, licensed or supervised entity.