Digital banking policies toward greater financial inclusion

MANILA, Philippines — In line with our vision for higher quality of life for all Filipinos, the Bangko Sentral ng Pilipinas (BSP) has embraced financial inclusion as a worthy goal, long before it was mainstreamed as a global development agenda. We recognize that bringing financial services to all, especially those that are underserved and unserved, opens up opportunities for poor families in the country to improve their household welfare, spur enterprise activity and participate meaningfully in economic activities. Thus, we continue to relentlessly pursue policy and supervisory reforms which systematically accelerate the level of financial inclusion in the Philippines.

State of financial inclusion in the Philippines

The Philippine economy has been growing consistently and in recent years, at levels regarded as one of the fastest in Asia. In fact, our GDP growth rate of 5.6 percent in the first quarter of 2019 is our 78th consecutive quarter of uninterrupted economic growth, since the Asian financial crisis.

However, the archipelagic nature of the Philippines imposes serious physical barriers to financial access. As of 2018, 536 out of 1,530 cities and municipalities do not have a banking office. In areas where there are financial institutions present, financial services are concentrated in highly urbanized and populous regions, leaving much of the low-income regions significantly underserved. Based on the BSP’s Financial Inclusion Survey (2017), 48 percent of adults have savings but 68 percent of them keep their savings at home. Two-thirds of adults do not have a formal account that will enable them to save and access other financial services, such as credit, insurance, investment, payment and remittance.

Meanwhile, unique mobile user penetration in the Philippines is at 58 percent. With more than half of Filipinos using the Internet and staying online for an average of four hours every day, we acquired the title of being the “Social Networking Capital of the World.” As technology continues to move at an unprecedented scale, we set our sights on digital innovations as a catalyst and strategic enabler of financial inclusion.

Technology – building the gap toward greater financial inclusion

Financial Technology (FinTech) is the application of technology in financial services, in a manner that drives the transformation or disruption of traditional processes in financial system. FinTech transcends geographical barriers, enhances transparency and reduces transaction costs. Thus, FinTech presents a potent tool to expand and deepen financial inclusion.

For the Philippine banking landscape, technology has also reshaped financial services. Technology gives consumers access to their funds, anytime, anywhere, at the touch of their fingertips. Banks embrace the digital age to streamline costs, maximize efficiency of their processes and manage risks across various facets of their operations.

BSP response: enabling regulatory environment

The BSP seeks to continually build an enabling regulatory environment that allow innovations to flourish, yet still mindful that risks must be effectively managed and consumer welfare remain protected. Our ‘test and learn’ approach allows us to craft fair and proportionate regulations that promote a level playing field in the industry.

The BSP has adopted responsive regulatory framework as the market develops and evolves. We have recently issued regulations enhancing BSP oversight on Money Service Businesses (MSBs) in order to promote more effective anti-money laundering and financial integrity regime of MSBs. Banks are now allowed to use third party cash agents such as shops, retailers, stores in remote areas, as a cost-efficient service channel to deliver digital banking solutions in the low-income areas long considered as niche and unviable by bigger banks. A framework for regulating virtual currency exchanges in the Philippines is implemented to provide consumers an innovative medium to do remittances and payments while subjecting these entities to registration, minimum capital, internal controls, regulatory reports and compliance with the anti-money laundering rules and regulations. Covered institutions are also allowed to implement reduced Know-Your-Customer (KYC) rules for certain low-risk accounts and use technology for face-to-face contact requirements which facilitate frictionless customer on-boarding, a major pain point for those serving the low-income segment. 

Beyond regulatory issuances, the BSP launched in 2015 its flagship program, the National Retail Payment System (NRPS) aimed at establishing a safe, efficient, reliable, affordable and inclusive retail payment system in the Philippines. Through an effective electronic retail payment system, a “cash-lite” economy can ramp up the country’s economic competitiveness.

On the legal front, the National Payment Systems Act and New Central Bank Act have also been signed into law expanding the scope of BSP supervision to include money service businesses, credit granting businesses and payment system operators. This empowers the BSP to boost excellence in delivery of its core mandates, reinforce collaborative partnerships with key stakeholders, and execute BSP operations at par with global best practices.

Our national goal

Our overarching national goal is to enable all Filipino adults to have an account that will allow them to send or receive funds, save money, borrow capital, and get insured, among others. For a country with over 100 million people dispersed in more than 7,000 islands, this is a highly complex and daunting task which calls for national action. Thus, in 2015, the Philippines established the National Strategy for Financial Inclusion (NSFI) which sets out the strategy to optimize collective efforts towards financial inclusion in the Philippines. Key areas on policy and regulation, financial education and consumer protection, advocacy programs, and data measurement serve as elements for crafting evidence-based regulations, designing and implementing programs, and monitoring progress towards greater financial inclusion.

The Philippines has come a long way in expanding the breadth and depth of financial inclusion since the establishment of NSFI in 2015. Still, the BSP, together with partners in the government and private sectors, remains committed to making our financial inclusion goals a reality. We firmly believe that through our sustained national efforts, all Filipinos, especially those in vulnerable and marginalized sectors of our society, will have equal chances for a better life.

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Chuchi G. Fonacier is the Deputy Governor of Bangko Sentral ng Pilipinas (BSP) Financial Supervision Sector that is mainly responsible for the regulation of Banks and other BSP-Supervised Financial Institutions(BSFIs). She started her career at the BSP in 1984 as a Bank Examiner and has progressively worked her way to become Deputy Governor in 2017.  - Chuchi Fonacier